The European Bank for Reconstruction and Development (EBRD) is seeking a strategic partner with experience in organizing and facilitating trading on capital markets to assist Ukraine in enhancing its capital market infrastructure and attracting more investors and funding as a result, reported Ruslan Magomedov, Chairman of the National Securities and Stock Market Commission of Ukraine (NSSMC).
"We are very interested in this idea and take it seriously, to establish a holding in which the state will provide shares in the National Depository of Ukraine (NDU) and in the Clearing Center (CC), the National Bank will transfer the accounting of government bonds to the National Depository, and the EBRD and their partner will create an exchange," - he said in an interview with the Interfax-Ukraine agency.
"And all of this will belong to the state in different forms: the Securities Commission, the Ministry of Finance, the National Bank, state banks, and so on," - Magomedov added.
According to him, this idea is currently at the discussion and "initial approximation" stage, and the commission will develop it further. Among the possible questions are who will have control and what it will look like: 75% + 1 or 50% + 1. If there is consensus at all levels, it could work, the head of the regulator added.
"We understand that perhaps the best model is when everything is based on business, that is, without the state. But since it is obviously not a highly profitable area right now, the state needs to provide this push," - he explained the necessity of involving the state in this project.
In his opinion, it will be much easier to create a new exchange with the participation of the EBRD and an international partner than to attract one of the already operating private stock exchanges in Ukraine - PFTS or "Perspektiva," to the holding.
At the same time, Magomedov clarified that this issue is more for the partners. "If they are satisfied with the existing exchange, I am 'for,' and the commission is 'for,' but in 'my simple mind,' it is much easier to create a new exchange," - he said.
The head of the NSSMC also believes that this future holding could expand its activities to the organized commodity market. This would speed up its path to profitability, as there are tradeable commodities in Ukraine's commodity markets, including natural resources.
However, Magomedov added that this option is not currently being considered, partly due to the National Bank's doctrine of not engaging in areas outside its responsibilities, although the Clearing Center could easily "clear" obligations on commodity exchanges.
"The NBU is currently the foundation of reliability and trust in the clearing organization. When the EBRD enters with a respected player, then it will be a comparable entity to the National Bank, which the market will be able to trust," - the head of the NSSMC also noted.
In the updated memorandum on economic and financial policy under the EFF program prepared by the Ukrainian side in June 2024, it was indicated that the NSSMC, the National Bank, and the Ministry of Finance, in consultation with the IMF and other international financial institutions (IFIs), proposed priority measures to improve the capital market infrastructure. At the first stage, the NSSMC approved an NBU resolution that allowed the National Bank to expand its existing link with Clearstream to facilitate foreign capital access to municipal bonds and other debt instruments related to Ukraine's recovery.
At the second stage, the state-controlled NDU and NBU, with technical assistance from the IMF, will aim to establish a direct link between the NDU and foreign central depositaries by the end of July 2025, to broaden access for foreign investors to a wider range of instruments and markets. By the end of August 2024, the NBU, NSSMC, and Ministry of Finance were expected to propose further measures aimed at improving the capital market infrastructure.
There was also talk that the Ukrainian authorities are considering the creation of a new stock exchange to ensure the continued smooth functioning of the secondary market for government bonds, as the PFTS exchange (Kyiv) is insufficiently capitalized and its owner has confirmed that they will not inject new capital.
"Capital of approximately $0.5 million will be partially provided by state banks (30%), with the remainder from private sources, including IFIs," - the document released on the IMF's website stated.
It was expected that an announcement regarding the plans to create a new exchange could be made as early as August 2024; however, this did not happen, and the NSSMC allowed the PFTS until February 28, 2025, to meet the liquidity requirement. However, the new exchange was never established, and the PFTS did meet the liquidity requirement.
Following another update in December 2024, the program with the IMF noted that the NBU, NSSMC, and Ministry of Finance, in consultations with IFIs, planned to develop a target model for capital market infrastructure by the end of December 2024, which would involve attracting foreign investors. It was noted that the NBU and NSSMC, along with the NDU, would continue working on establishing a direct link between the NDU and foreign central securities depositaries by the end of July 2025, to broaden access for foreign investors to a wider range of instruments and markets.
"To reduce risks for the functioning of the secondary bond market, the NBU and NSSMC coordinated actions to facilitate the launch of services by the Clearing Center (central counterparty, majority stake owned by the NBU) for the conclusion of contracts and clearing of OTC transactions with government bonds," - the document stated.
In addition to the PFTS, another licensed exchange operates in the Ukrainian capital market - "Perspektiva" (Dnipro). Unlike the NDU and the "Clearing Center for Financial Market Contracts" (CC, both in Kyiv), both exchanges are private.