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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

National Depository or Registry of Monopolies?

19 January, 1999 - 00:00

Stock market's future depends on answer

By Vitaly KNIAZHANSKY, The Day
To a considerable extent Ukraine has turned into a nation of shareholders,
but very few of our citizens, who consider themselves shareholders, can
imagine just how complicated registering stock is.

The stock market, where something like a Brownian motion of shares constantly
goes on, is a unique indicator of business activity in our society and
of certain enterprises and industrial sectors. Shares are sold and resold,
passing through many hands. And world experience knows numerous cases where
swindlers used this perpetual motion to their advantage. To prevent this
from happening there are special institutions abroad, depositories and
registrars, which legally register shareholders and the quantity of shares
they own; and also record transfers from one shareholder to another.

Something similar is being set up in Ukraine. They have also established
the Professional Association of Registrars and Depositories (PARD) uniting
structures independent from the state. However, it is understandable that
the state cannot remain totally aloof from this process. Now the work on
forming the open stock company National Depository of Ukraine is being
developed. The National Bank of Ukraine and the State Committee on Securities
and the Financial Market (SCSFM) will be its cofounders. The NBU intends
to hand over to the company's authorization fund property totaling Hr 400,000,
while the State Committee hopes to attract Hr 4.5 million from the state
budget to cover its share in the authorization fund. This way the state
will have a 90% share of National Depository stock.

Potential non-state participants of the National Depository, represented
by PARD, also participate in the work of the organizing committee to set
up the National Depository.

However, at a recent PARD conference anxiety was expressed regarding
the further distribution of functions between state and private depositories.
It is stated in its founding documents that the National Depository will
concentrate its attention on questions of procedural standardization in
the national depository system, codification of stock issues, and oversight
of international correspondent relations in this sphere. The Depository's
constitutive documents also stipulate functions, peculiar to such self-governing
organizations as registrars.

PARD president Petro Hordiyenko told The Day that this causes
much anxiety among his association's members. All the more, according to
the SCSFM explanations, the National Depository of Ukraine open stock company
will be subject to the law On Economic Societies only until its state registration.
Then it will guided by the state committee's decisions. Its decision No.
157, registered in the Ministry of Justice on November 26, is the evidence
of what this could bring. This decision grants the National Depository
exclusive right to close deals with other countries' depository establishments
on the sale, serving, and placing abroad of stock from Ukrainian issuers
as well as of American and global depository receipts. Noting that such
stock papers of some Ukrainian issuers such as Ukrrichflot (Ukrainian River
Fleet), Ukrnafta (Ukrainian Oil), and others, which are presently distributed
abroad by independent commercial structures, this could not help but raise
suspicions that SCSFM wants to monopolize the stock market.

COMMENTARY

Commenting on the current situation, the stock department head of Zeus
Commercial Bank Oleksandr Ivantsov stated that according to most market
participants, the Interregional Stock Union Depository successfully fulfills
the functions of the top link of the national depository system, which
is quite effective because of it. According to him, forming the National
Depository of Ukraine will not have any influence upon solving the main
questions such as the clearing functions of the system, adopting the needed
norms and rules, and filling the system with depository assets. Only 3000
of Ukraine's 12,000 joint stock companies have chosen the documentless
(paperless) form of stock issuance. Because of this, Ivantsov is certain
that the National Depository will have no significant influence on the
development of Ukraine's stock market. At the same time, the SCSFM decision
that after registration the National Depository will not be guided by the
law On Economic Societies could considerably influence foreign partners'
opinions of its legitimacy.

 

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