Round Table "Ukrainian Capital Market Reform: NSSMC Agenda 2016"


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On December 23, the Chamber held the round table discussion Ukrainian Capital Market Reform: NSSMC Agenda 2016" with representatives of the National Securities and Stock Market Commission (NSSMC), National Bank of Ukraine (NBU), National Depository of Ukraine, Chamber member companies and professional stock market participants. The event attracted considerable interest and gathered about 80 market participants for open and detailed discussion.

Mr. Dmitry Tarabakin, NSSMC Member, opening the debate, said that among the main directions of NSSMC in 2015 were cleaning the market from so-called "junk" (toxic) securities.

"This year we managed to complete several priorities, among which were, first of all "cleaning-up" of the market by stopping circulation of fictitious securities. Over the past 18 months at the stock exchanges were artificially created securities in the amount worth 500 billion USD, which were placed in banks and insurance companies. We managed to stop the circulation of shares of about 100 issuers, unfortunately, only 20 of them were listed fictitious, "- said Mr. Dmitry Tarabakin.

Mr. Oleksandr Petrashko, President of AUFT (self-regulatory organization of professional stock market participants Association "Ukrainian Stock Traders") joined with the representative of the regulator in the debate: "The Commission must act in a way that the opponent wouldn’t have even thoughts about the court appeal of the Regulator’s decisions, this mean to act in  solely legal framework. Regarding NSSMC initiatives to expand the powers of the regulator, so I’d like to express the surprise that is often heard from professional participants: the Commission even now has a wide range of powers, which is not fully implemented. It can be necessary to deal first with the current powers, and then ask for expanded regulatory powers"

Next Mr. Dmitry Tarabakin said that it was also brought to the working condition the legislation  that regulate the processes of listing,  determination of the exchange rate and the prudential supervision: "In these matters we have made some progress. On January 1, 2016 new rules will come to effect "Regulation on prudential norms of professional activities on the stock market and requirements for risk management", approved by the NSSMC Decision #1597 dated October 1, 2015, as well as changes to the "Regulations on the functioning of stock exchanges, establishing requirements for listing and market makers".

In addition, he announced the beginning of the process of consolidation of the stock exchanges, which will make it possible to restart “very important, but, unfortunately, not liquid market for government bonds in Ukraine, and then also corporate bond market." Mr. Tarabakin also noted that the consolidation process expected to be completed by the end of next year.

The next step should be so called in NSSMC - project "to buy Apple», which provides Ukrainians with the allowance to buy securities of foreign issuers. A memorandum with IOSCO will help introduce international standards and will enable the launch of new financial instruments. That, in turn, would not be possible without judicial reform and investor rights protection.

"Next year we have great plans, but we cannot promise bright prospects of business" - summed Mr. Dmitry Tarabakin.

Mr. Yuri Butsa, NSSMC Member, informed the businesses that Draft Law #3498 "On Amendments to Certain Legislative Acts of Ukraine (regarding the regulated markets and derivatives)" dated November 20, 2015 is registered in Parliament and should be voted in the first reading.

"We believe that adoption of this law will create a base for both for OTC and exchanges derivatives", - said Yuri Butsa.

Regarding public offerings, the view of the real situation (minimum free float, the lack of corporate governance, and other well-known problems) - continues Yuri Butsa - the Commission has decided to move step by step "changes that come from May 1, 2016 will enable most stock companies reorganize in private. A draft law on the squeeze out, sell out to address the issue of small minority shareholders. Also the Draft Law will resolve the "sleeping shareholders" issue. The prospect of emission also will me adopted to the international standard and norms. However, activation of the public offerings should not be expected in in the near future".

Chairman of the Board of the National Depository of Ukraine Mr. Roman Sulzhyk spoke quite categorically: "Both regulators shouldn’t be doing anything quietly, but try to make themselves unnecessary. For example, to allow in country to work directly with banks and brokers regulated in Europe. You must also state a clear goal, for example - this year to attract foreign investments 10 billion $ and to remove most of the barriers to achieve this number"

Mr. Oleg Churiy, Deputy Chairman of the National Bank of Ukraine, presented an overview of what NBU has made for the development of the capital market in 2015, the year "We simplified all procedural issues - introduced a general agreement to accelerate procedures of refinancing loans in two days, we have taken a number of measures to reduce the credit risk when providing refinancing loans. Soon will be introduced rollover system and the replacement of collateral ".  Also, Mr. Oleg Churiy told that recently launched the practice of exchange auctions of government bonds and plans to launch the exchange repo transactions.​
Please click here to view the Presentation (in Ukrainian). 

During the discussion with the representatives of the market, it was determined that under the registered Draft Law #3498 derivatives clearly distinguished from other financial instruments; defined legal concepts that are currently missing in Ukrainian law (netting, escrow funds, general agreement, qualified and unqualified investor, etc.); clarified some insufficiently regulated legal concepts (language of the contract, "single agreement", encumbrance of rights on securities and cash,  clearing, etc.). Mr. Dmitry Orendarets, Counsel, law firm Redcliffe Partners: «Today more than ever we are close to the adoption of the derivatives law".

Please click here to view the Presentation (in Ukrainian). 

In addition, market participants suggested amendments to the Draft Law #3498, in particular, the concept of "outright transfer" (transfer of provision (financial pledge) rights), "condition precedent" (precondition), "representation" (statement); creating an effective mechanism to protect the rights of the mortgagee shares; mitigation of currency regulation; review certain provisions on the rights of the burden on cash; Expand provisions that overlap with current legislation on banking secrecy; develop typical general agreement, which would be approved by the regulator.

Significant changes in the last half of the year held in the depository system and in particular the National Depository of Ukraine, which were presented by Mr. Gennadiy Zhurov, Chairman of the National Depository of Ukraine. "A complete reorganization of the NDU, optimized staff and operating costs, initiated personnel policy and security that meets international safety standards, restored more than 90% of documents which were destroyed in a fire at the House of Trade Unions, highlighted client management in a separate unit to improve customer service, all units combined into one office space, updated technology base, and more - said Mr. Gennady Zhurov. – “We should highlight the modernization of existing software and new software principles. With NDU Board Members it’s conducted the work on upgrading the minimum number of positions for modernizations. To develop terms for a new software information processing system of the Central Depository working groups are created that bring together professional and participants, regulators, and other stakeholders. But I want to emphasize that this process could not be completed without a clear and coordinated control concept for future infrastructure depository system."

Current conditions with use of promissory notes in Ukrainian were presented by Ms. Natalia Tihovsky, First Vice President, Head of factoring and promissory notes, Unicredit: «Promissory notes market is needed. This confirms demand – in agri sector in 2015 was issued promissory notes in the amount of 4.5 billion USD. The level of default on payment obligations undertakings promissory notes - is negligible. And even all promissory notes issues in ATO zone, issued in 2013 were paid in full amount by the drawer, despite the complexity of the situation. However, for development of this tool, it is necessary first of all to ensure the protection of creditors' rights and support the development of its turnover in other market segments"

Discussing the prospects for pension reform and state asset management sector, the participants agreed that today Ukrainians should form their own retirement savings, but actually they do not have the appropriate resources. Most of the major issues of corporate bonds in the last 5-6 years have ended in default. Municipal debt issues - are under massively restructuring. Recent legislative changes actually derive from the portfolios of investment funds the shares Ukrainian enterprises, significantly devaluing them. Laconic statement to regulators "to face investor", formulated by Mr. Gregory Ovcharenko, Chairman of the Board OTP Capital was vigorously supported by the participants of the round table. "We talk a lot about regulation, the development tools. In fact, you forget the investor who wants to invest today. And here I question arises: why we are allowed to buy iPhone, and not allowed to earn dividends from Apple?".

Please click here to view the Presentation (in Ukrainian). 

While discussing the prospects of clearing the market from so-called "junk" securities important comments were made by Mr. Oleg Lyhovyd, Head of the Committee of Entrepreneurs at the  Financial Services Market and Social Responsibility, Chamber of Commerce of Ukraine: "This is not the first "cleaning-up" in the history of the Ukrainian stock market. Such "cleaning-up" are held every 3-4 years and will take place in the future, if not resolved the root cause, which creates demand for "toxit" securities. So I call the regulators, and professional participants to formulate proposals on what should be change to eliminate this demand".

Mr. Konstantin Stetsenko, Managing Partner ICU, summarized the discussions certain outcome: "I propose to schedule the next meeting in January and devote its discussion on initiatives NSSMC n plans to fund its activities from market participants. Because under these conditions market participants would like to have more opportunities to participate in determining the priorities of the market and in development of the regulation".

In conclusion, the moderator of the round table Ms. Olena Voloshina, Head of the International Finance Corporation (IFC) in Ukraine, said that the results of the roundtable Chamber will be formalize in specific legislative proposals, and in regards of developments of legislation on corporate bonds, approaches and sources of funding of the NSSNC and other regulatory initiatives the Chamber members  proposed their expertise and thematic meetings in order to continue the dialogue in 2016.