December 12, 2008

The Ministry of Finance of Ukraine, the Securities and Stock Market State Commission, the State Commission for Regulation of Financial Services Markets, as well as pension and investment fund representatives met to discuss the state of capital markets in Ukraine in light of pension reform at a round-table conducted by the USAID Capital Markets Project. In his presentation CMP’s Senior Counsel John Crowley argued that investment securities available to pension funds must be substantially broadened for the new pension system to become fully sustainable.

No date has yet been set for implementing Pillar II of the new pension system but provisions have to be made now, participants agreed. Under this part of the pension system each worker will pay into an individual accumulation account. These sums are then invested in diversified instruments – from bank deposits to securities in Ukraine and abroad - meaning a large inflow of funds into the market. Though investment-hungry capital is, in principle, good news, it still "needs investment-quality assets to grow," Crowley remarked. However, in Ukraine this is a problem because the market is, at least for now, too small to absorb all this extra capital in quality assets. At the moment, bank deposits are still considered a prime placement despite its modest long-term yield. So placing Ukrainians’ pension money in sound portfolios means thinking about how to improve the investment market.

Crowley suggested several solutions: lifting limitations on investments abroad and introducing new types of securities adapted to Ukraine’s inflation-prone economy. At the moment, NPFs are allowed to place only 20% of capital in foreign securities. Meant as a measure to stem capital flight out of Ukraine, it is, nevertheless detrimental to the investor, says Crowley, – in this case Ukrainian future pensioners. "A cap on investing in foreign securities keeps investors from profiting from the possibilities offered on the global financial market," he points out, while lifting this limitation would give pension capital more investment opportunities.

Crowley outlined two types of securities that, he says, could effectively be issued. The first is an inflation-adjusted bond issued by the Ministry of Finance, offering a level of protection unique in Ukrainian securities. The second is a global depositary receipt (GDR), in other words a certificate issued by a depository bank, which acquires shares of foreign companies.

Agreeing that expanding investment opportunities is necessary to efficiently attract both new pension capital and traditional investors, participants then discussed the pros and cons of various strategies so that pension capital can be placed efficiently and safely.

December 10, 2008

"Ukraine’s non-state pension funds have shown remarkable resilience" CMP Senior Pension Expert Gary Hendricks observed, speaking at a round table on Non-State Pension Provision Issues co-sponsored by the USAID Capital Markets Project and the State Commission for Regulation of Financial Services Markets (FSR). Over 120 representatives of NPFs, NPF administrators, custodians and regulators came together to discuss challenges and prospects for non-state pension provision, understanding that in light of the pension reform and economic recession the upcoming months would be essential for the sector’s development.

The round table was greeted by FSR Chairman Valeriy Alyoshin. It was organized around several presentations and followed by long discussions. It was a unique opportunity for industry specialists from all over Ukraine to exchange views on how best to advance pension reform in Ukraine, in particular concerning accounting methods and pillar II implementation.

Gary Hendricks spoke at the round table about valuation of individual accounts with special emphasis on how NPFs can transition to unit accounting. FSR Commissioner and Head of NPF Supervision Department Andriy Bakhmach spoke about NPFs and the economic crisis, followed by his Deputy Zhanna Raputa who summed up the funds’ financial results and laid out reporting and accountability issues.

One purpose of the round-table was to solicit comments from market participants on draft regulations that will have significant impacts on NPF operations, asset diversification during the recession, and plans for the FSR pension disclosure system.

Several NPF representatives took the floor to suggest amendments and new ideas. Discussions ensued over cut-off age for future pillar II implementation, over the need to develop trust in the population and among industry entities, and about asset value calculation methods. Challenges posed by the present economic and financial crisis were also a major issue, spurring comments, suggestions, and criticism by industry representatives. Many funds demanded a loosening of asset allocation rules in order to adapt to the high-risk financial situation. Though the Securities and Stock Market State Commission (SSMSC) has already implied that it would not fully enforce existing diversification quotas, many funds representatives asked for this decision "to be put on paper."

Another proposal concerned the early enactment of pillar II as a way of feeding the stock market with investment-hungry capital. However, FSR Head of Pension Provision and Life Insurance Unit Victor Logvinovskiy opposed the idea, saying that the industry should remember that the role of pension provisions was “to ensure retirement provisions but not to save the stock market.” The regulators argued that the right plan of action was to improve preparatory work for pillar II, implementing and living up to accounting and disclosure standards.

December 4, 2008

Representatives from the U.S. Securities and Exchange Commission (US SEC) conducted a four-day training (December 1 - 4) in Kyiv on risk management and Self-Regulatory Organizations (SROs) with Ukrainian regulators as well as top broker-dealers, and exchanges. The event is part of the "Capital Market Development" Program, a joint initiative by the U.S. SEC, its Ukrainian counter part the Securities and Stock Market State Commission (SSMSC) and the USAID Capital Markets Project.

The US SEC sent four top specialists in the oversight and investigation field: Jonathan Sokobin, Director of the US SEC Office of Risk Assessment, Katherine Martin, a legal expert with the Office of Risk Assessment, Ester Saverson, Assistant Director of the US SEC Office of International Affairs, and Jon Hertzke, Branch Chief in the Office of Compliance Inspections and Examinations.

US SEC specialists shared their experience with SSMSC Commissioners on broker-dealer oversight, enforcement and SRO related issues including SRO inspections. In a separate series of meetings broker-dealers and stock market representatives brainstormed with SSMSC representatives and their US counterparts around Ukraine’s plan to set up a single SRO for broker-dealers by next May.

The "Capital Markets Development" Training Program is aimed at improving the regulation of Ukraine’s securities market and enhancing the relevant securities legislation according to international standards and best practices of operation.

Launched earlier this year as a joint initiative by the Ukrainian and American regulators, US SEC and SSMSC with support from the USAID Capital Markets Project, the program held its first training sessions in June offering regulators a complete overview of capital markets regulation, including case-studies in supervision, enforcement, information disclosure and regulation. It is built around twice-yearly sessions, focusing on various matters that are of interest to the Ukrainian regulator.

The training closed with a discussion between the regulators and Ukrainian stock market representatives over the prospect of establishing SROs in Ukraine.

November 11, 2008

Standard & Poor’s (S&P) international rating agency, jointly with the Ukrainian Financial Initiatives Agency (AFI), released results of their third yearly survey of information transparency of 30 major banks in Ukraine at a presentation held at the Riviera Hotel in Kyiv, noting that the institutions’ transparency index had improved (see http://www.standardandpoors.ru for survey results).

Three out of thirty banks surveyed by S&P use the Electronic System of Comprehensive Information Disclosure (ESCRIN), a key component of the USAID Capital Markets Project to inform investors and regulators about their activities. Alfa-Bank who began using ESCRIN for disclosure this year came in second for overall transparency. Kreditprombank and Khreschatyk, the two other banks using ESCRIN, scored among the top five in terms of reporting to their regulators - the National Bank of Ukraine and the Securities and Stock Market State Commission (SSMSC). Developed by the SSMSC assisted by experts of the United States Agency for International Development (USAID) Capital Markets Project, ESCRIN, though still at a pilot-project stage, is gradually gaining recognition in the industry with 27 listed companies taking part.

According to AFI’s experts the "electronic disclosure system has a positive impact on how international experts assess [a bank’s] transparency." A specific feature of the ESCRIN system is that it offers issuers the possibility of revealing not only financial and reporting indicators, but also narrative descriptions of their business activities.

Presenting the results of their survey, AFI analysts noted that the positive trend in disclosure is attributable to the fact that the "Ukrainian banking system has recognized the public benefits associated with public disclosure and that efforts by regulators began to yield results." The desire to tap external markets for capital also drove banks’ decision to open up.

CMP’s Chief of Party Barry Pitts, a guest speaker at the presentation, quoted S&P’s 2007 transparency survey that notes "issuers tend to raise the level of their transparency in an effort to decrease the cost of borrowing on the global capital market". Mr. Pitts added that disclosure is equally important "to reduce their cost of insurance, trade payables or vendor financing, bank loans, and to recruit and retain employees". This is all the more true in difficult economic times. "Risk premiums are up and poor disclosure is costly", he said, stressing the need for "trust and truthfulness" for a business if it wants to grow and become more profitable.

SSMSC Commissioner Sergey Biryuk also insisted on the importance of transparency as a builder of trust: "lack of trust in the banks, would compromise the future", he warned, "without trust there would be a run to pull out deposits, then a liquidity crisis, keeping banks from financing businesses". Mr. Biryuk added that the recent adoption of the Joint Stock Company Law will promote the use of ESCRIN further as all joint stock companies will be submitted to increased transparency demands. In 2007, another ESCRIN user, one of the leading enterprises of the machine building branch - Motor-Sich Company - came in 6th out of 36 in an S&P/AFI survey of transparency of Ukraine’s largest companies.

Electronic System of Comprehensive Information Disclosure (ESCRIN): http://eds.ssmsc.gov.ua

October 27, 2008

On October 22, Ukrainian President Viktor Yushchenko signed the new Joint Stock Companies Law adopted September 17 by the Verkhovna Rada. The law fills legal blanks in the sphere of corporate governance, introduces new mechanisms to defend minority shareholder interests, and regularizes operations on the securities exchange.

USAID Capital Markets Project specialists, as well as experts from other USAID projects took an active and wide-ranging part in the ten-year elaboration and adoption process of this law. CMP’s Senior Capital Markets Expert Victor Stetsenko comments on several aspects of the JSC law*.

1. Investors have really been waiting for this law. How will it impact the Ukrainian stock market, which is now reeling under the blow of the global financial crisis?

Had this law been passed three years ago, our market would have been in better condition than it is today. Why? If one takes a look at the PFTS Index, it is quite clear that its previous break-neck growth was clearly exaggerated. One can argue that this growth could be accounted for by the emergence of private pension funds and investment funds, by the fact that people, ordinary Ukrainians, started to pay attention to the stock market. Yes, that is all true. But those prices on the [stock] market are not the result of speculation (as permitted by the trading rules); instead, as many experts note, they indicate the presence of market manipulation. And the new law includes provisions that would help restrict such manipulations.

2. What provisions do you mean?

Well, of course, corporate governance requirements. They are excellent provisions! However, the most critical [new] rules for the markets are trade concentration and fair price rules. In other words, the law says that "public joint stock companies shall be listed on an exchange". Furthermore, the stocks of public companies may only be traded on an exchange and only on the one where the company is listed. So far, only 5% of transactions trade on securities exchanges, while 95% are traded over-the-counter. Let’s take Aval bank or ZaporizhStal: their stocks are traded both on the market, and OTC. Stock prices on the exchange and OTC often differ, leading to intense “playing around” with prices over the previous three years. And that is manipulation, rather than speculation: obviously hiked prices, and blatant cases of defaulting on transactions. The introduction by the new JSC law of a trade concentration rule for public joint stock companies requiring them to trade their stocks on an exchange, will force them to conclude transactions openly and transparently.

Another important provision introduces securities settlements according to the "Delivery vs Payment" (DVP) mechanism. It guarantees that transactions are settled on the terms and within the timeframes set when the contract was agreed. This rule is very important, because almost 90% of transactions agreed on exchanges were later never settled according to the initial terms – either the price differed, or the amount of stocks changed, or timeframes shifted – anything could happen.

3. What effects do you expect from this law?

It means banking on the future! I hope that by the time the market stabilizes, the existence of all these rules – concerning corporate governance, trade concentration, information disclosure, and DVP settlement – will guide the market away from its wilder manifestation to a more civilized form. Then, our market will be evolving within the same compass as other markets: it will not grow artificially or drop artificially.

Victor Stetsenko has been working as an advisor for Ukrainian government agencies on legislation drafting and stock market infrastructure for 13 years. Victor caught the securities market right after its birth. In 1993, two years after Ukraine’s first exchange opened, Victor Stetsenko was Director of the Ukrainian Stock Exchange Depository. Since 2005, Mr. Stetsenko is the Head of Market Institutions Department at the USAID Capital Markets Project.

* The views expressed are not necessarily those of USAID.

October 23, 2008

Patrick Vlaisloir, a Senior Attorney and Asset Management Compliance Specialist, is conducting training sessions for staff of the Securities and Stock Market State Commission (SSMSC) and the State Commission for Regulation of Financial Services Markets of Ukraine (FSR) on reporting and supervision of asset management companies.

Mr. Vlaisloir’s training program is a key part of USAID/CMP’s mandate to assist SSMSC and FSR in building their capacity necessary to perform the functions of modern regulators - providing their staff with an understanding of the risks associated with the construction and management of asset portfolios. Using the French supervisory system as a reference point, Patrick Vlaisloir engages his audience in discussions and analysis of regulatory issues. “How does it work in Ukraine?” he asks, bouncing off local experience to then lay out his material. The Ukrainian reporting professionals were particularly interested in Mr. Vlaisloir’s analysis of the concept of conflict of interest, legal requirements for shareholders of asset management companies, and reporting and detection of suspected money laundering schemes.

The first part of Mr. Vlaisloir’s seminar analyzes the intricacies of the legal framework regulating asset management activities. The second part goes into the nuts and bolts of reporting and controlling: the methods of discovery modern regulators use to detect risk, and the surveillance techniques and the enforcement tools regulators have at their disposal. Mr. Vlaisloir widely taps into his own experience as an investigator with the French Securities and Exchange Commission, sharing some of his case-work with the audience to make his point.

October 09, 2008

USAID/CMP Pension Expert Gary Hendricks took part in a seminar for pension fund industry professionals on valuing the accounts of participants in non-state pension funds (NPFs). A technical but crucial issue in Ukraine’s pension reform, a unified accounting and reporting system is essential for a transparent and reliable evaluation of non-state pension funds, says Hendricks. He explained the advantages of the "net pension contribution unit method" for calculating pension fund value and rates of return. "It is the international standard, and has been the international standard for decades," he told administrators and asset managers from various Ukrainian non-state pension funds.

A number of countries worldwide, including from Central and Eastern Europe (like Bulgaria, Croatia, Latvia, Lithuania, Poland, Romania, Slovenia, Kazakhstan) have already adopted this unified system to calculate and compare rates of return among pension funds. Although there are at least six other methods for computing rate of return, for pension funds the preference for using the "net contribution unit" is nearly universal, says Hendricks, because it ensures "that each participant receives the direct investment return on his or her contributions from the day the contribution goes in and until the money is transferred out."

Hendricks pointed out that going over to a unified and transparent calculation model is an absolute must for Ukraine if it wants to push forward its pension reform: "If we don’t do this, then there is no way we can entrust non-state pension funds with pillar II contributions", he said. Tetyana Shevkun, the director of the National Association of NPFs and NPF administrators that hosted the seminar, added that in addition to a unified accounting system, revaluing NPF accounts would have to be done on a daily basis.

At the end of the seminar Gary Hendricks and CMP Pension Law Expert Natalia Goryuk answered questions and coached participants.

"Innovations in NPFs Reporting and Personified Record-Keeping: Issues and Opportunities" seminar was organized by the National Association of NPFs and NPF Administrators.

October 06, 2008

The working group on the Joint Stock Company law of the American Chamber of Commerce came together in a celebratory mood to discuss the workings of this essential bill sought after for a decade and passed last month by the Parliament.

USAID’s Commercial Law Center (CLC), a project dedicated to advancing commercial law, consulted industry and state bodies on this legislation with input from the USAID Capital Markets Project experts on finance-related aspects of the text. If formally signed into law by the President Viktor Yushchenko, the bill will introduce a number of measures significantly increasing the protection of the rights of shareholders, in particular minority shareholders.

CLC lawyer Olena Shcherbyna - who also assists Amcham - summed up the achievement to a full room of Ukrainian and foreign business professionals: “This law marks a great step forward. Though not irreproachable, this law is good and very much needed”. Shcherbyna pointed out that some amendments put forward by the working group had been successfully integrated into the bill; for instance, the paragraph on mandatory concentration of securities trading on stock exchanges. According to Dmytro Leonov, head of the Ukrainian Association of Investment Business and also a speaker at the Amcham meeting, the adoption of the law “shows the growing interest in Ukraine for actually defending shareholders’ rights”. He also pointed out that the “tough conditions” the market is confronting at the moment could actually act as a stimulus for improving Ukraine’s regulatory infrastructure, making it more attractive to investors.

September 23, 2008

USAID and World Bank experts briefed journalists in Kyiv on the joint Programmatic Technical Assistance Partnership (PTAP) for capital markets development and pension reform in Ukraine. The objective of the PTAP is to assist the Government, market regulatory agencies and market participants to develop capital markets in the perspective of their future integration in the EU single market in financial services. One particular focus of the partnership is to help create conditions for the successful introduction and development of second pillar pensions.

Ukraine should accelerate the development of a transparent and well-regulated securities market. This was the main message conveyed at the press conference held at World Bank headquarters. The fact that the turmoil on the world financial markets also affected local markets acts as a reminder that "Ukraine is part of the global financial system", the World Bank’s Country Director Martin Raiser told journalists in response to a question about the relevance of market integration for Ukraine. Mr. Raiser then went on to explain that the PTAP program would help Ukraine acquire "a solid base to resist financial shocks." He also pointed out the need to create an environment that allows "savings to be mobilized effectively and safely", a prerequisite for the successful introduction of second pillar pension system.

USAID Deputy Mission Director Sarah Wines commended Ukraine on "positive steps" made throughout the last year, namely Ukraine’s accession to the WTO and, more recently the adoption by the Parliament of the long-awaited law on Joint Stock Companies.

Natalia Berezhna, USAID Project Management Specialist then outlined the four main spheres in which the PTAP had delivered advice and support: advancing pension reform, strengthening the legal, regulatory, and supervisory framework for securities markets and non-bank financial institutions (NBFI), improving securities market infrastructure, and developing the supply of domestic securities, with a focus on the government bond market. In the regulatory sector seminars bringing together Ukrainian regulators with their foreign counterparts are already underway with the U.S. Securities and Exchange Commission that has already conducted training for the Securities and Stock Market State Commission of Ukraine staff in June this year.

Looking ahead, the Free Trade Agreement currently being negotiated by Ukraine and the EU Commission will have an impact on the capital market reform policy. The PTAP team identified fundamental challenges that the country’s capital market system must meet to successfully integrate into the EU single market in financial services. These challenges include harmonizing legislation, allowing for mutual recognition between the Ukrainian regulatory agencies and their EU counterparts, as well as having local market professionals adapt to the EU single market in financial services, particularly in respect to disclosure and reporting requirements.

July 29, 2008

USAID Capital Markets Project (CMP) international pension expert Gary Hendricks participated with government policy makers in a seminar for journalists on pension reform in Ukraine. Pavlo Rosenko, First Deputy Minister, Ministry of Labor and Social Policy (MLSP), Olena Garyacha, Deputy Minister, MLSP and Victor Kolbun, Deputy Chairman, Pension Fund of Ukraine (PFU) were key government speakers along with other PFU directors and two international experts.

PFU Deputy Chairman Kolbun briefed journalists on “Concept on Further Conducting of Pension Reform in Ukraine,” a draft document prepared for the Cabinet of Ministers and broader discussion within the government. The document discussed the way forward in implementing pension accumulation accounts for all Ukrainian workers, including a timeline that pinpointed 2011 as the year for completing full implementation. Kolbun placed pensions in Ukraine in historical perspective and described their evolution from a pension system where nearly all pensioners received the minimum amount to one where a majority of pensioners are now above that minimum. Accumulation accounts would continue that evolution. Kolbun also pointed out that the adequacy of pensions was not just a function of the pension system. He emphasized the seriousness of under reporting of income in providing adequate pensions.

In his comments Hendricks of CMP congratulated the government for its work and emphasized his support the basic concepts included in the paper. He supported administration of the new accumulation accounts by non-state pension funds (NPFs) with the strong caveat current amendments pending in the Verkhovna Rada were essential to the safety of workers savings in the funds. He also suggested that more attention needed to focus on permitting investment of assets abroad. He pointed out that domestic securities might not meet the new demand for them and that the threat of assets leaving domestic markets would provide strong incentives to hasten the development of the local market discipline and quality asset management required to harness the investment potential of a large new influx of long term capital from pension savings.

As part of the seminar, the government also detailed recent decisions to increase minimum pensions for nearly all categories of pensioners from rank and file retirees to disabled children and veterans of foreign military conflicts. The relevant Resolution of the Cabinet of Ministers has been approved and will be implemented by the PFU over the next two months.

The seminar was jointly sponsored by the Ministry of Labor and Social Policy of Ukraine (MLSP) and Pension Fund of Ukraine (PFU) with support of CMP.

June 27, 2008

The U.S. Securities and Exchange Commission (hereinafter - SEC) assisted by the USAID Capital Markets Project (hereinafter - the Project), from June 23 through June 27, 2008, conducted the five-day Capital Market Development Training Program for top and mid level management and staff members of the Central Office and Regional Offices of the Securities and Stock Market State Commission of Ukraine (hereinafter - SSMSC).

The Program was aimed at improving the regulation of Ukraine’s securities market and enhancing the relevant securities legislation according to international standards and best practices of operation. The Training Program covered a complete overview of capital markets regulation encountered by regulators in a market such as Ukraine. An emphasis has been made on the issues of supervision, enforcement, information disclosure and regulation which are important to Ukraine’s capital market development.

The Program was customized for Ukraine. SEC officials had already visited Ukraine in January 2008 for assessment of the securities market and its regulation. During that visit, they met with SSMSC officials, PFTS Exchange and MFS Depository staff, and professional market participants. It was as a result of those meetings that the Capital Market Development Program has been developed and updated.

Other than Ukrainian specialists, the representatives of Georgian, Armenian, Moldovan and Kyrgyzstan regulators also attended the Training Program. This gave regional impact and maximized the effect of the SEC training. It also offered networking opportunities for the SSMSC with other developing markets.

The Program ended with a ceremony of awarding certificates, visited by the U.S. Ambassador to Ukraine William Taylor. The presence of the Ambassador Taylor highlighted the importance that the U.S. places on its assistance to and cooperation with the Ukrainian government in developing capital markets in Ukraine and bringing the Ukrainian market into the global arena of commerce.

The training is not limited to just five days. In addition, the Ukrainian delegation made up of SSMSC officials and stock market professionals sponsored by the USAID Capital Markets Project, participated in the Annual International Institute for Securities Market Development which took place at the headquarters of the SEC in Washington, D.C. SEC experts believe the current Program will be continued and will be organized twice a year, both in Ukraine and in the U.S. Besides, they offered to work together with SSMSC in the future on various matters that are of interest to the Ukrainian regulator.

June 6, 2008

On June 6, 2008, the State Commission for Regulation of Financial Services Markets of Ukraine with the support of the USAID Capital Markets Project held the All-Ukrainian Forum on Non-State Pension Provision Issues. Representatives from key Verkhovna Rada Committees, the Ministry of Labor and Social Policy, the State Commission for Regulation of Financial Services Markets of Ukraine (FSR), the Securities and Stock Market State Commission of Ukraine (SSMSC), the Employers’ Federation of Ukraine, non-state pension funds (NPF) administrators, the Ukrainian Association of Pension Fund Administrators and the National Association of NPF and NPF Administrators attended the forum.

The Forum was the first All-Ukrainian discussion event for non-state pension market participants. The FSR organized the forum to allow NPF stakeholders to voice their opinions on major issues facing the market and the best ways to resolve them.

According to participants, the most urgent issues are proper valuation of individual pension accounts, collaboration between state authorities and market participants, development of self-regulatory organizations for administrators, and NPF popularization among the Ukrainian workers and employers. Among these issues, stimulating NPF participation was mentioned most frequently. Speakers shared their achievements as well as problems and gave constructive criticisms of draft changes to the NPF law, existing and proposed regulations and actions or inaction of the regulators.

Participation among attendees was high and the forum well received. The FSR Chairman Valeriy Alyoshyn noted the large turn out and expressed his gratitude for the many views expressed. In his closing remarks he assured participants that their concerns and proposed solutions were noted and would be acted on to help improve a system of non-state pension provision that continues to grow and is becoming financially stronger each year.

May 30, 2008

Robert Kyle, International Expert for the USAID Capital Markets Project, held a two-week workshop for the Non-State Pension Funds Surveillance Department of the State Commission for Regulation of Financial Services Markets of Ukraine.

Pension accounting, comparisons between the current NPF reporting forms and International Financial Reporting Standards (IFRS), key indicators of risk, and streamlining forms in line with international practice were the key issues at the workshop.

The training was lively and provocative with participants agreeing and disagreeing as they discussed the training materials and compared Ukrainian and international accounting standards.

In conclusion, Mr. Kyle said he hoped the experience and information he had shared with the FSR specialists would help them improve non-state pension funds in Ukraine through more effective financial reporting.

May 23, 2008

UAAPF members discussed current weaknesses in NPF reporting procedures and NPF members’ accumulations accounting with the international experts

The first meeting of UAAPF members with Capital Markets Project’s international experts took place today.

During the meeting, UAAPF members discussed with international experts the NPF filing procedure with regulatory institutions and problems that NPF administrators are facing in their work. The attendees of the meeting paid special attention to the importance of strengthening the accounting mechanisms of accumulations on NPF members’ accounts and the necessity of introducing relevant changes to the Law of Ukraine “On Non-State Pension Provision”.

Association members as well as representatives of NPF administrators that have not yet joined UAAPF took part in the meeting. The results of the meeting will be taken into account by international experts in developing recommendations on the implementation of international standards of NPF regulation for the State Commission for Regulation of Financial Services Markets of Ukraine.

April 21, 2008

A joint delegation of the Securities and Stock Market State Commission of Ukraine and the National Commission of Financial Markets of Moldova attended the annual International Institute for Securities Market Development which took place at the U.S. SEC headquarters in Washington, D.C. April 7 – 17, 2008. The Institute is the SEC’s flagship global training which brings together senior-level securities regulators from emerging securities markets and U.S. market regulators and securities professionals. The two-week program consisted of lectures, panels, and workshops that focused on the core topics of securities regulation including insider trading, market manipulation, corporate governance, inspections and compliance, and a host of other market development and enforcement issues. About 200 delegates from 78 countries attended the April 2008 International Institute.

Participation of the senior officials of the Securities and Stock Market State Commission of Ukraine at the U.S. SEC Training was sponsored by the USAID Capital Markets Project and the USAID Partners for Financial Stability (PFS) Program. This intensive training in international standards and practices was part of the recently established training program for Ukrainian regulators with the U.S. SEC to gain critical understanding on the development, operation, and regulation of securities markets to promote safe and efficient securities markets in Ukraine.

April 16, 2008

On April 16, 2008 the USAID Capital Markets Project’s specialists held the first educational seminar "Electronic System of Comprehensive Information Disclosure by Issuers (ESCRIN)" for insurance companies.

The seminar was attended by such insurance companies as OJSC "National Joint Stock Insurance Company "Oranta", OJSC "Ukrainian Insurance Company "Generali Garant", OJSC "Insurance Company "Illichivske" and others. Moreover, representatives of the State Commission for Regulation of the Financial Services Markets in Ukraine took part in the seminar together with the insurance companies’ employees.

Project’s specialists explained to the seminar participants the importance of information disclosure for attracting investors, and also told about the technical aspects of the Pilot Project implementation, requirements for information to be disclosed in the issuers’ reporting documents and procedures for completing annual and quarterly reports and ad hoc information in electronic form. In addition, consultations on the relevant software use were provided.

April 10, 2008

The Deputy Commissioner of the State Commission for Regulation of Financial Services Markets of Ukraine (FSR), Eugen Grigorenko and two Deputy Directors of NPF Surveillance Department, FSR, Oleg Oliynyk and Zhanna Raputa, with assistance of the USAID Capital Markets Project, took part in the training course “New Trends in Pension Funds Management”. The two pension experts from CMP accompanied the FSR officials. In response to FSR and CMP participation, private sector managers sent 6 staff for training as well

The training was organized by Oxford Financial Training and took place in Moscow, Russia. The course focused on NPFs and covered all important aspects of NPFs oversight and enforcement. It elucidated the way pension funds really operate, the factors underlying many of their decisions, and proper ways to view risks, and the practical reality of trying to measure them.

The training participants got back to Ukraine with enhanced understanding of international best practices in NPF management and are ready to put their new skills into the practice.

March 26, 2008

The SSMSC and the USAID Capital Markets Project presented an electronic system of comprehensive information disclosure to securities issuers and stock market professional participants

On March 26, 2008, Ivan Nesterenko, Commissioner to the Securities and Stock Market State Commission, and Victor Stetsenko, Senior Capital Markets Advisor for the USAID Capital Markets Project, presented the Electronic System of Comprehensive Information Disclosure by Securities Issuers Pilot Project (ESCRIN).

The conference was organized by the Ukrainian Society of Financial Analysts, DAGDA Company and Expert Rating Agency, and attended by professional participants of Ukraine’s stock market, issuers, and representatives of foreign companies and stock exchanges. The conference covered all stages of a company’s IPO preparation and execution.

Commissioner Ivan Nesterenko spoke of the SSMSC and the USAID Capital Markets Project cooperation in the implementation of the ESCRIN Pilot Project. He also pointed out that, in 2009, the SSMSC is planning to make information disclosure in the ESCRIN system mandatory for all companies whose securities are listed on stock exchanges. Victor Stetsenko, in turn, spoke of technical aspects of the ESCRIN system implementation. “The lack of transparency at enterprises makes it harder for them to attract investment. Particularly, it hampers their IPO. Therefore, Ukrainian companies should move to new, European standards of information disclosure,” Mr. Stetsenko noted.

March 24, 2008

Two major production enterprises of the Crimea join the Pilot Project

On March 20 and 21, specialists of the USAID Capital Markets Project held trainings in the Crimea. This time employees of the major production enterprises of the peninsula, namely: OJSC "Crimean Soda Plant" and OJSC "State Joint Stock Company "Titan" , became participants of these trainings.

Specialists of the Project acquainted the employees of the enterprises with technical and information aspects of the Pilot Project implementation as well as provided consultations on the use of relevant software.

Based on the results of the trainings, heads of the both enterprises have approved a decision to join the Pilot Project.

The first stage of the Pilot Project was successfully completed in June, 2007. The second stage of the Pilot Project started in January, 2008. This February, by order of SSMSC No 121 a working group on the Pilot Project implementation was set up. It is planned that new standards of information disclosure will be introduced by an SSMSC regulation as mandatory for listing companies from 2009.

March 18, 2008

Representatives of eight Ukrainian banks participated in a disclosure system workshop for banks issuing securities

On March 18, the USAID Capital Markets Project hosted the workshop for bank employees – Electronic System of Comprehensive Information Disclosure (ESCRIN) – delivered by the Project’s experts.

This is the first of this kind workshop for bankers. Its distinctive feature was its focus on specific features of disclosing information by banks in terms of business activities, ownership structure of related parties, corporate governance and financial reporting.

Such specific features arise from the necessity to comply with the regulations of the National Bank of Ukraine and the Law of Ukraine on Banks and Banking Activities that govern operations of banking institutions.

March 14, 2008

On March 13 and 14, USAID Capital Market Project’s experts delivered a training session on technical and informational aspects of the implementation of the Electronic System of Comprehensive Information Disclosure (ESCRIN) Project for employees of Galnaftogaz Concern OJSC and Hlibprom Concern OJSC, which are engaged in preparing the 2007 issuer’s annual report.

Based on the training session results, the Galnaftogaz management decided to join the second stage of the Pilot Project.

The Pilot Project is being implemented by SSMSC and supported by the USAID Capital Market Project. The first stage of the Project was completed successfully in July 2007. The second stage began in January 2008 and will last through December 2008.

February 19, 2008

On February 19, 2008 the Securities and Stock Market State Commission (SSMSC) together with the USAID Capital Markets Project has held a training seminar: the "Electronic System of Comprehensive Information Disclosure" (ESCRIN) in Kyiv. The seminar took place within the framework of the second stage of the pilot project on the introduction of the ESCRIN system. The seminar was attended by more than 80 representatives of companies and specialists of regional SSMSC offices.

SSMSC attaches great importance to information disclosure by securities issuers. As Commissioner Ivan Nesterenko stressed in his speech of welcome, the Commission plans to make information disclosure in the ESCRIN system mandatory in 2009 for all companies whose securities are included in the listing of stock exchanges. He said that according to the SSMSC order No 121 of February 18, 2008 a working group on the pilot project implementation will be established. It will include managers and specialists of SSMSC, specialists of the USAID Capital Markets Project and the Stock Market Infrastructure Development Agency of Ukraine.

One of the tasks of the working group will be developing a draft regulation of the Commission and draft changes to current regulations of the Commission on information disclosure by the issuers whose securities are included in the listing of stock exchanges. These regulatory documents will be based on the results of the second stage of the pilot project and are to be submitted for approval by SSMSC this October.

February 18, 2008

Three more companies have decided to take part in the second stage of the pilot project the "Electronic System of Comprehensive Information Disclosure" (ESCRIN), namely: Zaporizhoblenergo OJSC, Zaporizhvognetryv OJSC and Ingulets’ Mining and Processing Integrated Works OJSC.

Specialists of the USAID Capital Markets Project held a number of meetings with employees of these companies and gave consultations on technical aspects of the pilot project implementation, the volume of information to be disclosed in an annual report of the issuer, the procedure of completing forms “Annual Information of the Securities Issuer” and "Quarterly Information of the Securities Issuer" and also on application of the relevant software.

The second stage of the pilot project started in January 2008 and will continue up to December 2008. The second stage will involve the issuers whose securities are included in the listing of stock exchanges. The pilot project participating companies will be able to take part in free educational seminars, trainings and receive free consultations both in terms of ESCRIN content requirements and operation of the software.

February 12, 2008

The second stage of the implementation of the pilot project "Electronic System of Comprehensive Information Disclosure" (ESCRIN) is gaining momentum. From February 5 to 8 a team of specialists of the USAID Capital Markets Project held a series of meetings at the enterprises of Dnipropetrovsk which had expressed their desire to take part in the second stage of the pilot project, namely, Dnipropetrovsk Pipe Plant, Interpipe Novomoskovsk Tube Plant, Allo and Iboya companies.

Active work was also carried out in January. Specialists of the Project provided consultative assistance on preparation of reports in compliance with the ESCRIN requirements to enterprises of Zaporizhia, specifically, Selena production and trading company, Motor Sich OJSC, Dniproenergo OJSC, and in Kremenchuk – to AvtoKrAZ holding company.

The main subjects discussed by Project specialists and employees of enterprises were the procedure of filling in forms "Annual Information of Securities Issuer" and "Quarterly Information of Securities Issuer" and application of the ESCRIN software. The main goal of this work is to help issuers to adapt themselves to new standards of information disclosure planned to be introduced by an SSMSC regulation as mandatory for listing companies from 2009.

ESCRIN is called for creating a regulatory and technical foundation for preparation, submission and publication of information on the activities of securities issuers in accordance with the information disclosure requirements established by the Law of Ukraine On Securities and the Stock Market and in compliance with international disclosure standards. The system is focused, first of all, on information disclosure for investors. In compliance with the ESCRIN requirements the structure and volume of information are aimed at simplifying understanding of the financial and economic position of issuer by investors and shareholders.

February 5, 2008

On February 5th the Capital Markets Project (CMP) held a workshop for the Financial Services Regulator (FSR) Department of Non-state Pension Funds Surveillance. The objective of the workshop was to present preliminary findings from an analysis of the Department operations that had been done by CMP and to define first steps to make the Department’s work more effective.

The huge preliminary work was done. Oonagh McDonald, a former member of the UK’s Financial Services Authority (FSA), and CMP pension expert Gary Hendricks conducted the analysis of the Department activity. Ten staff of the department contributed through personal interviews and documents on internal procedures. Director of the Department, Commissioner Andriy Bakhmach, arranged for the interviews and provided support to the CMP analysts.

During the workshop Oonagh McDonald and Gary Hendricks presented the findings. Staff discussed and elaborated on the findings and explored differences in enforcement perspectives among the analysts and themselves. In addition, staff began the task of developing a strategic plan for improving NPF regulation. Their first task was to draft a mission statement for the department. It included the overall objective of protecting NPF participants and the major ways in which the department would carry this out. In addition, the staff of each unit developed statements on how each unit contributed to the overall mission of NPF Surveillance.

The entire NPF Surveillance staff participated in the roundtable. This is the first in a serious of workshops and part of a larger joint FSR-CMP program that will include training in financial reporting and pension accounting for NPF Surveillance staff.

January 22, 2008

At the meeting, the Action Plan was finalized and signed – it contains actions for implementation set forth in December 15, 2006, Protocol on Cooperation and Technical Assistance to be provided by the USAID Capital Markets Project to the State Commission for Regulation of Financial Services Markets in Ukraine from November 2007 till September 2008.

Thus, the above Action Plan provides for the implementation of joint action to introduce electronic information disclosure system for non-state pension funds (PDS), establish an efficient self-regulatory organization (SRO) for non-state pension funds and pension funds administrators, strengthen regulatory powers of the FSR, and hold public awareness campaign for pension system reform in Ukraine, in addition to cooperation on other matters agreed by the parties.

January 22, 2008

On January 22, 2008 the Securities and Stock Market State Commission (SSMSC) in cooperation with USAID Capital Markets Project held the workshop: The Second Stage of Implementing Pilot Electronic System of Comprehensive Information Disclosure (ESCRIN) Project in Zaporizhzhia. 49 people attended the workshop, among them: securities issuers from the Autonomous Republic of Crimea, the City of Sevastopol, Dnipropetrovsk, Zaporizhzhia, Mykolaiv, Odessa and Kherson oblasts as well as specialists of SSMSC regional offices of the aforementioned oblasts.

The Pilot Project goal is testing and completing ESCRIN for further regulatory implementation in Ukraine of the reporting system by the listed and strategic companies that complies with the Law of Ukraine on Securities and Stock Market and meets the best international practice as well as the investors’ needs. ESCRIN provides for filing the reporting documents by issuers in a new convenient format solely in an electronic form through the Internet to the SSMSC database. The Pilot Project is implemented in stages gradually increasing the number of issuers and types of reporting information filed.

The first stage of the Pilot Project was successfully completed in July 2007. It envisaged the issuers’ annual reports preparation and disclosure according to ESCRIN requirements.

The second stage of the Pilot Project that will last from January to December 2008 involves issuers of shares and corporate bonds listed on the exchanges as well as other issuers. Participant-companies will disclose all types of information provided for in the Law of Ukraine on Securities and Stock Market, namely: annual and quarterly information, ad hoc information, securities offering prospectuses and reports on the results of securities placement in a new more comprehensive format. The information structure and volume according to ESCRIN requirements aims at making the investors’ and shareholders’ understanding of issuer’s operational and financial position easier.

For the issuers to get accustomed gradually to the new information disclosure standards the SSMSC central and regional offices have planned to hold a number of workshops, roundtables and individual working meetings within the Pilot Project.

January 21, 2008

Representatives of both Commissions conducted a series of meetings with the SSMSC and key capital market participants on the current state of the capital markets development in Ukraine.

The experts from the Polish regulator will spend two weeks in Kyiv designing a multi-year plan for assistance jointly with the SSMSC under the World Bank/USAID Programmatic Technical Assistance Partnership (PTAP).