Professional Market Participants Identify Development Areas of Ukraine’s Depository System

Central securities depository has summed up the results of a survey of professional market participants regarding development issues of the country’s depository system. The survey has contained six conceptual proposals prepared by NDU. These proposals had been previously supported by the Working Group on CSD Software Modernization and Development, the CSD Participants Council, as well as by profile self-regulatory organizations. 

The majority of respondents (87.1%) have supported the conceptual proposals; 51.6% of them expressed their full support, and the remaining 35.5% of respondents have supported the proposals but added some comments. 12.9% respondents have not supported the depository’s proposals. Among the respondents have been depository operations specialists of major and mid-sized participants of the depository service market, including Raiffeisen Bank Aval, Citibank, UKRGASBANK, CREDIT AGRICOLE BANK, Univer Capital, ART-CAPITAL Custody, etc.

In November 2015, NDU sent the depository system development proposals to the Ukrainian National Securities and Stock Market Commission (NSSMC). Gennadiy Zhurov, Chairman of the Executive Board of NDU, said: “We have not received the Commission’s approval of our proposals. However, the regulator said that it would create a working group on preparation and creation of the Concept of Development of the Depository, Settlement and Clearing Infrastructure of the Financial Sector. As of April 2016, this NSSMC’s working group did not issue any messages except those proposed by NDU. The fact that NDU was supported by over 87% of respondents confirmed the correctness of our proposals on the development of the Ukrainian depository system.”

The conceptual proposals are an important part of the development of both the depository system and the CSD. Their practical implementation, inter alia, will raise the level of investor rights protection, introduce additional mechanisms allowing to prevent corporate raiding, and allow to modernize the depository sector’s IT infrastructure.

It is worth reminding that the following issues have been put to vote:

• to retain the two-level depository system allowing a client to use segregated accounts at the CSD level; these accounts may be opened by clients’ depositories.

• to agree that an issuer should pay income only via the depository system, and income should be kept in accounts with the depository organizations which guarantee the safety of funds until they are paid to a client. Thus, payments should go via the record keeping system participants (an issuer – the CSD – a depository – a client).

• to arrange interactions between the Central Bank and depositories with the use of depositories’ or the CSD’s software as all two-level depository systems in the world function this way.

• to ensure the free movement of capital, liberalize foreign issuers’ securities placement/circulation in Ukraine and remove restrictions of Ukrainian issuers’ securities placement/circulation abroad via the CSD correspondent relations.

• to ensure the dissemination of information on issuers’ corporate actions via the CSD to depositories. This initiative should improve the quality of the information disclosure system and provide investors with an opportunity to receive this information in time.

• to prevent unauthorized access to information recorded by the CSD and depositories, to protect the CSD’s information processing system from unauthorized access to insider information, including the discontinuation of the use of technologies which may compromise the confidentiality of information.

The survey on conceptual depository system development proposals held by the NDU let it obtain the professional community’s support. The NDU plans to promote the proposals in its dialogue with the NSSMC. The proposals have been submitted to the Public Council of the NSSMC. According to the Decree by the Cabinet of Ministers, the issues submitted by the governmental agencies’ public councils must be reviewed.