July 1, 2009

Historically, in many developed markets, market participants know that they must police themselves to promote confidence in their profession and the markets in which they operate. Many developed markets recognize SROs and the regulator delegates to the SRO some regulatory authority over its members but ultimate regulatory responsibility remains with the regulator. Ukrainian securities market professionals attended a seminar by two Senior Capital Market Specialists, Robert Strahota and Theodore Urban on the objectives of SRO’s work and international best practices.

The audience included representatives of the Ukrainian Association of Investment Business (UAIB), the Ukrainian Stock Traders Association (AUFT), the Professional Association of Registrars and Depositories (PARD), the Ukrainian Association of Administrators of Non-State Pension Funds, asset management companies, and of the Securities and Stock Market State Commission (SSMSC).

The two-day seminar on SRO best practices was set up by the USAID Capital Markets Project (CMP). In her opening remarks, CMP Chief of Party Ann Wallace reminded participants that it was their "responsibility to restore confidence in capital markets" in Ukraine by abiding by the code of conduct of SROs, and by fighting abuse in a fair and transparent manner.

The speakers covered issues ranging from market oversight and oversight of members to arbitration and disciplinary, through methods for investigating possible abuse. A special section addressed the delicate issue of how to anticipate possible conflicts of interests.

Robert Strahota emphasized the importance of self-regulatory organizations: "If you don’t keep the industry involved to keep your house in order, it makes it more difficult for the government" to regulate markets effectively.

At the closing of the seminar, Theodore Urban remarked that Ukrainian securities markets faced "many challenges" but that "progress appears to be gathering steam and momentum."

UAIB First Deputy General Director Olga Tripolska thanked the speakers for their "informative seminar", noting that "promoting, developing self-regulatory structures [in the Ukrainian market] is easier when we can take into account the experience of others". Especially in the area of surveillance and compliance, she said. "These are very timely issues that we need to implement here".

June 21, 2009

This year the Ukrainian Association of Investment Business (UAIB) dedicated its annual conference to discussing new strategies in asset management in view of the new conditions created by the economic crisis. Held in Yalta, the conference brought together representatives of asset management companies, pension and investment funds, Ukrainian regulators, the Cabinet of Ministers, as well as international experts to discuss strategies to help pull Ukrainian securities markets out of the crisis, with improving legislation and boosting liquidity high on the list of concerns. Speakers included Commissioners from the two regulators the Securities and Stock Market State Commission (SSMSC) and the State Commission for Regulation of Financial Services Markets (FSR), UAIB General Director Andriy Rybalchenko, asset managers, and USAID Capital Markets Project International Adviser John Crowley.

Deputy Chairman of the FSR Yevhen Grygorenko pledged anti-crisis measures to give capital markets an impulse over the next several years. Grigorenko pointed out that institutional investors "depend on the state of capital markets, on the one hand, but on the other hand can also be a real locomotive for developing capital markets if properly developed."

According to data presented by Mr. Grygorenko at the conference, non-bank financial institutions’ assets are held to 68% by insurance companies, 10% by credit unions and financial companies and 1% by NPFs. Grygorenko called the potential of pension funds "significant". He said that 23 out of 71 effectively operating NPFs showed losses at the close of the first quarter of 2009.

CMP Expert John Crowley shared his insight on developing new financial instruments that would help develop Ukrainian capital markets by making them more attractive to investors, in light of pending pension reform. He argued that while the implementation of pillar II would bring an influx of very much needed investment capital, the Ukrainian securities market was not yet ready to effectively absorb these funds. "It will be difficult for the pension funds to find quality investments in the volume that they will need", he said because the equity and bond markets of Ukraine are too small and illiquid to effectively and safely take in these funds at a reasonable valuation level.

John Crowley laid out proposals that are already being discussed with Ukrainian authorities on the possibility of introducing new financial instruments that would be attractive to investors. On March 25, the Cabinet of Ministers approved a resolution to develop the concept - among other ideas - of hryvnia inflation-linked securities (ILS). Such bonds could "provide considerable protection to investors against the greatest risk of investing in Ukraine, which is inflation", Crowley explained. The Capital Markets Project has provided research and structuring support to the Ministry of Finance on this issue.

June 12, 2009

The Ministry of Labor and Social Policy of Ukraine, together with the Institute of Demography and Social Researches of the Ukrainian Academy of Sciences and the Scientific Research Institute on Financial Law initiated a round table with deputies from the Verkhovna Rada and leading experts for a wide-sweeping discussion about reforming the domestic pension system in the context of the economic crisis and the introduction of the second pillar of the pension system. The 90 participants included representatives of the Cabinet of Ministers, the State Pension Fund, the Ministry of Labor, the two financial markets regulators, the Ministry of Finance, the Ministry of Economy, the World Bank, pension fund administrators associations, people’s deputies, research institutes and social scientists. USAID Capital Market Project Senior Pension Expert Natalia Goryuk also took part and the Project provided the conference with technical assistance.

Round-table speakers agreed that Ukraine’s demographic and economic situation made the need for a reform of the pension system urgent. For instance Ella Libanova, Director of the Institute for Demography and Social Researches of the Ukrainian Academy of Sciences, pointed out that the pension gap between women’s and men’s pensions will continue to grow, with a woman only receiving 67% of a man’s pensions due to her shorter working period. USAID CMP Senior Pension Expert Natalia Goryuk pointed out when implementing the second pillar the importance of increasing the retirement age and creating equal opportunities for men and women in the second pillar scheme.

While participants agreed that reforms need to be pushed through soon if the Government wants to put in place a mechanism that will ensure that future generations of pensioners will benefit from additional pension payments, opinions differed on how well the existing system is working and what the reform’s priorities should be. At present, Ukrainian law sets the framework for a three pillar pension system where the first pillar solidarity scheme managed by the State pension fund is completed by a “third pillar” voluntary accumulation system through non-state pension funds. The principle of a second pillar for retirement savings through mandatory contributions into individual accounts was adopted in 2003. However, it is still unclear how and when the second pillar should be introduced. Two bills – one on pillar II and another on amendments to the pillar III law - still need to be amended and prepared for a second reading by the Verkhovna Rada.

"It is urgent to start work [on the bills] in the Parliament", Deputy Minister of Labour Olena Garyacha said. World Bank expert Kateryna Petryna also spoke in favor of pushing reform forward. The Deputy Head of the State Commission for Regulation of Financial Services Markets (FSR) Evhen Grygorenko said amendments to the bills were necessary. He called the state of the third pillar pension market today "a caterpillar that stopped developing." Also, only 71 out of 109 officially registered funds are actually operating, he said; some funds lost their administrators and managers. However, pension assets managed by the State Pension Fund have grown slightly: from 612 million UAH to 660 million UAH in the first quarter of 2009.

All participants of the round-table supported the necessity of implementing the second pillar of the pension system. However, opinions differed mainly on how the second pillar should be set up, in particular whether the non-state pensions funds could be entrusted with the pillar II assets or not. CMP’s Natalia Goryuk emphasized that at present the Government had not made any official decision on changing the concept of the implementation of the second pillar (by directing second pillar contributions of the mandatory accumulation scheme to the third pillar immediately). The Vice President of "Kinto" Anatoliy Fedorenko and Deputy Director of the Scientific Research Institute on Financial Law Anna Nechay proposed to start with adopting a law laying out technical aspects and technological procedures that need to be put in place ahead of the introduction of the second pillar, and only afterwards to adopt a separate bill indicating the implementation date of the second pillar as well as the switching age. Natalia Goryuk pointed out that indeed it is now difficult to set the exact date when insurance contributions to the second pillar will start but if the law on the second pillar is not adopted this year then going by the prognosis of GDP growth there won’t be another opportunity before four years from now.

Deputy Finance Minister Valeriy Alyoshin proposed to initiate full session hearings at the Verkhovna Rada on the issue of introducing the second pillar of the pension system in Ukraine that would engage a large number of parliamentarians to discuss all the issues that were brought up during the round table.

June 4, 2009

A four-day seminar for the Ukrainian Securities and Stock Market State Commission (SSMSC) specialists by the U.S. Securities and Exchange Commission (U.S. SEC) speakers on the regulation of capital markets ended on Thursday with a closing ceremony where participants were presented with official certificates of completion of the course. USAID representative Kevin McCown thanked participants for their "hard work for well-regulated financial markets" that he hoped would "lead to economic growth and prosperity" for Ukraine.

The U.S. SEC sent four top specialists to share their experience: Ester Saverson Jr, Assistant Director of the SEC’s Office of International Affairs, Robert Keyes, Assistant Regional Director, SEC’s New York Regional Office, James A. Capezzuto Senior Advisor, Office of Inspections SEC’s New York Regional Office, Daniel M. Gray, Senior Counsel for Market Structure, SEC’s Division of Trading and Markets

The intensive sessions focused on investigation and enforcement of securities regulation. 50 SSMSC professionals took part, coming from both central and regional offices. The U.S. SEC representatives shared their experience in matters such as the importance of ethical standards both for the regulator and for market participants in establishing investor confidence, the regulation of investment companies, and on how to plan and manage an investigation.

A special section was devoted to the role of self-regulatory organizations assisting the state regulator in overseeing the markets. The speakers pointed out that rules are often more likely to be respected when they are worked out by the market players themselves.

SSMSC Commissioner Volodymyr Kharytskiy told the participants he hoped that they would effectively put into practice the theoretical knowledge they acquired during the seminar.

The seminar was part of the "Capital Market Development" Training Program, a joint initiative of the U.S. SEC and its Ukrainian partner SSMSC assisted by the USAID Capital Markets Project. Launched in 2008, it is aimed at improving the regulation of Ukraine's securities market and enhancing relevant legislation according to international standards and best practices of operation. The first training sessions held in June offered regulators a complete overview of capital markets regulation, including case-studies in supervision, enforcement, information disclosure and regulation. The second training held in December of last year with market professionals (SSMSC representatives but also of exchanges and broker-dealers) focused on risk management and self-regulatory organizations (SROs).

Another part of the program is hosted by the U.S. SEC: a Ukrainian delegation made up of SSMSC representatives took part for the second time in the Annual International Institute for Securities Market Development which took place in April of this year at the headquarters of the U.S. SEC in Washington, D.C.

U.S. SEC experts as well as USAID representatives and the SSMSC said they hoped the current Program would be continued.

May 28, 2009

The All-Ukrainian Securities Depository (AUSD), merging with the Interregional Securities Union (MFS) received an operating license as securities depository. USAID experts, as well as those from the World Bank, have been providing technical assistance to MFS for many years to support it in introducing international practices in clearing and settlement of securities and in establishing a single depository for Ukrainian capital markets. The news was made public during a press conference held at Interfax news agency.

May 27 the Securities and Stock Market State Commission (SSMSC) adopted a decision to grant the “All-Ukrainian Securities Depository” an operating license to provide depository services to market participants.

The AUSD received the license thanks to the initiative and the efforts of the market, SSMSC Commissioner Volodymyr Petrenko told journalists: “It’s completely natural for market participants not to have waited but to merge in order to establish their central depository.” He also remarked that “the Commission is not empowered to create a central depository, it [the Commission] has to fulfill its role as market regulator. As for the fact that market participants set up a strong depository, it’s their right.”

Borys Tymonkin, Head the MFS Supervisory Board emphasized that “the structure of the new depository guarantees a balanced representation of the interests of all participants, those of the state through the regulators, of banks, of non-bank institutions and exchanges.”

“From the start, AUSD was open to the market,” Head of the MFS/AUSD Supervisory Board Vasyl Rogovy underlined. “We count on the fact that the new single depository on the Ukrainian stock market will represent a big step in ensuring a better quality financial market in terms of investment attractivity and the actual investments made in our economy.”

The All-Ukrainian Securities Depository OJSC (AUSD) was established in April 2008 on the National Bank’s initiative supported by SSMSC. Its founders include NBU, PFTS, UICE and commercial banks (22 founders in total). NBU is the AUSD’s largest single shareholder, holding 25% (other shareholders are limited to 5%). On April 24 2009, AUSD and MFS signed an agreement on the merger.

World Bank representative Marius Vismantas supported the establishment of the new depository and congratulated AUSD for receiving the license. He said that in terms of the development of a solid capital market “a proper market infrastructure needs to be in place of which a depository is a key element” to protect the ownership rights of securities holders. That’s why, he said, “The World Bank congratulates all the developments which lead to the establishment of a strong central securities depository.”

“USAID always supported a market approach to the Ukrainian depository system and actively promoted the idea of a single, independent, privately owned depository with participation by the National Bank,” USAID representative Natalia Berezhna said, adding that “it will bring Ukraine closer toward the implementation of international standards of depository, clearing and settlement operations.”

A license from SSMSC allowing AUSD to operate as a full-fledged depository is the next step. After that, AUSD will be allowed to provide clearing and settlement of securities to market participants. MFS Head of the Management Board Mykola Shvetsov described the stages that still need to be done to complete the merger and said that the merger would be completed by August this year.

April 21, 2009

Ukraine’s broker-dealers and other industry professionals came together today to discuss a key aspect of regulating capital markets, the role and responsibilities of Self-Regulatory organizations (SROs) membership based organizations that help regulate and oversee their professional sector’s activities. The forum was organized by the Association of Stock Market Brokers (ASMB), a newly created association of broker dealers that registered with the Securities and Stock Market State Commission to receive the status of a self-regulatory organization (SRO). Participants included SSMSC Chairman Anatoliy Balyuk, SSMSC Commissioner Volodymyr Petrenko and Ukraine’s leading brokers and dealers to discuss prospects of creating a single SRO for broker dealers in Ukraine. USAID CMP experts were invited as guest speaker to share international experience on self-regulatory organizations and their interaction with market regulators and their membership.

Speaking at the ASMB forum, CMP expert David Bardsley described international practice of self-regulation as pursuing several purposes: increasing the resources of the regulator, improving professional integrity, and instilling more client and market confidence through reliable SROs. He told the audience that international standards in self-regulation are laid out by the International Organization of Securities Commissions (IOSCO), of which Ukraine is a member. Among the thirty principles laid out by IOSCO with the approval of its members, are two principles relating to SROs. David Bardsley laid out the main points covered by those principles. He reminded the audience that “SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality” when exercising their responsibilities. He also described in detail the “authority triangle”: at the top is the SSMSC which oversees the SROs, and the SROs oversee their respective area of competence. Bardsley then went on to describe the role and responsibilities of the organizations.

CMP expert, Viktor Stetsenko, gave a brief history of CMP’s advisory contributions to the regulatory issues surrounding SROs in Ukraine. A delegation of the Securities and Exchange Commission, the U.S. market watchdog, discussed SRO issues with the Ukrainian industry during a visit to Kyiv last December.

ASMB is trying to achieve the establishment of a single SRO for broker-dealers. At present, several broker-dealer SROs are already active in Ukraine today. However, none of them fulfill the criteria to become the single operating SRO. According to the Law on Securities and the Stock Market an SRO needs to unite 50% of market professionals in their sphere of activity in order to qualify as single SRO.

According to Dmytro Sapunov, Executive Director of the ASMB, the single broker dealer SRO is justified by the fact that the interests of exchanges and broker-dealers "do not always align". Quoting a white paper prepared by CMP (Report and Recommendations for Development, Operation and Regulatory Oversight of Self-Regulatory Organizations in the Ukrainian Capital Market), he said that experts consider that Ukraine can choose between three possible self-regulation models for the market, of which a single SRO is only one. CMP expert Viktor Stetsenko emphasized that it is up to the Ukrainian industry itself to decide which "way they want to go".

April 17, 2009

Ukrainian capital markets may be just a few steps away from finally receiving the many benefits offered by the establishment of a single Central Depository to provide efficient and low-cost clearing and settlement of securities. The shareholders of Ukraine’s main depository Interregional Securities Union (MFS) and the All-Ukrainian Securities Depository (AUSD), the acquiring partner, announced yesterday during a conference organized by the USAID Capital Markets project that the merger of their two entities will be finalized shortly. The merger will streamline depository activities into a powerful and reliable entity which includes private shareholders and the Ukrainian National Bank.

"The merger is almost complete", Chairman of the MFS Management Board Mykola Shvetsov said. He assured conference participants that "it is a well thought through balance where all interests are taken into account" and emphasized that AUSD will function as a "modern depository working in compliance with international standards that will make investing and trading on Ukrainian capital markets more secure, and therefore more attractive for investors". Shvetsov also pointed out that "today’s meeting shows that the creation of a single central depository is a transparent process".

The emergence of a single central securities depository will be a major step for the development of Ukrainian capital markets. Implementation of international best practices in depository, clearing and settlement operations will inspire confidence in domestic and international investors, leading to economic growth.

Conference participants included the shareholders of MFS, the shareholders of AUSD which includes the National Bank of Ukraine (NBU). Also present were representatives of the Securities and Stock Market State Commission (SSMSC), State Commission for Regulation of Financial Services Markets (FSR), and of Ukraine’s main exchanges. Also taking part were USAID experts who have been providing technical assistance to MFS, as well as experts from the Word Bank.

CMP expert on mergers and acquisitions John Crowley, who advised MFS throughout the merger process and in particular on the thorny issue of shares valuation, praised both entities for their "professionalism at every level of corporate governance", as well as their high level of transparency.

USAID has been actively promoting the idea of a single, independent, privately owned depository with participation by the National Bank. "For ten years now MFS has been demonstrating openness and transparency", USAID representative Natalia Berezhna told conference participants.

USAID has been involved in the process of creating a central depository since 1999 when a Memorandum of Understanding signed between USAID and the Government of Ukraine and the World Bank supported the creation of a private sector owned clearing depository. The memorandum limited the scope of activity of the remaining National Depository of Ukraine and called for a voluntary merging of all existing depositories with predominant ownership by the private sector. Pursuant to the MOU, USAID provided technical assistance to MFS and assisted it to become a world-class clearing and settlement depository.

SSMSC Commissioner Volodymyr Petrenko told conference participants that advancing on the depository issue was crucial to Ukrainian markets: "Without a reliable record keeping system of securities [the kind offered by a depository] we will lose all confidence of domestic and foreign investors", he said.

AUSD was established in April 2008 on the National Bank’s initiative supported by SSMSC. Its founders include NBU, PFTS and UICE exchanges and commercial banks (22 founders in total). In February-March of this year AUSD’s and MFS’ shareholders reached a principal agreement on the merger. The merger of the MFS depository with AUSD makes it possible for the National Bank of Ukraine to enter into the ownership structure with a 25% stake of the new merged entity, becoming the depository’s largest single shareholder (others are limited to 5%). According to the agreement hammered out and announced at the conference, MFS shareholders will be offered to sell their shares at 125 000 UAH/share. AUSD is also committing to an additional shares emission of approximately UAH 60 million to swap MFS shares for AUSD shares. The board will comprise representatives from NBU as a major shareholder, SSMSC, banks, non-bank financial institutions and exchanges. On April 24 the general shareholders’ assembly of AUSD will finalize the acquisition.

Natalia Berezhna assured conference participants that USAID would continue to support the merger of the two entities "so that Ukraine will at last have a depository that will protect investors’ rights in line with international best practices."

The conference was covered by Ukrainian TV, featuring a short interview with USAID CMP expert Viktor Stetsenko. To watch the news stories please click the following links
Channel One, "Business World", 04.16.2009 at 19:30
Channel One, "Business World. The Week", 04.26.2009 at 18:30
Ukrainian private broadcaster "Tonis" also covered the event.

April 9, 2009

The state and other interested parties need to communicate more consistently and effectively to the public about the need to push through pension reform to build a sustainable pension system, the participants of a top-level pension round-table agreed. The event, organized by the Government newspaper Uryadovyi Kurier, brought together representatives of the Pension Fund of Ukraine, the Ministry of Labor and Social Policy of Ukraine, Research Institute for Labor and Employment of the Public, the Federation of Ukrainian Trade Unions, as well as representatives from the USAID Capital Markets Project and USAID to discuss "Realities and Prospects of Pension Provision".

The discussions covered wide ground highlighting some current issues about assigning and re-adjusting pensions; voluntary contributions by Ukrainians employed abroad; collecting contributions to Pillar I; special pensions; retirement age and the concerns in face of a growing pension crisis.

The most immediate concern voiced during the round-table was the policy concerning rules for re-adjusting pension payments for working pensioners. At present pension for working retirees have been frozen at their 2008 level pensions being re-adjusted on the basis of 2007 wages. However, plans to review pension payments are under discussion in the Government and the Parliament. Deputy Head of Ukraine’s Pension Fund Board Viktor Kolbun pointed out, that among post-Soviet countries, Ukraine’s pensions, nevertheless, looked "honorable".

Of particular concern was the practice by large businesses of hijacking the legal status of individual entrepreneurs that are subject to simplified taxation as a way to save on social taxes, this status proposing minimal tax rates and social security including contributions to Pillar I. CMP Senior Pension Lawyer Natalia Goryuk noted that pension contributions are rather high in Ukraine. In the U.S. public pension system, a very low rate of pension contributions ensures a 42% pension-to-wage ratio, while in Ukraine the ratio of around 44-49%, which is almost the same, is ensured by 35.2% pension contributions, which is very high.

While discussing "special" pensions, the Deputy Head of the PFU Board Victor Kolbun said that only 2776 people receive special pensions that exceed maximum pension rate.

Natalia Goryuk noted that the existence of special pensions in Ukraine is not the main problem here – this does not contradict international practice. Foreign countries support army of officials - which allows them to work - and establish special pension programs for public servants. For instance, California (USA) has a big pension fund for public servants (CALPERS) whose pension asserts exceed the budgets of some countries. The fund has a good investment return and provides public servants with worthy pensions. According to the law of New York State (USA), the state pays contributions to the fund on behalf of officials for the first 10 years of their work. In Ukraine, the problem is the amounts of special pensions. This matter requires more work. The amounts of special pensions should be limited and the laws regulating assignment of such pensions should be unified.

When comparing Ukraine’s pension system to those in other countries worldwide, the roundtable participants also discussed the need to delay retirement age in Ukraine. "The retirement age issue is complicated in Ukraine. However, if we want to joint the EU, we will need to adjust our legislation with European practices including adapting the retirement age", Natalia Goryuk said. "In Europe, the lowest retirement age is 60 years for women and 62 years for men, except France (here, the retirement age is 60 for both men, and women). She noted that Ukraine had wasted and is still wasting so much time about this issue. "Along with the first version of the Draft Law on Mandatory State Pension Provision back in 1997, the Government of Ukraine submitted recommendations to the Verkhovna Rada about gradual increase of the retirement age. If the decision had been taken back then, the current situation at the PFU would obviously be quite different and we would have the retirement age increased. We are not talking about one-time increase of the retirement age was only done in Georgia. Other countries have been raising pension age gradually, too – 2, 3, or 4 times per year. The most common practice is a 6-months increase of the retirement age per year. The public has to be prepared for the issue." "We are categorically against deciding on retirement age now", Federation of Trade Unions representative Galina Goleusova objected. However, Goleusova recognized that it is necessary to "work on this issue" and to prepare public opinion because the existing system cannot handle the ratio of pensioners to workers.

The roundtable participants noted that an immediate priority in deciding on the retirement age delay was to cooperate more effectively with demography experts, economists, sociologists and researchers.

Concerning the implementation of Pillar II in Ukraine, Natalia Goryuk said that it is very important to ensure the approval of the Pillar II implementation draft law in 2009. This statement is supported by projections for GDP growth rates in Ukraine. "We all know, that the prerequisite for approving Pillar II draft law is the country’s economic growth for 2 years in a row before the draft law is adopted, which means that GDP growth rate must be at least 2% compared to the previous year. Today, this requirement is met. If the draft law is not approved in 2009, we will lose another 3-4 years since the Government does not expect a 2% GDP growth in 2009. The Ministry of Economy projects 1.7% of GDP growth for 2010. We may hope, that, under a better scenario, in the coming 2011-2012 GDP growth will reach and exceed 2%. Then, it will be possible to approve the draft law on Pillar II implementation only in 2013. Therefore, I want to stress once again, that it is extremely important not to waste time and adopt the draft law on Pillar II implementation in 2009, thereby providing for the implementation of actual payment of insurance contributions to Pillar II beginning from a later date: when our economy goes up, i.e., not earlier than January 1, 2012.

Viktor Kolbun remarked that timing was an important issue and that the reform should be pushed ahead during a period of economic upturn. USAID representative Natalia Berezhna argued that according to international experience most crisis resilient pension systems appear to be those with a mixed multi-pillar pension system. She said that for Ukraine it is therefore important to improve the legislative framework for the third pillar. The draft law that provides for amending the Law of Ukraine on Non-State Pension Provision is being prepared for the second reading by the Verkhovna Rada.

March 31, 2009

Ukrainian Deputy Minister of Labor and Social Policy Olena Haryacha bade farewell to Gary Hendricks, who headed the USAID Capital Markets Project pension department since November 2006. Meeting at CMP’s offices in Podil, Mrs. Olena Haryacha presented Mr. Hendricks with an official order of acknowledgment from Mrs. Lyudmila Denisova, Ukraine’s Minister of Labor and Social Policy.

"I hereby order", the statement reads, "to issue a commendation […] to Gary Hendricks, International Pension Expert at USAID CMP "in appreciation of international technical assistance on matters of improving the pension system of Ukraine."

Mr. Hendricks joined CMP in November 2006 to assist the Ukrainian authorities in developing a sustainable new pension system that would effectively meet the challenges posed by an ageing population and an economy transiting over to a market economy. Gary Hendricks has moved to India to lead a technical assistance project "State Pension Reforms in India".

March 30, 2009

“It is necessary to increase the number of higher quality traded securities”, Zarya told CMP’s communication team earlier this month during an interview at PFTS headquarters, sharing her assessment of PFTS’ role on Ukraine’ financial markets in the past, and in today’s turbulent times.

Throughout Eastern Europe, financial markets, and the stock market in particular have played the role of an economic development engine of sorts. In what ways has the PFTS, Ukraine’s key exchange, pushed the Ukrainian business world forward?

An association of broker-dealers was created in 1996, which in turn founded a stock exchange half a year later with the support of USAID and the KPMG-Barents Group. The PFTS brought together all active market participants. So, that’s how initially some liquidity appeared on the Ukrainian market, together with Ukraine’s first blue chips like Ukrnafta, Tsentrenergo, Dniproenergo. Until 1996 auctions were not regular. With the launch of the PFTS securities began trading on a daily basis, and market pricing came into being.

Over the years, the PFTS has played a big part in encouraging increased standards of transparency and reporting for Ukrainian companies by sending out a clear message that this is essential to trading. How successful do you feel the PFTS has been in doing this? Could you give us some examples?

140 securities were traded on the PFTS in 1997, now there are more than 850. At the same time we do understand that that it is necessary to increase the number of higher quality traded securities, meaning listed securities.

So what needs to be done so that issuers and investors may feel more comfortable?

There has to be a balance between legal, judicial and business practices. In the near future, we are expecting positive [effects] when the Joint Stock Company Law comes into force.

As a major player in the business world, the PFTS’s part in preparing the ground for after the crisis is essential: where do you see the priorities?

We are preparing for the launch of a new trading system planned in one - two months time, in spite of the quite difficult situation on financial markets when the implementation of many projects is being “frozen”. The technological base for the new trading system is provided by stock market leaders NASDAQ OMX and the MMVB Group [Moscow’s main Stock Exchange]. However, this project is important not only because of its technological aspect. The new system will increase the reliability of the clearing system, create a basis for new markets, provide exchange participants with more comfortable working conditions on the securities market. It will also allow them to reduce time and money spent on transaction settlements, to widen the client base, and to minimize risks.

Several investment bankers have said that these hard times have pushed to temporarily review their priorities. Your responsibilities have certainly not diminished due to the crisis, but do you see such a reflective effect of the crisis, and is it positive?

It’s true that we hear pessimistic prognoses about the near future of the capital market. However, one shouldn’t forget that the crisis also holds positive aspects. Not only is it important to see new opportunities, but it is also necessary to make the best of them, by climbing to a higher level, improving oneself, and becoming stronger. In the present conditions, the winner is the one who can act quickly and effectively since any crisis is eventually followed by growth. Our task is to be ready for that moment by coming out with a competitive edge and state-of-the-art technology.

February 21, 2009

Capital markets industry professionals completed a three-day training taught by Jack Barbanel, an investment specialist with twenty years of experience in emerging markets around the world and in-depth understanding of private pension fund operations, securities and the regulatory environment in Central and Eastern Europe.

Based in Moscow where he advises foreign investors, Barbanel came to Kyiv last week to share his knowledge with asset managers and experts from Ukrainian Government and regulatory institutions. Organized jointly by the USAID Capital Markets Project and the Ukrainian Association of Investment Business (UAIB), the training offered asset managers a chance to hear outside experience and analyses. After an opening word by the UAIB Head Dmitry Leonov who pointed out that professionalism is tested during times of crisis, Barbanel took the floor.

His course covered number of aspects of the investment business: general principles like the importance of transparency and compliance in gaining investors’ trust, and the role of a depository or custodian in securing clients’ assets, as well as how best to organize an asset management company from an HR perspective. Two whole days were then dedicated to core of the trade, the actual business of asset valuation, constructing an investment portfolio in good and in bad times. Barbanel reminded his audience that that most clients are not high risk takers and expect their asset manager to protect their portfolio and not to lose money.

The financial crisis was of course on everyone’s mind. Barbanel stressed the importance of trust in the client-asset manager relationship. "Be honest. If you’ve had a bad year, explain why but don’t hide it. It can happen to everyone. But you have to be clear about it to potential clients". When Barbanel went over financial theory basics and analyzed investment choices and strategies, the audience buzzed with questions. – "And during a crisis? What instruments do we invested in?" one manager asked. Drawing spreads and graphs to make his point, Barbanel explained that during an economic crisis, investments first move out of stocks, then shy away from bonds due to a higher inflationary risk, and move "into gold and cash". – "And how can you estimate when is a good moment to move back into stocks?", another participant wanted to know. – "Personally, I follow the index of gold very closely, and wait for it to go under a certain price", Barbanel answered, willingly sharing his insight.

During a coffee break, one market analyst remarked that the crisis actually gave him the opportunity to improve his skills through such trainings that he otherwise wouldn’t have time to attend. "When things are busy, you don’t always have time to take a step back. So when business is down, it’s the right time to learn." So despite discouraging figures for Eastern European markets, the mood was still relatively upbeat. "Remember that foreign investors come to emerging markets like Ukraine not for a quick fix but to study the market", Barbanel concluded.

February 17, 2009

"What the investment community can do to make the best out of hard times" is the keynote sounding in most of the presentations made at a conference organized by the Ukrainian Association of Investment Businesses (UAIB) on "asset management in a crisis environment". Regulators, investment bankers, pension fund representatives, and even PR experts shared their experience and thoughts on how best to weather the economic crisis in Ukraine. UAIB Head Dmytro Leonov opened the conference stressing that "the market should use the opportunity to work more in the interest of the investors" than previously. Securities and Stock Market State Commissioner Serhiy Biriuk called on asset managers "to try to develop new sound financial instruments and work together to prepare the ground for the upward curve."

Pension industry speakers representing the regulatory authorities and the funds observed that many experts believe that it is essential for the industry to work together if the Ukrainian pension sector is to be ready to introduce Pillar II funded pensions within next few years.

USAID Capital Markets Project was represented by two market experts John Crowley and Jack Barbanel. Crowley shared his sobering analysis that while in the United States "the crisis is over and now we just have hard times", in Ukraine indicators show that the situation may still get worse. To make his point, Crowley compared spreads of short-term interest rates - which reflect not only borrowing rates but also confidence - on the London and Kyiv markets. While the London Interbank offered rate (LIBOR) has been gradually stabilizing since December, the Kyiv Interbank Offer Rate (KIBOR) still reaches peaks of 58%, reflecting inflation and a continuing crisis, he said.

Jack Barbanel, a USAID CMP expert with twenty years of experience in Eastern European markets, stressed the role of disclosure during a crisis when investors are particularly intent on limiting their risks. "It is important to understand that companies need to disclose not only that what is required by Ukrainian law" he said "but to disclose everything that an investor expects to know about a company, all that is important for him to know and that may impact the value of shares." Transparency therefore concerns not only quantitative "book-keeping" indicators but also information about a listed company’s management thinking and policy, he said. A recent incident involving computer and software producer Apple illustrates how seriously markets take this type of information, he said. Apple currently faces a review by the US Securities and Exchange Commission to investigate if the information given to investors about influential CEO Steve Jobs's serious health problems did not mislead investors.

February 6, 2009

The International Pension Newsletter will report on the latest developments worldwide for industry professionals in Ukraine. Launched this month by USAID Capital Markets Project’s pension and communication teams, the publication aims to make information about pension markets, reform, and trends more fully and easily accessible to local readers.

"International experience is especially valuable now, when funds, administrators, regulators, and central government bodies are all searching for ways to minimize the consequences of the crisis", points out Natalya Goryuk, CMP’s Senior Pension Lawyer. In fact, the idea of a regular publication on pension news was born out of the many requests to CMP’s advisors for information about other countries’ experience with pension reform. In this pilot publication, the International Pension Newsletter focuses on how governments worldwide are getting ready to raise retirement age in order to relieve pressure on social security systems affected by both demographic and financial factors. Responding to the interest in the new U.S. administration, a special section gives an overview of President Barack Obama’s retirement security plan. This first issue also looks at various innovative approaches that governments in Europe are working out to stem the effects of today’s recession on future retirement savings. Gary Hendricks, Head of CMP’s Pension Reform Department points out: "This is our chance to share some of the information we are often asked about by individual government institutions with a wider audience."

The newsletter will be issued on a monthly basis and can be accessed through the Public Outreach Section of CMP’s page menu bar. Directly at - http://www.capitalmarkets.kiev.ua/structure/pr_en.php .