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26.10.2018 | 10:21

NBU tackles stock market of Ukraine

The NBU published proposals to legal regulation of Ukrainian stock market infrastructure

The National Bank published proposals on legal regulation of stock market infrastructure. 

It was reported by the NBU. 

The National bank of Ukraine can increase its role in the stock market infrastructure to ensure financial stability. 

It's set in the NBU's proposals to draft Law of Ukraine "On Amendments to Some Legal Acts of Ukraine Regarding Activities of Settlement Center to Service Contracts on Financial Markets" that were presented on the retreat session of the Parliament's Committee on Financial Policy and Banking Activities last week.

The proposed initiatives provide the National bank with the legal oversight powers with regards to some elements of the stock market infrastructure that are critical to ensure financial stability in the country. 

In particular, over the central depositary (currently is the National Depositary of Ukraine) and the central counterparty (currently is the Settlement Center). 

Oversight shall involve inspections whether the mentioned stock market participants comply with Principles for Financial Market Infrastructures (PFMI) developed by the Committee on Payment Systems. 

Neither the National Depositary (NDU) nor the Settlement Center (SC) were inspected on compliance with these standards. 

At the same time, the National Securities and Stock Market Commission still remains the regulator for NDU and SC and will cooperate with the National bank to bring them in line with PFMI.

The NBU believes that the NDU's activities that meet PFMI, international standards, will open possibility to create the single central depositary on its base. 

In particular, the National bank could transfer government securities from the NBU's depositary to NDU's servicing as the central depositary. 

Subsequently, the efficiency of Ukraine's depositary system functionning is expected to increase. Two depositaries are unreasonable for present stock market size and disadvantage depositary institutions.

Proposals to draft also provide details for process and conditions to transfer government securities for servicing to NDU.

Meanwhile proposals to draft law will increase the National bank's role in corporate governance of elements that are crucial for the stock market instrastructure. 

It requires to increase the National bank's share in the NDU's capital up to 51%. 

Also proposals to drat Law on improvement of SC activities and it transformation into special financial institutions from banking institution. 

The document proposes to call off the SC's monopoly to conduct securities settlements on DVP basis. 

According to the National bank's vision the securities settlements on DVP basis shall be conducted in the national currency within E-payments System of the NBU in line with the leading EU practices. 

Development of the technology shall reduce risks of securities settlement that are still subject to funds deposit in the commercial bank.

Another important stage of the SC transformation is cost-benefit analysis (CBA) to be conducted jointly with the international donors and experts. The CBA shall define whether functioning of the central counterparty in Ukraine is reasonable. 

The CBA shall result in decision whether the National bank will paricipate in such institution. 

The SC will continue conducting riskfree clearing if the CBA shows CCP development as inappropriate to current Ukraine's market size.

The SC transformation will bring back the difference amount between the government's current capital volume and its need in capital as financial company - clearing institution. 

References in the article: nssmc, settlement center, stock market, nbu, ndu, regulation
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