corporate securities corporate securities marketmarket’’s infrastructures infrastructure
ViewView throughthrough thethe prismprism ofof thetheNewNew RecommendationsRecommendations
ofof GroupGroup ofof ThirtyThirty..
Group of Thirty’s 1st recommendation:
Even though more then 236 million shares or Even though more then 236 million shares or about 16 percent of all corporate securities are issued about 16 percent of all corporate securities are issued in a paper form, there are very good opportunities for in a paper form, there are very good opportunities for dematerialization and provision full electronic dematerialization and provision full electronic documents turnover among Uzbekistan securities documents turnover among Uzbekistan securities marketmarket’’s participants. s participants.
From the August 2002 most of documents among From the August 2002 most of documents among stock exchange, clearing house, central depository stock exchange, clearing house, central depository and custodians have been circulated in electronic and custodians have been circulated in electronic form. About one hundred brokers and thirty registrars form. About one hundred brokers and thirty registrars should join this network to ensure full electronic should join this network to ensure full electronic documents turnover among professional participants. documents turnover among professional participants.
New Law New Law ““On electronic documentation On electronic documentation turnoverturnover””, was approved by the Parliament of , was approved by the Parliament of Uzbekistan that established legal fundament for Uzbekistan that established legal fundament for electronic document turnover. electronic document turnover.
Eliminate paper and automate communication, data capture, and enrichment.
33.0
14.7
127.8
22.8
272.8
51.9
308.5
52.9
456.9
66.9
843.4
118.6
992.3
117.8
1209.0
204.9
1242.8
236.8
0
200
400
600
800
1000
1200
1400
1600
1995 1996 1997 1998 1999 2000 2001 2002 2003
Dynamic of securities issuance Dynamic of securities issuance in cash and ein cash and e--form (in millions of shares)form (in millions of shares)
DDevelopment of software compatibleness is one evelopment of software compatibleness is one of the most topical issues in the activity of the of the most topical issues in the activity of the securities market institutionssecurities market institutions’’ in Uzbekistan. in Uzbekistan.
We are on the early stages of implementing ISO We are on the early stages of implementing ISO standards. However, perspective exploring of IPstandards. However, perspective exploring of IP––protocols and extensible markprotocols and extensible mark--up language are very up language are very possible, because main institutions already have web possible, because main institutions already have web sites, there are qualified personnel able to explore sites, there are qualified personnel able to explore such advanced technologies. such advanced technologies.
Probably Uzbekistan securities market may Probably Uzbekistan securities market may need some technical assistance to organize this need some technical assistance to organize this process at appropriate level.process at appropriate level.
Group of Thirty’s 2nd recommendation:
Harmonize messaging standards and communication protocols.
www.uzsecurities.comwww.uzsecurities.comwww.uzsecurities.com www.spc.gov.uzwww.spc.gov.uzwww.spc.gov.uz
www.deponet.uzwww.deponet.uzwww.deponet.uz
New site New site www.uzsecurities.comwww.uzsecurities.com was launched was launched by regulatory body in September 2003. by regulatory body in September 2003.
This site contains actual information about This site contains actual information about current developments on securities market and will be current developments on securities market and will be a part of mechanism that ensures informational rights a part of mechanism that ensures informational rights of investors. The Law of investors. The Law ““On protection of investors On protection of investors rights on securities marketrights on securities market””, rules of information , rules of information disclosure and Government resolutions on the disclosure and Government resolutions on the development of corporate governance contain the the development of corporate governance contain the the requirements to issuers, professional participants and requirements to issuers, professional participants and other related institutions to disclosure:other related institutions to disclosure:-- information about essential events;information about essential events;-- information about affiliated bodies;information about affiliated bodies;-- quarterly reports of executivesquarterly reports of executives’’ activity;activity;-- quarterly and yearly financial reports.quarterly and yearly financial reports.
Group of Thirty’s 3rd recommendation:
Develop and implement reference data standards.
JointJoint--stock companies number’s dynamic stock companies number’s dynamic in 1995in 1995--20042004
1985
3356
4215
48054469
41864555 4654 4716
4305
0
1000
2000
3000
4000
5000
600019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
MMain restrictions on national currency conversion ain restrictions on national currency conversion were removed in forth quarter of 2003. However, were removed in forth quarter of 2003. However, there are still a lot of work to be done in the sphere of there are still a lot of work to be done in the sphere of harmonization of national and international financial harmonization of national and international financial markets, so as among national securities and bank markets, so as among national securities and bank system. Briefly, we can underline several issues that system. Briefly, we can underline several issues that have first priority:have first priority:-- developing the regulatory framework for developing the regulatory framework for
conversion operations for foreign investors on conversion operations for foreign investors on national securities market;national securities market;-- creating regulations of crosscreating regulations of cross--border securities border securities
transfers;transfers;-- establishing of crossestablishing of cross--border linkages with foreign border linkages with foreign
depositories;depositories;-- providing right for Central depository and second providing right for Central depository and second
level depositories to manage clientlevel depositories to manage client’’s cash accounts.s cash accounts.
Group of Thirty’s 4th recommendation:
Synchronize timing between different clearing and settlement systems and associated payment and foreign exchange systems.
1,993,600
131 878 52,702168,600
211,400 217,600
1,717,401
1,634,271
1,617,060
1,561,206
844,038815,309804,800
609,639590,773
1,943,780
1,931,150
1,902,188
1,754,444
1,228,509
0
500,000
1,000,000
1,500,000
2,000,000
2,500,0001/
1/19
95
1/1/
1996
1/1/
1997
1/1/
1998
1/1/
1999
1/1/
2000
4/1/
2000
7/1/
2000
10/1
/200
0
1/1/
2001
4/1/
2001
7/1/
2001
10/1
/200
1
1/1/
2002
4/1/
2002
7/1/
2002
10/1
/200
2
/01/
2003
4/1/
2003
7/1/
2003
1/1/
2004
Dynamic of corporate securities issuancein 1995-2004 (in million Uzbek sums as face value)
Currently more then ten institutions could be Currently more then ten institutions could be involved in one securities buying operation.involved in one securities buying operation.
ImplementingImplementing ofof CentralCentral CounterpartyCounterparty basedbased ononCentralCentral DepositoryDepository andand wideningwidening itsits functionsfunctions bybyLawLaw, , cancan ensureensure furtherfurther developmentdevelopment inin allall spheresspheres ofofinfrastructureinfrastructure functioningfunctioning. .
Group of Thirty’s from 5th to 8th recommendation:
Automate and standardize institutional trade matching.Expand the use of central counterparties.Permit securities lending and borrowing to expedite settlement.Automate and standardize asset servicing processes, including corporate actions, tax relief arrangements, and restrictions on foreign ownership.
Clearing House
Central Depository
Investor
Broker-Buyer
Share owner
Broker-Seller
Stock Exchange
1
8
14
73
10
418
2
185
1112
16
17
14
176
15
9 13
12
Bank servicing to Share owner
Bank servicing to Investor
Registrar
2
Bank servicing to Clearing House
2
1414Bank servicing
to 2nd level depository
Bank servicing to Broker-Buyer
Bank servicing to Broker-Seller
14
14
Bank servicing to Central
Depository
14
Bank servicing to Stock Exchange
19
Approximite operational procedure Approximite operational procedure of institutional trade of institutional trade
ProvisionsProvisions ofof financialfinancial integrityintegrity, , disclosuredisclosure andandriskrisk managementmanagement areare alwaysalways keptkept anan eyeeye byby UzbekUzbeksecuritiessecurities marketmarket’’ss expertsexperts. .
We developed the following evaluation table We developed the following evaluation table to demonstrate you current situation in this field. to demonstrate you current situation in this field.
Group of Thirty’s 9th and 10th recommendation:
Ensure the financial integrity of providers of clearing and settlement services.Reinforce the risk management practices of users of clearing andsettlement service providers.
EVALUATION CRITERION POINTSInformation disclosure (100%) 4 from 4Quarterly reports yesYearly reports yesCurrent events disclosure yesCorporate Internet-site yesRisk monitoring and control (75%) 3 from 4
yesLegal counselorsExternal auditors yesIndependent internal audit and risk management department yes
noWell developed regulations on risk management proceduresRequirements to participants (25%) 1 from 4General requirements on participant’s own assets value yesAudited financial reports noParticipant’s financial integrity requirements noParticipant’s financial liquidity requirements noParticipant due diligence (25%) 1 from 4State registration and professional qualification yes
Investigation of participant’s financial history noRequest for references noInvestigation of participant’s personnel professional history noTOTAL ( 56%) 9 from 16
Ensure final, simultaneous transfer and availability of assets.
DeliveryDelivery versusversus paymentpayment asas a a basicbasic principleprinciple ofofclearingclearing proceduresprocedures waswas acceptedaccepted inin ourour practicepracticefromfrom 1998, 1998, whenwhen ClearingClearing HouseHouse waswas establishedestablished asasanan independentindependent securitiessecurities marketmarket institutioninstitution. .
Current mechanism is very stable Current mechanism is very stable -- there were there were no any serious occasions of unno any serious occasions of un--delivered or undelivered or un--paid paid securities. However, it will not be compatible with securities. However, it will not be compatible with an active secondary market trading.an active secondary market trading.
Group of Thirty’s 11th recommendation:
““TashkentTashkent”” Republican Republican Stock ExchangeStock Exchange
CustodiansCustodians
Buyer Seller
““ElsisElsis--ClearingClearing””Clearing HouseClearing House
Settlement BankSettlement Bank
money securities information
Ensure final, simultaneous transfer and availability of assets.
DeliveryDelivery versusversus paymentpayment asas a a basicbasic principleprinciple ofofclearingclearing proceduresprocedures waswas acceptedaccepted inin ourour practicepracticefromfrom 1998, 1998, whenwhen ClearingClearing HouseHouse waswas establishedestablished asasanan independentindependent securitiessecurities marketmarket institutioninstitution. .
Current mechanism is very stable Current mechanism is very stable -- there are no there are no any serious occasions of unany serious occasions of un--delivered or undelivered or un--paid paid securities. However, it will not be compatible with securities. However, it will not be compatible with an active secondary market trading.an active secondary market trading.
Group of Thirty’s 11th recommendation:
The period of settlement, on such scheme, does The period of settlement, on such scheme, does not match with the recommendations of Group of not match with the recommendations of Group of Thirty. Thirty.
To simplify and speedup this process, we need To simplify and speedup this process, we need to implement Central Counterparty on the basis of to implement Central Counterparty on the basis of Central depository.Central depository.
““TashkentTashkent”” Republican Republican Stock ExchangeStock Exchange
BankBank--custodianscustodians
Buyer Seller
money securities information
Central CounterpartCentral Counterpart
Central Depository, as a systematically Central Depository, as a systematically important organization, is paying attention to important organization, is paying attention to providing stable functioning and readiness to forceproviding stable functioning and readiness to force--majeur events. majeur events.
The following table will provide you The following table will provide you information about current situation in this field.information about current situation in this field.
Ensure effective business continuity and disaster recovery planning.Address the possibility of failure of a systemically important institution. final, simultaneous transfer and availability ofassets.
Group of Thirty’s 12th and 13th recommendations:
Evaluation criterion PointsSoftware-hardware and document. readiness (75%) 3 from 4Duplicate server yesRemote Disaster Recovery Center (RDRC) yesEvacuation plan noRDRC launching plan yesInfrastructure’s readiness (50%) 3 from 4Server’s environment corresponds to basic requirements yesTwo independent communication lines on RDRC yesRDRC remoteness from main server on at least 12 km yesRDRC guarded by two independent security agencies noPersonnel readiness (50%) 2 from 4Preparing personnel in theory yesTraining evacuation to RDRC noFamilies evacuation in force-majeur situation noEmergency unhooking of computers yesThird parts readiness (0%) 0 from 4Joint theoretical preparing noJoint evacuation trainings noTraining in RDRC-RDRC2 cooperation noList of authorities informed about RDRC’s location noTotal score (50%) 8 from 16
Although there is some evidence of work in Although there is some evidence of work in providing reliable and effective functioning of providing reliable and effective functioning of clearing and settlement institutions, problems of clearing and settlement institutions, problems of legal due diligence and risk management could be legal due diligence and risk management could be solved only by mutual efforts of all professionals. solved only by mutual efforts of all professionals.
Professional community should focus itProfessional community should focus it’’s s efforts in fields of:efforts in fields of:
-- establishing guarantee fund;establishing guarantee fund;-- developing risk management standards;developing risk management standards;-- and creating due diligence procedures.and creating due diligence procedures.
Strengthen assessment of the enforceability of contracts.
Group of Thirty’s 14th recommendation:
CivilCivil CodeCode, , LawLaw ““OnOn depositorydepository activityactivity ononsecuritiessecurities marketmarket” ” andand mainmain regulationsregulations provideprovidelegallegal certaintycertainty overover thethe rightsrights toto securitiessecurities. .
ButBut collateralcollateral ownershipownership isis notnot enoughenoughdevelopeddeveloped inin the the legislationlegislation. .
Advance legal certainty over rights to securities, cash, or collateral.
Group of Thirty’s 15th recommendation:
Implementation of Central Counterparty Implementation of Central Counterparty conception in Uzbekistan practice is necessary to conception in Uzbekistan practice is necessary to provide this recommendation. provide this recommendation.
There are no restrictions in the legislation, and There are no restrictions in the legislation, and master agreements could be remaster agreements could be re--drafted to provide drafted to provide consistent closeout netting and valuations consistent closeout netting and valuations provisions. provisions.
Recognize and support improved valuation and closeout netting arrangements.
Group of Thirty’s 16th recommendation:
WeWe couldcould bebe proudproud thatthat inin UzbekistanUzbekistansecuritiessecurities marketmarket, , chiefchief executivesexecutives andand boardboardmembersmembers inin allall systematicallysystematically importantimportant institutionsinstitutionshavehave reachedreached anan appropriateappropriate professionalprofessional experienceexperienceandand deepdeep understandingunderstanding ofof importanceimportance ofof thetheinternationalinternational expertsexperts’’ recommendationsrecommendations. .
Ensure appointment of appropriately experienced and senior board members.
Group of Thirty’s 17th recommendation:
As we mentioned above, all systematically As we mentioned above, all systematically important organizations have corporate sites in important organizations have corporate sites in Internet and publish their reports on access rules and Internet and publish their reports on access rules and procedures. procedures.
However, so far access to these institutions However, so far access to these institutions services is limited only for professionals, who have services is limited only for professionals, who have local licenses and registration. local licenses and registration.
Probably on the next stages of cooperation Probably on the next stages of cooperation development, regulatory bodies under the IOSCO development, regulatory bodies under the IOSCO guidance could create some kind of international (or guidance could create some kind of international (or regional) license that will give an opportunity to regional) license that will give an opportunity to work on related markets under several jurisdictions.work on related markets under several jurisdictions.
Promote fair access to securities clearing and settlement networks.
Group of Thirty’s 18th recommendation:
Central Depository of Uzbekistan is a unitary Central Depository of Uzbekistan is a unitary state entity founded by the State Property state entity founded by the State Property Management Committee and reports to the Ministry Management Committee and reports to the Ministry of Finance. of Finance.
In accordance with this recommendation In accordance with this recommendation stakeholders (broker, dealers, institutional investors stakeholders (broker, dealers, institutional investors etc.) would defend their interests by creating etc.) would defend their interests by creating Professional Supervisory Board, elected by General Professional Supervisory Board, elected by General Meeting of professional community that controls Meeting of professional community that controls systematically important institutions with power to systematically important institutions with power to approve important changes in their activity.approve important changes in their activity.
Ensure equitable and effective attention to stakeholder interests.
Group of Thirty’s 19th recommendation:
It seems that harmonization and unification of It seems that harmonization and unification of all two hundred legislation documents in force, will all two hundred legislation documents in force, will make supervising and regulation more consistent make supervising and regulation more consistent and transparent.and transparent.
Probably, unification of all legislation Probably, unification of all legislation documents into one Code about securities market documents into one Code about securities market could help to progress in this field.could help to progress in this field.
Encourage consistent regulation and oversight of securities clearing and settlement service providers.
Group of Thirty’s 20th recommendation:
Thank youThank youfor your attention!for your attention!
