Is going on in the securities market

The struggle for power has intensified on the stock market. The bureaucrats are fighting for the power to dictate work standards to market operators. If used right, this brings money and clout. The management of the National Depository of Ukraine (NDU), which is authorized by law to set the rules of the game governing the accounting and circulation of securities, refuses to obey instructions from the Ministry of Finance, although the Depository made over 86% of shares to the ministry a month ago by decision of the State Commission for the Securities and Stock Market. Explaining its reluctance, NDU officials point out a breach of law committed during the transfer of shares. In particular, the Ministry of Finance was not put on the list of owners as the law requires. In reality, the conflict flared up after the Ministry of Finance had initiated the replacement of the NDU board of directors.

At a session on October 2, the new NDU board suspended the mandate of the current management. The same session elected Finance Ministry Deputy State Secretary Vitaly Lisovenko as new NDU chairman of the board. Mykola Shvetsov was elected acting chairman. Incidentally, he is also the board chairman of the Interregional Stock Union (ISU) depository.

On October 11 Deputy Chairman of the National Depository Volodymyr Ulianov accused the Ministry of Finance of trying to first make a power grab, including the authority to set standards for securities, and then transfer it to the commercial entities that control the Interregional Stock Union, an alternative depository. It will become clear why the commercial entities need such authority if we explain what a depository is.

A depository is a unique bank that maintains the rights of company shareholders. The board of this bank sets the standards for share accounting and the specific requirements for joint stock companies. This is real power. So it is quite clear why the ISU, as this country’s largest stock bank, is trying to establish control over the National Depository, one of the market regulators. The State Commission for Securities and the Ministry of Finance side with the ISU in this war, or at least this is the National Depository’s opinion. Asked about why the Ministry of Finance or its representatives has declared this war, Mr. Ulianov abruptly said, “By coming back to the securities market and taking control of the National Depository, the Ministry of Finance will be able to set certain standards for depository and securities document accounting. This will apply to the whole market. But I don’t know about any financial gains for the Ministry of Finance. Obviously, the ministry leadership is going to gain something from this.”

Meanwhile, Mykola Mozhovy, chairman of the State Commission for Securities and Stock Market, believes this is a banal case of National Depository managers wishing to save their own jobs. “We have elevated the whole situation to a political problem. This is just a routine problem, a problem of the market. So the market should be allowed to solve this problem on its own,” he concluded.

Yet, the market and other parties to this conflict think the problem can be solved by establishing a single depository which would function on a self-regulatory basis and set rules of the game applying to all. But nobody wants to share power. Thus if the nation’s top leadership does not intervene, this war of the bureaucrats is doomed to become the object of a new court action. This action has already been scheduled for October 24, when Kyiv’s new Industrial Tribunal will be hear the suit of the Ministry of Finance against the NDU to put a ministry representative on the list of NDU owners.