Ukraine will be told to take stock market out of the shadows
Today, only 2% of Ukrainian securities are being tendered on the open stock market, with the rest of company shares being bought and sold in the shadows. Meeting in tightly locked offices, rather than at stock exchanges, traders strike deals, without making public their true value. The market is thus hidden from the eyes of tax and law enforcement bodies. But the current situation could cause serious difficulties for Ukraine in the near future. At a session in Buenos Aires, the International Association of National Agencies for the Numeration of Securities announced that it intends to expand its listing of information, which should be openly available to investors around the world. Experts believe that Ukraine, an association member, is not yet prepared to meet these requirements, although according to all accounts this country would gain substantially by participating in the open database. Ukraine was represented in Buenos Aires by Volodymyr ULIANOV, deputy chairman of the National Depository. He gives a very simple explanation of why the association decided to expand its list of the information required about national stock markets:
“International investors are seeking interesting markets. It is they who demanded the increase in the volume of information which every national codification agency sends annually to the consolidated database. Professional market operators want to know which countries keep record of ownership rights to securities, which have been assigned an international code. Undoubtedly they are also interested in where these securities are tendered, i.e., at which stock exchange they have been listed.
“But is it not true that in Ukraine most transactions are conducted outside stock exchanges?”
“Unfortunately, it must be admitted that Ukraine is perhaps the only member of this association which, for several reasons, might not be in a position to furnish the international community with the required information. No more than 2% of our securities are listed on organized markets. In other words, the stock exchanges and off-exchange trading and information systems conduct a negligible share of real tenders. Besides, we have a very large number of entities which keep account of ownership rights to these securities, and this is a problem.
“One more, purely Ukrainian, problem is that, in fact, none of the tender organizers have an international code assigned by SWIFT. This is an international organization known around the world to all members of the banking system, in accordance with which, each of our banks has its own code. The same problem applies to the entities that track ownership rights. Most of our registers and non-bank depositories do not have a SWIFT code, while it is precisely this information that is of paramount interest to the professional operators of international financial markets.”
“Can we expect the National Depository to make any decisions to solve this problem?”
“There can be no decisions to this effect by the National Depository. In my opinion, it is only the State Commission for Securities or a relevant law that could compel the economic entities operating in the securities market to obtain SWIFT codes. From my point of view, if we want to have a civilized market that meets generally accepted standards, we must overhaul our laws and standard-setting instruments and introduce new rules for market operators. This is the requirement of international standards, not of the National Depository. Thus these questions are not within the scope of our organization.”
“Could you say more in detail who must get the codes?”
“These codes are usually assigned to markets, i.e., what in Ukraine we call tender organizers. Further, international standards envisage the assignment of codes to entities which record the ownership rights to securities. As it is, in foreign states, usually dealt with by banks, the code is called BIC (banking identification code). In this country, these codes should be assigned both to banks, that is, to depositories and other duly licensed operators. I think registers should also get codes, but this should be settled by the Securities Commission. As for the National Depository, on the basis of codification it could gather and hand over to the international community all the required information taking advantage of the software products, which we are currently using for the codification of securities.”
“Has a deadline been set for Ukraine to take its stock market out of the shadow and assign international codes to its operators?”
“Sooner that not, the association will make the final decision on this at its next meeting in the spring. The decision will name a specific date, after which it will be necessary to supply the required information. Thus our market still has time. But its regulators, above all, the state, should be considering this right now.”
