On 31 May 2017, the National Bank of Ukraine hosted the final meeting of the working group established to draft a concept for the development of the capital market’s clearing and settlement infrastructure. Representatives of the NBU, National Securities and Stock Market Commission, Ukraine’s National Depositary, Settlement Center and experts from the EBRD and Oliver Wyman consulting firm took part in the meeting. The meeting was also attended by representatives of the largest stock exchanges and associations of professional stock market participants.
The Project Working Group embarked on efforts to develop a target model of the capital market infrastructure in late 2016. During this meeting, the participants discussed the final version of the target model, a plan as well as areas for restructuring to achieve this model and set up teams responsible for each area.
The clearing and settlement infrastructure will be developed further by the Central Depository established through the consolidation of the depositories of the NBU and Ukraine’s National Depositary. The clearing infrastructure will be developed in line with international standards, in particular the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR) and the Principles for Financial Market Infrastructures (PFMI IOSCO).
The meeting participants identified implementation of a reliable clearing facility that will meet international requirements, including risk management requirements, as one of the most important areas for the development of the market. The Central Counterparty Institution can be established by restructuring the Settlement Center, as well as through the establishment of a new entity by market participants on a competitive basis.
Under this concept, clearing activities cannot be combined with other types of activities, in particular the handling of cash settlements of transactions or banking business. In addition, a statutory monopoly on clearing services will be abolished to open the domestic market for foreign clearing companies.
Head of the National Securities and Stock Market Commission Tymur Khromaiev underlined the importance of upgrading IT technologies deployed by the Central Depository. Mr Khromaiev said that the NBU and the National Securities and Stock Market Commission would promote the efficiency of Ukraine’s National Depositary and the Settlement Center in an effort to encourage strategic investors to become shareholders.
The meeting participants discussed the prospects for placing securities kept in custody by the NBU under the custody of Ukraine’s National Depositary as the Central Depository. Representatives of Ukraine’s National Depositary confirmed that efforts are underway to select a vendor to acquire software capable of building an efficient model of the financial market’s clearing and settlement infrastructure and enabling the future transfer of government securities from the NBU under the custody of Ukraine’s National Depositary.
“Ukraine’s National Depositary is involved in efforts to overhaul the facilities seeking to launch an upgraded reserve data processing center by the end of 2017, which will enhance the protection of information on property rights within the depository record-keeping system,” said Chairman of the Managing Board of Ukraine’s National Depositary PJSC Mindaugas Bakas.
NBU Deputy Governor Oleg Churiy underlined that ensuring the integration of the domestic depository system with the infrastructure of global financial markets is one of the key prerequisites for the consolidation of the stock market infrastructure and ensuring sustainable development of the market. This opens a simple and transparent way Ukraine to attract foreign investment and can become a strong impetus for the development of Ukraine’s capital markets.
Following the implementation of reforms, the adoption of best corporate governance practices in the central elements of the infrastucture is essential for the infrastructure development. In particular, the participants concurred on the need for the financial market regulators to gradually reduce their stake in the equity capital of these legal entities. The target model aims to encourage strategic investors, local and foreign market participants to become shareholders in these companies.
Wrapping up the meeting, Mr Tymur Khromaiev said that building on the recommendations provided by experts from Oliver Wyman, the National Securities and Stock Market Commission and the NBU intend to sign a Memorandum of Cooperation on the development of Ukraine’s capital market infrastructure. The Memorandum will entrench the agreements reached and the core principles underlying the settlement and clearing infrastructure reform.
This concept will be taken as a basis for a new draft law designed to bring applicable legislation into line with international standards. This draft law will be developed during the second phase of the EBRD's technical assistance programme.