Home About the Project Partners Useful Links Our Contacts Site Map Public Outreach
Українська мова
USAID Capital Markets Project



Capital Markets Regulatory and Supervisory Framework
(Institutional Strengthening)

Capital Markets Infrastructure

Legal and Regulatory Reform of Capital Markets

Pension Reform

Financial Instruments Development
Electronic System of Comprehensive Information Disclosure (ESCRIN)
Pilot Project on Implementation of ESCRIN
Hotline On Pension Reform Issues HOTLINE on
Pension Reform

October 11, 2010

Auditors Are Trained to Use ESCRIN Disclosure System

Thirty-five auditors took a special training course on disclosing information in ESCRIN that was organized by the Securities and Stock Market State Commission with support from the USAID Capital Markets Project. The training became relevant for auditors after the SSMSC Resolution “On Approval of the Regulation on Information Disclosure by Issuers of Stocks and Corporate Bonds Listed on a Stock Exchange and the Procedure for Completing Information Disclosure Forms and Changes to Them by Issuers of Stocks and Corporate Bonds Listed on a Stock Exchange” became effective. In accordance with this resolution, from January 1, 2011, issuers who made a public offering of shares of stock or corporate bonds and such shares or bonds are listed on a stock exchange are required to disclose information about the company through ESCRIN ( http://eds.ssmsc.gov.ua ). In their turn, auditors are becoming active articipants in the disclosure system, because another SSMSC resolution, No. 1528, of December 19, 2006 (On Approval of the Regulation on Preparing Auditor’s Reports to Be Filed with the Securities and Stock Market State Commission in Disclosing Information by Issuers and Professional Stock Market Participants) provides that annual statements of listed companies must be audited and have the auditor’s report attached as an electronic document with the electronic digital signature affixed to it.

“During the training, participants studied all necessary procedures that an auditor should follow to obtain keys of the electronic digital signature, create an electronic document containing the auditor’s report and attest it correctly with the electronic digital signature,” says Yulia Vitka, Senior Lawyer for USAID CMP. One part of training was devoted to legal aspects of new game rules for public companies, and the other part to technological issues. Tetyana Kotukhova, Head of CMP’s IT Department, gave detailed presentation on what auditors should do to obtain keys of the electronic digital signature from an accredited key certification center and how ESCRIN works.

Besides, trainees were eager to know what companies would be required to file under International Financial Reporting Standards. “In the ESCRIN System, listed public companies must file both in accordance with national standards and in accordance with International Financial Reporting Standards,” says Yulia Vitka. She explained that the IFRS requirement would only apply to issuers that meet two criteria: they are public (compliant with the Law of Ukraine on Joint Stock Companies) and listed (ESCRIN is applied to listed companies).

In the course of training, auditors had questions relating to the preparation of statements by a parent company included in a group of companies. ”If the issuer is a parent company, i.e. has the relations of economic or organizational dependence with other companies, ESCRIN requires to disclose information about the entire group of entities, i.e. consolidated statements,” points out Yulia Vitka.

A separate block of the training was focused on enforcement actions by SSMSC in case of disclosure violations. Svitlana Loginova, Senior Specialist from SSMSC Issuer Reporting Department, gave a detailed description of financial sanctions against issuers in the event of their failure to comply with current legal requirements concerning disclosures made through ESCRIN. Article 11 of the Law of Ukraine on State Regulation of Securities Market makes it possible to apply financial sanctions. Moreover, the law provides for administrative liability of company officers if reporting rules are violated.

Training for auditors is the third phase of educating market participants in the basic use of ESCRIN. The first phase was devoted to issuers, the second – to representatives of SSMSC regional offices.

The Electronic System of Comprehensive Information Disclosure (ESCRIN) was developed with support from the Capital Markets Project funded by the U.S. Agency for International Development (USAID) and in cooperation with the Securities and Stock Market State Commission (SSMSC) of Ukraine. At the ceremony on July 15, 2010, the ESCRIN System was officially transferred to the Securities and Stock Market State Commission.

October 8, 2010

Transparency of Ukrainian Banks: USAID Presents Research with Standard & Poor’s

USAID Capital Markets Project, together with Standard & Poor’s rating agency and Financial Initiatives Agency, presented results of an annual study of information disclosure among Ukraine’s largest banks at the Hyatt Regency hotel to an audience of bankers, Ukrainian officials, and journalists. “In 2010, Ukraine’s 30 largest banks lost 6.1 percentage points in their transparency index compared to 2009,” banking expert and co-commentator of the report Alexei Kutsenko explained in a presentation. This year the overall transparency index for Ukraine’s 30 largest banks is 42.7 percent, less than half of what a foreign investor is looking for from a transparency perspective. The study shows that a number of Ukrainian banks slipped further away from international standards in disclosure and transparency. The joint research by Standard & Poor’s and the Financial Initiatives Agency looks at the performance of Ukraine’s 30 largest banks by net asset value, with USAID Capital Markets Project providing technical and financial assistance.

Among the 28 banks represented in both the 2009 and 2010 report, only eight showed greater transparency, while 20 banks showed a weaker performance. In particular, disclosure of annual reports has gone down. “Only 10 banks out of 30 published their annual reports, continuing a downwards trend that started in 2008”, Kutsenko said. Answering a question from the audience, Kutsenko explained the decrease in information transparency appeared linked to a period when the Ukrainian banking sector attracts less foreign investors than previously. “When Ukrainian banks felt the interest of foreign investors [before the financial crisis], they tried hard to open up”, he added.

Also speaking at the event, Svetlana Borodina, Standard & Poor's Director of Corporate Governance Rating Service said she felt confident that “with motivation, they can improve their performance because they have the experience”.

Oleg Mozgovoy, Member of Securities and Stock Markets State Commission (SSMSC) underlined that “information disclosure must be included” in a general strategy to further develop Ukrainian markets.

Also speaking at the conference, Viktor Stetsenko, Senior Capital Markets Advisor at CMP, said that the Electronic System of Comprehensive Information Disclosure (ESCRIN), a new electronic system of information disclosure by publicly listed and traded companies, had been successfully developed and implemented by the SSMSC, with assistance from CMP.

October 5, 2010

International Teacher’s Day: Financial Education on Pension Provision for Kyiv Universities

Celebrating World Teacher’s day by illustrating the importance of education, USAID Financial Development Sector and Capital Markets Projects proceeded with their financial awareness program, distributing issues of the project’s Pension Investment Glossary among Kyiv students and teachers. Wearing a cap advertising “Knowledge is your wealth”, seven young men and women handed out 4,500 issues of the Pension Investment Glossary at some of Kyiv’s major higher education establishments.

The one day campaign took place at Kyiv National Taras Shevchenko University, the Kyiv-Mohyla Academy, the Institute of International Relations of the Kyiv National Taras Shevchenko University, the University of Trade and Economics, the Polytechnic University, and the Vadim Hetman National Economics University. The distribution was accomplished with the assistance of Segodnya, one of Ukraine’s largest daily newspapers.

The Pension Investment Glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction to the pension system of a mandatory accumulation scheme (also called Pillar II) Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

In a “back to school” campaign held early September the Pension Investment Glossary was distributed at regional universities throughout Ukraine.

October 1, 2010

Enterprises Study to Disclose Information According to International Standards

On October 1, 2010 the Securities and Stock Market State Commission with the assistance of the USAID Capital Markets Project started to conduct a series of trainings for representatives of the enterprises whose shares or bonds are listed on exchanges. The necessity of conducting a special training is caused by new rules of record keeping for public companies which SSMSC is implementing. The point is that on August 19, 2010 the Ministry of Justice registered the Regulation on information disclosure by issuers of listed corporate shares and bonds and the Procedure of completing information disclosure forms and amendments to them by issuers of corporate shares and bonds . In accordance with this document, from January 1, 2011 the issuers that placed corporate shares and bonds openly (publicly) and such shares or bonds are listed are obliged to disclose information on the company through the ESCRIN system ( http://eds.ssmsc.gov.ua ).

The ESCRIN electronic system of comprehensive information disclosure was developed with the assistance of the USAID Capital Markets Project and in cooperation with the Securities and Stock Market State Commission (SSMSC). On July 15, 2010 the ESCRIN system was transferred to the Securities and Stock Market State Commission during a formal ceremony. After adoption of a new regulation (SSMSC Decision No. 981 of June 22, 2010) on information disclosure in the ESCRIN system, issuers needed a detailed and deep study of the information disclosure methodology through the ESCRIN system.

Training to participate in which 60 issuers were invited was devoted to teaching company representatives practical skills of preparation and disclosure of reports in ESCRIN. Company representatives were taught all necessary steps to be made for practical implementation of SSMSC decision No. 981: starting from receipt of an electronic digital signature key to submission of electronic record keeping. Ms. Olena Tabala, Director of the Department of Stock Market Monitoring, and Yulia Vitka, Senior Capital Markets Lawyer of the USAID Capital Markets Project, explained in every detail the legal aspects of the new SSMSC decision: who is covered by the new decision, what terms and the procedure of information disclosure are, and what types of reports should be formed by issuers, etc. Tatiana Kotukhova, the leader of the ESCRIN designers’ group (Head of the IT Department of the CMP Project) explained in detail technical features related to working with the software and usage of the electronic digital signature. Lectures at the seminar were delivered both by representatives of the Capital Markets Project, who are the system designers, and representatives of the Securities and Stock Market State Commission which will control directly the implementation of the decision.

It is envisaged that the use of the ESCRIN system will be free of charge for investors. “Information disclosure with the help of the ESCRIN system is not just a new obligation of enterprises which is introduced by SSMSC, this is the world best practice of running a business, since ESCRIN helps enterprises to effectively attract capital”, SSMSC Commissioner Mykola Burmaka stated at the training.

“Having introduced ESCRIN the Securities and Stock Market State Commission has made another step to enhancing transparency of the Ukrainian stock market and improving capitalization of Ukrainian issuers”, Robert Bond, Chief of Party of the USAID Capital Markets Project, says. The USAID Capital Markets Project will further assist the SSMSC in teaching users the new system of information disclosure – in October trainings for representatives of regional SSMSC offices and auditors will be conducted.

September 27, 2010

Project Experts Presented New Disclosure Requirements for Securities Issuers On September 23-26, PFTS stock exchange traditionally held its annual International Forum of Capital Market Participants in Alushta, Crimea. USAID Capital Markets Project became the primary sponsor of the event. The forum was attended by nearly two hundred professional participants of the Ukrainian stock market, representatives of financial sector regulators and professional associations, as well as international experts.

The discussion during the forum focused on the prospects for Pillar II development and its impact on the stock market, problems and prospects for self-regulation and depository system, strengthening of joint investment institutions, impact of privatization on the stock market and problems with dematerialization (transfer of shares into book-entry form). During panels and sessions, the participants considered the issues pertaining to debt market development and Internet-trading in the exchange market.

Representatives of Moscow Interbank Currency Exchange (MICEX), which is the major shareholder of PFTS, gave the forum participants the benefit of their experience in developing exchange markets in Russia and told about MICEX’s near-term plans. The SSMSC Chairman Mr. Dmytro Tevelyev, whose address was anticipated by all forum participants, presented the conceptual provisions of Ukraine’s Stock Market Development Program for 2011-2015. “Being a market regulator, the SSMSC should embark on effective comprehensive program for stock market reforming and making it competitive”, - he said. Mr. Tevelyev noted that the main objectives of stock market reform were, in particular, introduction of prudential supervision, implementation of joint-stock companies law, creation of the central depository, development of self-regulation, improvement of monitoring and disclosure, as well as transition to electronic data flow and use of electronic signatures. Mr. Tevelyev said that “stock market development should be aimed at attraction and redistribution of investments”, and not only in a speculative manner. Unfortunately, today’s investor is not very much involved in this process or informed about it. Therefore, the main task will be to change the approach to investor communications and protection of investor rights. Mr. Tevelyev also articulated the idea of popularizing the stock market, developing an outreach program and establishing effective communication with media and market participants.

Ms. Yulia Vitka, CMP Senior Capital Markets Lawyer, and Ms. Tetiana Kotukhova, CMP Head of IT Department, made a presentation on new disclosure requirements for securities issuers. According to the Regulation “On Information Disclosure by Issuers of Shares and Bonds Listed on a Stock Exchange” approved by the SSMSC decision #981 dated June 22, 2010, all listed companies issuing shares or corporate bonds will be required starting January 1, 2011, to disclose information through the Electronic System of Comprehensive Information Disclosure (ESCRIN). ESCRIN was developed with the support of USAID Capital Markets Project together with the Securities and Stock Market State Commission (SSMSC). ESCRIN is consistent with international standards and best disclosure practices. ESCRIN reflects the filing and disclosure requirements of two key Ukrainian laws, “On Securities and Stock Market,” and the “Joint Stock Company Law”. The system also implements the Presidential Decree “On Top Priority Actions Regarding the Implementation of Innovative Information Technologies” (#1497/2005) dated October 20, 2005, requiring that government agencies introduce electronic data flow, including electronic signatures.

Project experts informed that in the near future the SSMSC with the Project’s support would hold a number of trainings to introduce the issuers and auditors to the requirements of new disclosure system, types and structure of filings, as well as to ESCRIN software.

September 17, 2010

Back to School: Financial Awareness Campaign about Pension Provision at Regional Universities

The USAID Capital Markets Project (CMP) and Financial Sector Development Project (FINREP) held a financial awareness campaign for students during the first two weeks of September, distributing 13,000 copies of the Pension Investment Glossary at key universities throughout 25 regions of Ukraine. The Pension Investment Glossary outlines the basics of the pending pension reform and explains key concepts relating to investing pension contributions in financial markets. USAID CMP distributed 6250 copies of the glossary in 58 cities using 17 local students at twenty higher education establishments in Dnepropetrovsk, Odessa, Simferopol, Lviv, and Donetsk. In order to reach a broader audience, an additional 6750 copies were been made available at libraries in 270 institutes and universities throughout Ukraine. The distribution was organized with the assistance of CEUME, a Ukrainian management education provider.

The Pension Investment glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction to the pension system of a mandatory accumulation scheme (also called Pillar II) Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

September 17, 2010

Crimea: USAID CMP and FINREP Projects Help Increase Financial and Pension Reform Awareness

The “Pension Investment Glossary”, which outlines key concepts pertaining to pension investment in financial markets, was made available to students in Yalta, Simferopol and Sevastopol at four universities and institutes. The Crimean campaign is part of the USAID Capital Markets Project and Financial Sector Development Project (FINREP) “back to school” awareness program on pension financing issues through the distribution of the glossary in 58 cities throughout Ukraine.

The glossary was distributed to several libraries and handed out directly to students in Simferopol at the Crimean Faculty of the European University and the Tavria National V. Vernadsky University. Libraries of the Sevastopol National University of Nuclear Energy and Industry, the University of Economics and Management, and of Yalta’s University of Management also received copies. The distribution was organized with the assistance of CEUME, a management education provider. According to Veronika Shidlovskaya who handed out the glossary to fellow students in Simferopol, many students had questions on the subject of personal financial education. Some professors discussed the booklet in class. “The students recognized their personal responsibility for their financial well-being, not only during their working life but also in the future,” said Svetlana Soldatova, professor of economics at the Tavria National University in Simferopol. The Pension Investment glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction by 2012 of a mandatory accumulation scheme of the pension system, also called Pillar II. Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

September 16, 2010

Top Level Round-Table Discusses Next Step in Pension Reform

“We need to start to move forward [on pension reform] or we go nowhere“, Vice Prime Minister Serhiy Tihipko remarked at a Parliament-level round table devoted to key aspects of Ukraine’s pending pension reform. His words reflected the sense of urgency that permeated throughout the meeting held at the Verkhovna Rada’s Committee on Finance and Banking. Parliamentarians, representatives of profile ministries, regulators pension and capital markets industry representatives, as well as international organizations and leading experts, discussed the timeline and major components of the implementation of a Mandatory Accumulation System (or Pillar II) to complete the establishment of a functioning multi-pillar pension system in Ukraine. The speakers’ diverse backgrounds reflect the continuous comprehensive analysis of the various factors that might have an impact on the mandatory accumulation system implementation and the wide range of changes that still need to happen to offer Ukrainians an effective and sustainable three pillars pension system.

The Economic Reform Program for 2010-2014 plans to implement the Mandatory Accumulation System by the end of 2012. But for the Government to meet this deadline, a number of measures still need to be adopted legislatively and administratively, and today’s round table starts to focus on the legislative changes needed. Serhiy Tihipko said a successful pension reform means introducing a number of measures, including motivations to keep people working longer, and getting “salaries out of the shadows”.

Deputy Minister of Labor and Social Policy Volodymyr Matviychuk laid out “what needs to be done”. He said that salaries had to be legalized and in particular the practice of paying “salaries in envelopes” [to bypass social contribution costs] needed to be stopped. Matviychuk also said that the introduction of Pillar II shouldn’t be confused with existence of non-state pension funds which represent Pillar III. The Government has to look at the track record of non-state pension funds to date to see when they could be entrusted with Pillar II contributions, he said. Regarding the managing of pension assets, Matviychuk pointed out that the priority should be participants’ well-being and the importance of regulating the level of administrative charges pension funds could charge for service providers.

He also promised that his Ministry would have a blueprint ready for the Verkhovna Rada Finance and Banking Committee “within 10 days” with proposals towards amending the proposed Law on Pillar II Implementation for an adoption before the end of the year.

Valeriy Sushkevich, the Head of the Rada Committee for Pensioners, Veterans and the Disabled argued that certain aspects of Pillar II implementation had received insufficient attention so far and had to receive more focus, like for instance the readiness of domestic financial instruments to absorb 3.6 billions in Pillar II assets, the execution of a precise actuarial assessment of pension provision needs and means, as well as the need to increase salaries as an absolute necessity for better pensions. “Out of what are we going to pay these Pillar II contributions?” he asked rhetorically, alluding to Ukraine’s low salaries.

Seen from a demographic perspective, the pension system needed to find an alternative to the existing solidarity scheme, as Lydia Tkachenko, Leading Research Officer at the M.V. Ptukhi Institute of Demography and Social Research of the Ukrainian National Academy of Sciences, made clear in her presentation. Ukraine’s population would continue to grow older over the next decades, she explained. Not only would fertility rates stay consistently low (with 1.52 today and a rise to 1.69 projected for 2050) , but life expectancy at birth is expected to grow from 75.2 years today for women and 65.2 for men to 80 and 72.7 respectively in 2050.

The conference speakers also laid out the possible stumbling blocks of Pillar II implementation, mostly relating to governance and regulatory issues. Deputy Minister of the Economy Iryna Kryuchkova expressed her concern about how effectively the pension assets would be managed under Pillar II.

Greg MacTaggart, a Senior International Pension Reform Expert with the USAID Capital Markets Project, outlined what can be expected from Pillar II, making his presentation a reality check. He pointed out that while the implementation of Pillar II is a way of solving the solidarity scheme’s demographic “we have to be realistic about how much money people will get out of Pillar II.” McTaggart added that final pensions would depend on investment returns but also on the level of administrative charges billed for managing the assets, their safe keeping and administration.

Oleksandr Kotsiuba, Department of Pension Insurance Issues at the Research Institute for Labor and Employment of the Ministry of Labor and Social Policy and of the Ukrainian National Academy of Sciences remarked with concern about the risk of high inflation compromising returns on invested assets.

Boris Zaichuk, Chairman of the Pension Fund of Ukraine, expressed his concern about the finacing of the solidarity scheme if some of the existing contributions were to go over to Pillar II.

Market industry representatives rebuffed arguments that the country’s financial markets are not ready to absorb Pillar II funds but remarked that investors are looking forward to the development of the government securities market.

The mandatory accumulation component of the reformed pension system means that Ukrainian workers’ contributions will flow not only into the solidarity “pot” (financing the pensions of today’s pensioners) but to the mandatory accumulation system as well and will be invested by the private sector in the capital markets so as to accumulate over time in the contributor’s own “individual account”. At retirement the individual account will be converted into a regular monthly payment with the then pensioner receiving two pensions – one earned within the solidarity system and the other accrued from the mandatory accumulation system. According to a 2007 draft law approved in the first reading, the Mandatory Accumulation System will only affect younger participants in the State Pension Insurance System. Those under 35 on the implementation date are the likely participants. Ultimately, up to 7% of the salaries will go towards the mandatory accumulation pension system.

Serhiy Tihipko underlined the importance of international experience in matters of pension reform. He also said that it is necessary to set up a small working group to hammer out the materials required to make pension reform happen, in particular to implement Pillar II.

Round Table Materials

July 23, 2010

Electronic System of Comprehensive Information Disclosure (ESCRIN) Fully Transferred to Ukraine’s Securities Commission

On Friday, July 23, 2010, USAID Capital Markets Project and the Securities and Stock Markets State Commission finalized the transfer of ESCRIN ownership to the SSMSC. Commissioner Mykola Burmaka, USAID Financial Sector Program Manager Natalia Berezhna and CMP’s Chief of Party Ann Wallace signed the Act of Acceptance of the ESCRIN system.

Signing the act of acceptance was a final stage in formalizing all the necessary documents under which the SSMSC has become a legitimate owner of the ESCRIN system. Earlier this month, on July 15, ESCRIN was presented to the capital markets industry during an official ceremony of signing of ESCRIN Transfer Agreement in the presence of Vice Prime Minister Serhiy Tigipko, U.S. Ambassador to Ukraine John F. Tefft, USAID Mission Director Janina Jaruzelski, Securities and Stock Market State Commission Chairman Dmytro Tevelyev, and Ann Wallace, Chief of Party of the USAID Capital Markets Project.

In the coming months, under the SSMSC’s new regulation “On Information Disclosure by Issuers of Shares and Bonds Listed on a Stock Exchange”, all listed companies issuing equities or corporate bonds will be required to communicate quarterly and annual filings according to the new disclosure system. The ESCRIN system will bring unprecedented financial accountability and corporate responsibility to Ukraine’s capital markets. Additionally, the system will greatly improve the SSMSC’s ability to provide prudent and effective regulation of the market.

July 22, 2010

Survey Data Revealed Low Awareness of Pension Reform Issues by Ukrainians

On July 22, 2010 the results of a public opinion survey of Ukrainian attitudes toward retirement and pension reform were released at a presentation held at the President Hotel in Kyiv. Results of the survey spurred great interest - more than 100 participants took part at the presentation, including officials of the Cabinet of Ministers of Ukraine, the Verkhovna Rada committees, the Presidential Administration, central bodies of executive power, regulators, capital markets professionals, social partners, academics, international experts, and media representatives.

Commissioned by the USAID Capital Markets Project and the USAID Financial Sector Development Project (FINREP), the survey was carried out in June 2010. Its most important topics included: retirement age and providing for retirement, public knowledge and opinions about pension reform, saving habits, financial awareness of Ukrainians and their confidence in state and private financial institutions.

The survey was based on the responses of 2,007 Ukrainians, aged eighteen and over, from across all Oblasts and Kyiv City. 1,104 women and 903 men were asked their opinion on retirement and pension issues in 30 minute, face-to-face interviews. Within a general population of Ukraine, an age group of 18- to 36-year-olds who will be the age group targeted by the second pillar of the pension reform was over-represented. Characteristics of this group’s opinions and attitudes were of special interest to the USAID Capital Markets and FINREP Projects. The field research was conducted by the Ukrainian public opinion and polling firm, GfK Ukraine.

Addressing the participants of the presentation with a brief speech, Director of the Office of Economic Growth of USAID Michael Martin said that USAID is pleased to contribute to the discussion of pension reform through its support for a national survey which asks Ukrainians about retirement and pension reform. “Informed public opinion helps to set the policy agenda and shapes the “art of the possible” for policy-makers facing difficult challenges such as pension reform”, - said Mr. Martin.

The survey results were presented by Natalia Goryuk, the Project’s Senior Pension Lawyer. The survey revealed that most Ukrainians know little about the changes to the pension system introduced since 2004. Of those who recall a change, they remembered changes in the size of the pension payment. By comparison, only 2 percent of the respondents spontaneously cited Pillar II and Pillar III structural reforms, and another 2 percent mentioned non-state pension fund opportunities when asked what changes occurred in pension system since 2004.

The survey also found that most Ukrainians (70 percent) do not believe that they will have sufficient income to finance their “golden years.” They also believe that providing for a secure retirement is the joint responsibility of the government and the individual (slightly more than 50 percent), and yet a majority of respondents (75 percent) plan to rely on a state pension in the future.

According to the survey results, the majority of the population is strongly opposed to an increase in the retirement age (86%), and there is little support for limiting the payment of benefits to pensioners. This is true for all age groups and educational levels. The only exception to this is a strong preference to eliminate special pension benefits to high civil servants, judges, members of the Rada and some other persons.

A separate survey section was devoted to the financial literacy of the population to determine the level of public trust to various financial institutions and instruments. The level of trust to most financial institutions remains very low. Government financial institutions are more trusted than private ones. The most trusted financial institution is the Pension Fund of Ukraine, followed by state-owned banks.

The survey revealed that the level of public awareness of the pension reform remains very low and requires significant efforts from the Government to carry out an effective public information campaign. ‘What we have to do is accept the document (about the survey data) as a genuine expression of the concerns of the population and not as a criticism of what is proposed. We have to take answers to the survey questions, analyze them and use them as a basis for developing a program of public information campaign to explain to the population what will have to be done’, - says Greg McTaggart, Senior International Pension Reform Advisor of USAID Project. According to him, the survey data will provide the Ukrainian Government with important information to push forward an effective pension reform.

Presentation Materials







July 16, 2010

Regional Journalists Receive Training on New ESCRIN Electronic Disclosure System

Sixteen journalists from Ukraine’s regions attended a three-hour seminar on the new Electronic System of Comprehensive Information Disclosure (ESCRIN). ESCRIN was developed with support from the USAID Capital Markets Project in collaboration with the Ukrainian Securities and Stock Market State Commission (SSMSC). In the coming months, issuers of equity and corporate bonds listed on one of Ukraine’s exchanges will be required to communicate quarterly and annual filings according to the new disclosure system. While ESCRIN is meant to provide investors with improved information, journalists can also use ESCRIN to cover financial issues, especially those relating to publicly traded companies.

The seminar was opened by SSMSC Commissioner Mykola Burmaka, who explained the importance of providing information to all on a fair and equal basis. USAID CMP Capital Markets Lawyer Yulia Vitka explained about goals and legal aspects of the system and the Project’s Senior Analysis and Reporting Specialist Olena Rudenko held a brief master-class on how to enter ESCRIN on the internet ( http://eds.ssmsc.gov.ua ) and search for information in the different company filings.

ESCRIN was presented July 15 to the market in the presence of Vice Prime Minister Serhiy Tigipko and U.S. Ambassador to Ukraine John F. Tefft during an official ceremony transferring ESCRIN from USAID to the SSMSC. Journalists from Ukraine’s regions were invited to attend the ceremony and then follow up on the new disclosure system the next day at a seminar presenting the main features of the disclosure system and some hands-on training on how to use it.

ESCRIN reflects the filing and information disclosure requirements of two key Ukrainian laws, “On Securities and Stock Market,” and the “Joint Stock Company Law”. The system also implements the Presidential Decree “On Top Priority Actions Regarding the Implementation of Innovative Information Technologies” (No. 1497/2005) requiring that government agencies introduce electronic data flow, including electronic signatures.

Publicly listed and traded companies will use ESCRIN software to prepare their electronic filings and digitally sign them. A company sends its filing to the ESCRIN server over the internet. The filing is then published automatically and in real time on the ESCRIN website for the regulator, the investor community, and other market participants to consult.

The ESCRIN website will be accessible for all and completely free of charge.

July 15, 2010

ESCRIN Transfer Ceremony
Vice Prime Minister Tigipko: ESCRIN Will Ensure the Transparency of Investment Process

A new electronic disclosure system for issuers listed on the Ukrainian stock market, the Electronic System of Comprehensive Information Disclosure (ESCRIN), was introduced during a high-profile event held in the presence of Vice Prime Minister Serhiy Tigipko, U.S. Ambassador to Ukraine John F. Tefft, USAID Mission Director Janina Jaruzelski, Securities and Stock Market State Commission (SSMSC) Chairman Dmytro Tevelyev, and Ann Wallace, Chief of Party of the USAID Capital Markets Project at the Hyatt Regency Hotel.

Speaking at the event, Serhiy Tigipko described ESCRIN as playing an important role in the development of the Ukrainian economy. «Attracting capital is an extremely important factor for economic growth of Ukraine. The new [disclosure] system plays a big part in this process, as it will ensure the transparency of the domestic and foreign investment process,” he said. ESCRIN was developed for the market with support from the “Capital Markets Project”, a project funded by the United States Agency for International Development (USAID), and in collaboration with the Ukrainian Securities and Stock Market State Commission (SSMSC).

The highlight of the event was a signing ceremony marking the transfer of the system from USAID to the SSMSC. Taking part were Ambassador John Tefft, SSMSC Chairman Dmytro Tevelyev, and USAID Mission Director Janina Jaruzelski in the presence of Ukrainian officials and the cream of Ukrainian capital markets industry, including Deputy Minister of Finance Tetyana Yefimenko, First Deputy Minister of Economy Anatoliy Maksyuta, people’s deputies Ihor Prasolov and Vladislav Lukianenko, NBU Board of Governors’ member Roman Shpek, heads of Ukrainian stock exchanges, as well as the media.

Speaking at the event, U.S. Ambassador John Tefft noted “the important step that Ukraine is taking to bring greater transparency and openness to its financial markets” by introducing the new disclosure system. He described ESCRIN as “a system that provides business and financial information openly on publicly traded companies to all interested parties free of charge and on a real time basis” as “really vital to the integrity of Ukraine’s capital markets. He added that ESCRIN would help create a business and investment friendly environment that is a key to the economic future of this country.

SSMSC Chairman Dmytro Tevelyev underlined for his part that through ESCRIN Ukraine demonstrated its “commitment to international reporting standards.” CMP COP Ann Wallace emphasized that “ESCRIN means more and better information. And better information means stronger and more stable markets. Information creates confidence, and confidence, in turn, creates growth”.

The signing ceremony and presentation of ESCRIN was followed by a luncheon. In the coming months, issuers of equity and corporate bonds listed on one of Ukraine’s exchanges will be required to communicate quarterly and annual filings according to the new disclosure system. The SSMSC is currently finalizing a regulation to this effect. The implementation of ESCRIN could happen possibly as early as “October 1”, Commissioner Mykola Burmaka told journalists during a press point following the ceremony.

The event was extensively covered by around 40 Ukrainian print and broadcast media, including 18 from regional press.

ESCRIN reflects the filing and information disclosure requirements of two key Ukrainian laws, “On Securities and Stock Market,” and the “Joint Stock Company Law”. The system also implements the Presidential Decree “On Top Priority Actions Regarding the Implementation of Innovative Information Technologies” (No. 1497/2005) requiring that government agencies introduce electronic data flow, including electronic signatures.

Publicly listed and traded companies will use ESCRIN software to prepare their electronic filings and digitally sign them. A company sends its filing to the ESCRIN server over the internet. The filing is then published automatically and in real time on the ESCRIN website for the investor community, and other market participants to consult.

The ESCRIN website will be accessible for all and completely free of charge.

ESCRIN was developed following a comprehensive analysis of disclosure systems implemented by securities market regulators in the United States, European Union, Canada and Russia. Throughout the world, most regulators mandate that information be filed in electronic format to provide a routine and orderly flow of data to the capital market. While the systems vary widely, electronic submission facilitates information to investors, the key element in a vibrant capital market.

After an initial stage where a team of disclosure experts and programming specialists elaborated the operating system, the program was launched as a pilot project in 2007. CMP legal and market experts in coordination with SSMSC took ESCRIN on a “road show” to eleven cities in Ukraine. First twelve, then 27 issuers – from sectors including banking, industry, and energy - committed to disclosing in ESCRIN format.

ESCRIN has already shown its expediency during this pilot phase. Indeed, ESCRIN pilot companies have consistently come out in the top ten in the study of information transparency of leading Ukrainian banks produced every year by the international ratings agency Standard& Poor’s and the Financial Initiatives Agency (FIA). FIA analyst Alexei Kutsenko noted in 2008 that ESCRIN had a “positive impact on the assessment of the level of transparency of issuers by international experts”.

ESCRIN can be accessed through the SSMSC website at http://eds.ssmsc.gov.ua .









June 15, 2010

The Regulator’s Mission Is Not Only to Regulate Market But to Build It Together with Participants

USAID CMP co-organized the Professional Asset Management Conference held in Yalta (Crimea) on June 10-14, 2010. This largest Ukrainian forum of asset managers brought together over 150 stock market participants, representatives of the Government, Securities and Stock Market State Commission, Financial Services Regulator, Ministry of Justice of Ukraine, Ministry of Labor and Social Policy of Ukraine, SROs.

For the first time, SSMSC Chairman Dmytro Tevelev presented the draft Ukrainian Stock Market Development Strategy to conference participants. “The regulator’s mission is not only to regulate market but to build it together with market participants,” said Mr. Tevelev in his presentation. The new stock market development strategy envisages very fast and efficient investor protection actions. First of all, some actions will be taken to improve the disclosure by market participants themselves. “We want to minimize paperwork and duplication of reports,” Mr. Tevelev said. Secondly, the passage of a separate special Law on Investment Guarantee Fund already developed by the Securities and Stock Market State Commission is supposed to enhance public confidence in the securities market. Thirdly, the regulator plans to substantially improve the reliability and effectiveness of the accounting system. It was announced at the conference that special meetings had been held with two depositories regarding the immediate resolution of all conflicts and establishment of correspondent relations between the depositories. Next week there will be a separate meeting at the Cabinet of Ministers on the creation of a Central Depository. “Ownership is one of most critical issues for investors. This cannot wait,” says Mr. Tevelev.

One of the most interesting components of the promulgated draft Strategy will be financial literacy activities carried out by the Commission for the general public. Mr. Tevelev intends to have something like a “campaign train” that will carry out awareness activities for the public in the regions across Ukraine. Conference participants shared their experience in conducting trainings for users of financial services. Deputy Managing Director of Southern Securities Store Hanna Pleshakova spoke about special trainings for schoolchildren and their parents in Mykolayiv. The Southern Securities Store Company developed special programs for different audiences. Trainings cover the family budget management, various financial instruments, etc.

The discussion of the draft Tax Code and its ramifications for the stock market was also a very interesting component of the conference. Vice President of Kinto Anatoly Fedorenko spoke about planned changes in taxation of all key players in the stock market (from individual investors to collective investment schemes). Two largest Ukrainian stock exchanges (PFTS and Ukrainian Exchange) presented their projects to launch new instruments. The Ukrainian Exchange presented their futures trading project and analyzed Russian experience in implementing derivative trading on the exchange. In its turn, PFTS first announced its intention to launch trading in so-called “stress” assets. “IFC, which owns three subsidiary banks in Ukraine, is interested in developing, together with PFTS, the trading in so-called “toxic” assets,” said Igor Seletsky at the conference. PFTS plans to launch trading of shares in venture funds that will buy stress assets from banks.

A separate session was devoted to how Ukrainian companies work under the new Joint Stock Company Law. To comply with requirements of this law, issuers face a large number of technological and legal problems. Opinions of conference participants were divided. Some participants suggested that the effective dates of the new rules of the game required by the new law be changed; others expressed confidence that issuers simply have to comply with the new law in spite of difficulties. SSMSC Commissioner Sergiy Biriuk informed conference participants that the Commission had already developed amendments to the Joint Stock Company Law that would simplify compliance.

Conference materials and presentations (in Ukrainian)

May 14, 2010

Request for Proposals: Competition Results

The USAID Capital Markets Project reviewed submissions by six leading Ukrainian social research companies and institutions competing for a contract to conduct a survey of Ukrainian households’ knowledge of pension reform. The proposals were evaluated according to quality of services offered (50%), demonstrated ability to deliver the product on a timely schedule (30%), and cost competitiveness (20%). CMP is happy to announce that GfK Ukraine submitted the most competitive proposal.

We thank all participants for showing interest and taking part in the competition.

April 30, 2010

CMP Releases Pension Investment Glossary

USAID Capital Markets Project launched a “Pension Investment Glossary” as part of its mission to assist financial sector partners in providing effective education and awareness about personal finance and retirement saving strategies. Ukraine is in the process of implementing a multi-pillar pension system where pension savings while be invested over the long-term to provide alternative retirement income sources to the existing solidarity system. Temporarily shedding their usual function of technical advisors to reach out to average young Ukrainians, CMP’s pension and capital markets advisors adhered to the principle of “less is more” in providing short and simple definitions and explanations of key investment terms.

The glossary, for instance, defines “shares” and “bonds” and it also explains the importance of the principle of disclosure in providing the basis for a sound capital market. CMP’s goal in publishing this glossary is to make the “jargon” of the investment world less daunting than it often seems to the non-initiated. The prime audience for the glossary is young people: they constitute the first generation of Ukrainians who are offered the alternative to save long-term for their retirement, 30 or forty years from now. With them in mind, the glossary’s dry subject matter is, as the Project hopes, made somewhat more approachable by several tongue-in-cheek illustrations about pension investment.

The glossary will be distributed in Kyiv and major regional cities in the coming months. You can find a downloadable/printable version here ( in English and in Ukrainian ). If you would like to order hard-copies free of charge for your institution please contact the CMP Public Outreach Department through office@capitalmarkets.kiev.ua .

Are you a participant in a non-state pension fund? Do you know your unit value? If you don’t, then read the “Pension Investment Glossary”.

April 29, 2010

Policymaker Conference Marks Need for Action on Pension Reform

"We are all pension system participants and face a joint goal to ensure the protection of rights of insured individuals and contributors" , Minister of Labor and Social Policy of Ukraine Vasyl Nadraha said in his opening remarks at the Conference on “Pension Reform in Ukraine: What to Do about the Mandatory Accumulation Pension System” held at the Rus Hotel in central Kyiv on April 28-29, 2010.

Organized jointly by the USAID Capital Markets Project and the Ministry of Labor and Social Policy of Ukraine, the two-day conference’s prime purpose was to inform policymakers on the policy options for Ukraine ahead of the implementation of the mandatory accumulation system. The conference brought together over 200 top Ukrainian professionals from a range of institutions involved in the pension sector: Government officials, members of Parliament, specialists from the Pension Fund of Ukraine, commissioners and experts from the regulators, representatives of the pension fund industry and of capital markets, as well as specialized media from throughout Ukraine. The event was highlighted by a photo-exhibit by Ukrainian photographer Ihor Gaidai depicting Ukrainians from all spheres of life, of all ages, and different professions. It was noted that pension reform is not just about fiscal responsibility of the Government, but about the future of the Ukraine’s citizens.

It was great to have such distinguished international experts from all over the world speaking at the conference: Edward Palmer, Professor, Uppsala University Sweden; Liudmila Sycheva, Leading Researcher, Institute for the Economy in Transition, Russia; Aleksandra Wiktorow, Former Chair of the Social Insurance Institution (ZUS), Poland; Tibor Parniczky, Former Vice President of the Supervisory Authority of Pension Funds, Hungary; Liu Siwu, Senior Expert, EU-China Social Security Reform Project, China; Liew Heng San, Chief Executive Officer, Central Provident Fund of Singapore; Joanne Adams, Public Education Expert, USA; Greg McTaggart, Senior International Pension Reform Adviser, USAID Capital Markets Project; Volodymyr Yatsenko, Social Sector Advisor, USAID Armenia; Richard Symonds, Former Senior Attorney, World Bank; Theodore Urban, Former Executive Vice President and General Counsel, Ferris, Baker, Watts, Inc., USA. Their participation maximized the effect of the conference and also offered networking opportunities for the conference participants.

Implementing a mandatory accumulation system means that a significant amount of Ukrainians’ future retirement income will be invested on Ukrainian capital markets with the goal to return a profit over the long term. By diversifying Ukrainians’ sources pension of pension savings, the state can more effectively address the urgent issue of providing for Ukrainians’ future.

Many participants underlined the need to make haste … with providence.

USAID Mission Director Janina Jaruzelski stressed the importance of the conference in light of Ukraine’s current priorities. "Pension reform is not only vital for overcoming economic difficulties, but it is also crucial for securing the social safety net for Ukraine’s citizens" , Ms. Jaruzelski noted. "Ukraine’s current "pay as you go" system is a major cause of the country’s budget crisis," she said. Indeed, pension expenditures amount to approximately 16 percent of GDP, which is the highest rate in the entire world and almost double the average rate in Europe.

The remarks of many Ukrainian speakers also carried a note of urgency. Mr. Vasyl Volga, the Chairman of the State Commission for Regulation of Financial Services Markets of Ukraine remarked that it was “time for action” and that Ukraine’s economic crisis had highlighted the need for change. Mr. Volga also stressed the need for effective regulation of the non-state pension funds. Mr. Oleksandr Klymenko, Head of the Non-Banking Financial Institutions Subcommittee of the Verkhovna Rada Finance and Banking Committee, also pointed out the lack of agreement on further action. Mr. Serhiy Ukrainets, Deputy Head of the Federation of Trade Unions of Ukraine addressed the need to first stabilize the solidarity system before implementing Pillar II. Mr. Liew Heng San, CEO of the Central Provident Fund of Singapore remarked that while it was important to wait for right conditions, waiting for perfection was unrealistic.

On the first day of the conference, international experts from Russia, Sweden Poland, Hungary, Singapore, and China shared their hands-on experience building a Pillar II in their country. The Russian and Swedish speakers explained the complexity of building a mixed system where both the state and private funds have a role to play in the administration of funds. Ms. Alexandra Wiktorow, former Chair of Social Insurance Institution of Poland (ZUS) for instance recognized that the Polish Pillar II would have gained in quality if it had been better prepared. She said that "a thought through administration system and not believing in "fields of gold" were "key" elements to a successful pension reform" . Mr. Liew Heng San described the streamlining costs and efficiency through an automated system Singapore’s Pillar that it centralized on state level without the participation of any private funds.

The second and last day of the conference highlighted specific issues relevant to Ukraine. One very important aspect was the protection of participants’ contributions. One important aspect is increasing the custodian’s powers in protecting funds; another is making sure that the fund board exercises its fiduciary responsibility, or in other words that it acts in strict loyalty to fund participants.

The issue of administrative charges – and how high fees can erode future savings - was also covered in detail by many international experts. In Hungary, for instance administrative charges vary from just under 1.60% to over 2.80% depending on the fund. Mr. Tibor Parniczki, former Vice President of the Former Supervisory Authority of Pension Funds of Hungary, also pointed out that administrative charges had diminished since the system was first implemented. In Singapore they stand at 0.7%, one of the lowest in the world.

The event also focused on the need for communicating with the public. On April 28, the international experts answered questions by journalists from 26 regions of Ukraine. Later the same day, the Minister of Labor and Social Policy of Ukraine Vasyl Nadraha and the Chairman of the State Commission for Regulation of Financial Services Markets of Ukraine Vasyl Volga, held a press briefing for electronic and print media that was widely covered by the press. Overall, the event received wide and detailed coverage through the Ukrainian daily Den’ newspaper, and leading internet sites.

Conference materials can be accessed directly here
Photo Gallery

March 23, 2010

Trade Unions Become Active Participants in Pension Reform

Representatives of the USAID Capital Markets Project took part in the workshop "Role of Non-State Pensions in Social Protection of Citizens" co-organized by the Federation of Trade Unions of Ukraine, the Ministry of Labor and Social Policy of Ukraine, and the Financial Services Regulator aimed at promoting pension reform. The need for a special training event targeted to trade union leaders was not accidental. Trade unions are increasingly interested in non-state pensions for employees, and some industry trade unions have already become co-founders of non-state pension funds. Trade union leaders are playing an increasingly significant role in establishing and maintaining Pillar III (non-state pension funds). Some trade unions have de facto transformed themselves into non-state pension system promoters. Educating an ordinary enterprise employee on the operating mechanisms of non-state pension funds is one of the elements of raising the financial awareness of the public and that is why the USAID Capital Markets Project supports such events.

The problem is that not all regional trade union officials have a clear understanding of how the non-state pension system operates in Ukraine. Non-state pension funds are rather new institutions to Ukraine. That is why there is a need for a series of educational workshops specifically for member bodies of the Federation of Trade Unions of Ukraine.

The workshop included discussion on the rules for the operation and functioning of non-state pension funds in the Ukrainian marketplace, state regulation and supervision. A large part of the workshop was devoted to tax rules for pension scheme participants and international experience in establishing governing bodies at NPFs.

Ms. Valentyna Kudin , Head of the Mandatory and Voluntary Accumulation Pension Provision Department of the Ministry of Labor and Social Policy, delivered a very detailed report on the legal regulation of NPFs’ activities, explained how non-state pension funds are set up and operate in practice. She also clarified the role of infrastructure institutions that service pension schemes - an administrator, an asset manager, and a custodian. She emphasized that the establishment of a non-state pension fund is voluntary for enterprises and participation in pension accumulation is voluntary for people. "No one can force an enterprise to set up a non-state pension fund and no one can force an employee to participate in it," she stated at the forum. In her opinion, employers must, first and foremost, have an economic interest in making pension contribution for the benefit of their employees. Mr. Olexandr Tkach , representative of the PIOGLOBAL asset management company, spoke about tax rules for NPF participants and tax advantages for companies that chose to finance future pensions of their employees. In his opinion, the chief tax motivation for enterprises is very clearly set forth in the legislation: contributions of enterprises to non-state pension funds are tax deductible within the limits provided by law. But Mr. Anatoly Mikhailenko , President of the Ukrainian Federation of Trade Union Organizations-Trade Union of Employees of Joint Ventures, pointed out that, in his opinion, there still remains a big problem in the taxation of individuals that use NPF services. The other problem discussed at the workshop – how trade unions can participate in pension schemes in practical terms. The model under which a union committee makes payments to a non-state pension fund proved to be not very effective. First, trade unions cannot enjoy tax benefits provided to enterprises themselves. Second, several industry trade unions faced another problem: a contribution paid by the union committee to an employee’s pension account was treated by the tax inspectorate as personal income taxed at the rate of 15%. Mr. Greg McTaggart , international expert from the USAID Capital Markets Project, in his remarks, turned the focus towards the role of a non-state pension fund board. "Few people notice that, pursuant to Article 7, Section 3 of the Non-state Pension Provision Law of Ukraine, money in the non-state pension fund belongs to participants. Despite this, corporate fund participants may not be represented on the NPF Board at all," says Mr. Greg McTaggart . He spoke of the research carried out by MERСER, which had studied world pension practices. In this regard, MERСER also analyzed experience in establishing the governance system at pension funds in foreign countries. It turned out that one of the factors improving the operating effectiveness of a pension fund is the presence of employee representatives on NPF boards. He gave examples of several effective (judged by MERСER) models of forming NPF Boards. For instance, at the ATP pension fund (Denmark), the Board of Representatives is composed of 31 persons – 15 representatives of employers, 15 representatives of employees and the Chair. At the Dutch ABP pension fund, money is controlled by the so-called "social partners" represented by employers and employees. In Australia, all pension funds where there are more than 5 participants must have in place a Board of Trustees. This Board is composed of the equal number of representatives of employers and employees. An occupational pension scheme created by the Swedish SAF-LO fund was created after a collective agreement was signed by and between the Swedish Confederation of Employers (SAF) and the Swedish Confederation of Trade Unions (LO). MERСER’s research shows that the participation of employees (or trade unions as their representatives) is one of the reasons behind the improvement of the effectiveness of pension fund management. Mr. Victor Logvinovsky , Deputy Head of the FSR Financial Institution Regulation and Supervision Department, spoke of how important it is for pension funds to provide timely disclosures to customers. He focused on the transparency of NPFs’ operations. "In the future, we plan to create a special information system that allows participants to receive information promptly. Control on the part of participants is very important. It is important to provide disclosures on a daily basis," he emphasized. Mr. Logvinovsky gave a very detailed account of the state supervision system built for Pillar III and of investment caps that must be met by NPF asset managers.

February 18, 2010

Experts from the USAID Capital Markets Project took part in the Regional Conference in Kharkiv on "Implementing the Pension Reform Concept – Views, Problems and Development Areas"

This forum was organized by the Kharkiv Oblast Council (permanent Commission for Social Policies and Protection of the People). The objective of the conference was to explain the essence of pension reform to region participants and discuss pension reform issues with stakeholders. Representatives of local authorities, trade unions and associations of employers and entrepreneurs participated in a productive discussion of the Pension Reform Furtherance Concept Paper. Interesting hot debates helped conference participants prepare a special document – a resolution that contains specific proposals and recommendations regarding pension reform issues for lawmakers and the Government.

Discussed at the Conference were issues relating to the acceleration of the launch of the mandatory accumulation pension system – Pillar 2 in Ukraine and existing problems of the solidarity pension system.

Senior International Pension Reform Expert from USAID CMP Mr. Greg McTaggart made an extended presentation "Pillar 2 Pensions - Social Security or Business?" . The presentation not only explains the essence and the need for launching Pillar 2 but also demonstrates future problems of the pension system in Ukraine. The expert raised an important issue at this Conference – should the profitability of any business that might handle Pillar 2 pension savings be at the expense of participants? This is about the remuneration of pension asset managers and custodians that might service pillar II pension savings. "We need the right balance between the interests of participants and profits of service providers," states Mr. Greg McTaggart. Service providers will naturally push for laws that won’t restrict their profits, but pension system participants – future pensioners, in the opinion of Greg McTaggart, must come first. The implementation of the mandatory pension accumulation system is first and foremost a social issue rather than a business interest issue.

One of key items of the discussion was the choice of a model for Pillar 2 in Ukraine. Valentina Kudin, Head of the General Mandatory and Voluntary Pension Unit of the Ministry of Labor and Social Policy of Ukraine, reported that there are already four proposals to amend the draft law on Pillar 2 implementation that was passed by the Verkhovna Rada at its first reading in 2007. "According to the first scenario, a single state accumulation fund will be set up and after 11 years people will be allowed to choose a non-state pension fund for accumulating Pillar 2 mandatory insurance contributions. This is the version proposed in the draft law. And according to all other proposals, a person may choose a non-state pension fund right after Pillar 2 is launched," said Ms. Kudin. But whether there will be any changes to the model passed by the VR in 2003 has not been decided yet. That is why the USAID Capital Markets Project plans to hold an international conference in April, where international experts will analyze the Pillar 2 implementation experiences of their own countries. We hope that government agencies will get various recipes for the successful development of the pension system, specifically Pillar 2.

Significant attention at the conference was given to Pillar 1 – the existing solidarity system of pension insurance. Volodymyr Maksimchuk, Deputy Chief of the Social Protection Department, the Federation of Trade Unions of Ukraine, believes that there are methodological problems relating to the computation of the covered service period and pension raise. "Laws in this area must be written in such a way that they are clearer and do not allow for different interpretations," he contends. In some cases, people who exercised the same profession and have the same duration of service may have different pensions because they retired in different years. It was news for the conference participants that the Ministry of Labor has already prepared a draft law that provides for moving to a single set of principles of granting pensions to those people whose pension benefits are governed by separate laws (military personnel, government officials, prosecutors, judges, etc.). "What is now governed by many laws will be governed by one law," said Valentina Kudin.

Vasyl Grigoriyev, Executive Director of Granit - the Association of Employers Organizations of the Kharkiv Oblast, drew the attention of all those present to the problems of employers relating to the reimbursement of employees for expenses associated with privileged pension benefits. Outstanding salaries are a consequence of the obligation of an employer to reimburse for early pensions to privileged categories of employees, including for the time of work in the former Soviet Union. He suggested that the obligation of an employer to reimburse for early pensions to privileged categories of employees should continue to partially rest with the State budget.

Victor Yelagin, Social and Humanitarian Policy Professor of the Kharkiv Regional Institute for Public Administration, brought up the retirement age issue at the conference. He is confident that the retirement age will inevitably be raised in Ukraine. "Why do women retire 5 years earlier when they live longer?" he put a rhetorical question to all the conference participants. Greg McTaggart believes that "demographics make the current system financially unsustainable. If there is not gradual increase in retirement age then the current problems of financing today’s pensioners will get worse." Thus, the need to undertake effective pension reforms as soon as possible becomes an evident priority of the state social policies.

The USAID Capital Markets Project is pleased with the efforts of the Kharkiv oblast administration and hopes that their lead will be taken up both other oblast administrations. We will continue to support events focused on the discussion of the Pension Reform Concept, because public discussion of the draft law and the Concept Paper itself is a very important step to the choice of the best operating model of Pillar 2 and advancement of pension reform in Ukraine.

January 12, 2010

Pension Reform Discussion Platform

Over the past months of economic crisis spurring immediate concerns about relieving unemployment and inflation, concern about structural reforms in Ukraine may appear to have slipped into the background. But in fact, reforming the state pension system remains, more than ever, a priority if the country is to achieve a sustainable level of growth and well-being for its citizens. At the same time pension reform is a complex process, bringing together a variety of views and proposals. That is why USAID Capital Market Project’s pension team lead by Greg McTaggart, CMP’s Senior International Pension Reform Adviser, is launching a new initiative, the "pension reform discussion platform". Every month one of the Project’s experts will offer a talking point: his/her view on a specific aspect of pension reform that will be open to reactions, criticism and argumentation from all persons concerned: young people, present and future pensioners, trade union representatives, state officials, pension fund administrators…. Comments will be posted on the "Pension Reform in Ukraine" web-site ( www.pension.kiev.ua ) and updated regularly.

Discussing retirement age will launch this new initiative. Why should retirement age be raised? What will it change? What has the experience been in other countries?

Read the analysis "Increasing Retirement Age Better Sooner Than Later" by Greg McTaggart and the comparative table of retirement age throughout Europe. Then join the discussion regarding increasing retirement age and express your thoughts on the pension reform. Make your voice heard on what Ukraine’s future pension system should look like!

December 18, 2009

CMP Expert Focuses on Criteria for Evaluating Protection of Pillar II Pension Participants

A round-table titled "Accumulation Pension System as an Effective Instrument of Social Protection. International Experience of Mandatory Accumulation Pension System Operation" was held on December 18, 2009. The round-table was organized by the Ministry of Labor and Social Policy of Ukraine in cooperation with the Ukrainian Association of Pension Fund Administrators. The experts of legislative and executive branches, scientists, representatives of employers and trade unions, international organizations and mass media participated in the meeting. CMP experts participated in the meeting too.

This regular meeting was held under the framework of public discussion of the Concept on Pension Reform Furtherance approved by the Government in October 2009. The first meeting was held by the Federation of Employers of Ukraine. It focused on privileged pensions provision. At the second meeting held at the Institute of Demography and Social Studies, the discussion related to pension indexation and elimination of pensioners’ poverty.

While opening the roundtable the Deputy Minister of Labor and Social Policy Olena Hariacha said that the program document of the Government on pension reform furtherance was published in the mass media that represent different authorities: they already created columns to bring this issue to the public for discussion. "Today everybody’s opinion on this important document will be considered", Mrs. Hariacha said. "We cannot move ahead without any social dialogue", Mrs. Hariacha stressed. "Many problems are yet to be solved. However, today we need to move to modeling Pillar II", Mrs. Hariacha said giving the floor to the roundtable participants.

In the course of discussion of Pillar II implementation and operation, Anatoliy Fedorenko, Vice-President of KINTO, and Tetiana Salnykova, Director of "All-Ukrainian Pension Fund Administrator", proposed their models for Pillar II implementation and operation. Anna Nechai, Deputy Director of the Scientific Research Institute on Financial Law, talked about the use of international experience in pension reforms in the legal environment of Ukraine. Andriy Bakhmach, Board Chairman of the Ukrainian Association of Pension Fund Administrators, spoke about state regulation and supervision of the accumulation pension system, while Olena Paliy, Deputy Head of Life Expectancy and Public Health Sector of the Institute of Demography and Social Studies, presented a report on population aging prospects in Ukraine.

Greg McTaggart, CMP Senior International Pension Reform Expert, focused on the key criteria that need to be in place in any mandatory accumulation system to ensure the protection of those who participate. Mr. McTaggart pointed out as the key criteria good legislative base which should cover participation in the system, the rights and obligations of participants, and sound regulatory practices to facilitate protection of participants rather than the interests of services providers or the government. Also, major criteria for evaluation of Pillar II participants protection include appropriate investment opportunities, experienced asset managers, custodians and sound administrators. According to Mr. McTaggart, simplicity of the system, trust to the system, and financially aware public that understands pension system principles and has the knowledge needed to make any choice they are given are in the list of criteria too. "Lack of knowledge creates a fear that leads to people taking decisions that aren’t in their best interest", the Expert said. Mr. McTaggart offered to evaluate the pension system of Ukraine against these criteria and to conclude what Ukraine still needs to work on based on the assessment results.

December 3, 2009

USAID CMP Supports Bank Transparency Presentation

International rating agency Standard & Poor's presented the results of its yearly transparency and disclosure survey of the 30 largest Ukrainian banks, together with representatives from the National Bank of Ukraine, the Securities and Stock Market State Commission (SSMSC) and USAID.

Survey results show banks are still far from reaching international disclosure standards, though they have made some progress. According to the study, the transparency index increased to almost 49% from 45% in 2008. Of 28 banks surveyed both in 2009 and in 2008, 16 showed an increase in transparency with an average improvement of some 11.2 p.p., and 12 banks showed a weaker performance, falling 5.5 p.p. on average in 2009. As for the transparency champions, there have been some changes in the top three banks since 2008. VAB Bank came in first with a score of 71.4%, after ranking third in 2008. Forum bank was second in 2009, with a score of 68.8%, having failed to even break into the top ten in 2008. In third place was 2008’s winner, Ukrgazbank, which saw its score fall to 66.2% from 71.2%.

The survey is a joint research project by Standard & Poor's and the Financial Initiatives Agency, a private independent Ukrainian think tank. It was supported by the USAID Capital Markets Project, which provided funding. The survey is based on public information only. Its methodology, developed by Standard & Poor’s, is based on 116 criteria of disclosure grouped in three blocks: ownership structure and shareholder rights, financial and operational information, and board and management structure and processes.

USAID Acting Office Director of the Office of Economic Growth Paul Richardson struck a more subdued note. Though he noted the improvement "by 4%"of the overall transparency index, he pointed out "that this still falls significantly short of international best practices and norms". Transparency indexes in developed financial markets consistently pass the 80-85% mark, according to S&P.

Paul Richardson remarked the lack of sufficient disclosure had "constrained its financial sector, adding, that, because of the financial crisis, market incentives for transparency have been minimal" in 2009. "Ukraine still needs to do more", he concluded.

Richardson seized the opportunity to announce the launch of a new 13 million dollar financial sector development program for Ukraine by USAID. Called FINREP, the project focuses on the goal of assisting Ukraine in developing a more transparent and resilient financial sector.

The three-year project will continue USAID’s work in capital markets. It will pursue four main goals: strengthening the legal and regulatory environment for banking and the capital market; enhancing organizational capacity of financial sector institutions to implement reforms; assisting vulnerable Ukrainians with financial relief planning; and expanding the domestic securities markets to mitigate financial stress and broaden the financial base.

FINREP will be implemented in close coordination with a wide range of Ukrainian partners, as well as with international partners (the IMF, the World Bank, and other donors).

Also, USAID’s Capital Market Project is currently providing support to the SSMSC in implementing a new electronic system of information disclosure by publicly listed and traded companies called ESCRIN ("Electronic System of Comprehensive Information Disclosure"). The system will provide public access to company business and financial information, free-of-charge and in real-time on the SSMSC website. SSMSC Commissioner Mykola Burmaka said that ESCRIN would help the SSMSC make information disclosure of corporate management structure and operations a main focus of the regulator for next year.

November 24, 2009

CMP Expert Shares Western Experience at Round Table on Privileged Pensions

The Ukrainian Employers’ Federation hosted a round table on the complex and critical issue of how to finance privileged pensions for those who work in hazardous or difficult conditions. It brought together about forty industry professionals - employers, Government officials, trade union representatives, as well as experts including USAID Capital Markets Project Senior International Pension Reform Advisor Greg McTaggart and Senior Pensions Lawyer Natalia Goryuk to discuss possible strategies.

In Ukraine, a draft law on Mandatory occupational pensions proposes that the employer should finance the early retirement component of privileged pensions by making contributions to a non-state pension fund. However, for now, the 2003 framework law on mandatory pensions provides that they reimburse the Pension Fund of Ukraine for the cost of their employees’ privileged pension. For example in 2009, employers cover 70% of the privileged pensions costs for persons employed in particularly hazardous occupations, and this increases by 10% each year. Employers say this burden is excessive and compromises their business’ future. The Government of Ukraine is considering new legislation to change the present system in order to make privileged pensions more financially sustainable by introducing a funded scheme.

CMP’s Greg McTaggart shared his experience on how Western pension systems integrate privileged pensions. "In Western Europe, the schemes that allow early retirement under favorable terms are those where the worker’s occupation exposes him to high stress, hazards or difficult conditions", McTaggart said. However, generally speaking, "early retirement schemes are not financed through the general compulsory state pension system, but through special schemes financed by the employer and the worker employed in the hazardous occupation". In the West, such pension provision schemes are financed through contributions into non state pension funds and agreed by the employer and the employees (represented by the trade union), without government intervention in the process, he said. Still, early retirement usually means a reduction in benefits compared with a worker who retires at normal retirement age.

In Ukraine, the debate revolves around the issue of whether or not to move towards a European-style construction whereby the employer pays contributions into an NPF-type scheme (and the employee then accrues the benefits at an early retirement age) or whether the present system will continue to exist where the employer does not contribute on a monthly basis but nevertheless has to meet the costs of the early retirement benefits when his employee retires. CMP’s pension team says that generally they support financing such early retirement benefits by requiring employers and/or employees to fund these costs on a contributory basis through a non-state pension fund. However, CMP’s expert Greg McTaggart underlined that in Ukraine such a scenario would be very risky until significant steps are taken to enhance the security of participants’ assets held in NPFs.

October 21-22, 2009

USAID Capital Markets Project Participated in the Verkhovna Rada Information Fair

USAID Capital Markets Project took part in the Verkhovna Rada Information Fair 2009 organized by the Parliamentary Development Project II (Legislative Policy Development Program for Ukraine) in cooperation with the Secretariat of the Verkhovna Rada of Ukraine. The two day event was intended as an opportunity for Members of Parliament to become familiar with the international technical assistance organizations and Ukrainian NGOs and think tanks that are actively engaged in the improvement and support of the legislative processes in Ukraine.

Following the opening remarks of the organizers, CMP Chief of Party Ann Wallace addressed the participants with a brief speech during the official opening ceremony on Wednesday, October 21. In her speech, Ms. Wallace introduced the Project and its major counterparts – Securities and Stock Markets State Commission and the Financial Services Regulator, the two primary regulators in the capital markets, and the Ministry of Labor and Social Policy of Ukraine with which the Project is working closely on the development of pension reform in Ukraine.

CMP Senior Experts Natalia Goryuk and Victor Stetsenko had two days of active communication with people’s deputies, their assistants, and faction staff as well as the staff of parliamentary committees responding to their questions on the Project’s activities and presenting and distributing informational materials about the project’s key areas of activities.

October 13, 2009

Roundtable Discussed Role of New Joint Stock Company Law in Improving Investment Environment in Ukraine

It has been a year since the Joint Stock Company Law was passed and almost six months since it came into effect. Does it mean the expectations of investors were met? How does the Law help to draw investments into Ukrainian economy? These were the major issues raised at the New Joint Stock Company Law and the Prospect of Capital Attraction for Joint Stock Companies roundtable organized by SigmaBleyzer with support of the Securities and Stock Market State Commission (SSMSC) and USAID Capital Markets Project.

"Perfect laws do not exist," said Maksym Libanov, Director of Department for Securities Legislation Drafting, the SSMSC, "but the main thing is that the Joint Stock Company Law (JSC Law) has absorbed the best from OECD corporate governance principles and the world corporate governance practices." Naturally, the Law demands more hard and focused work to implement it in real life. As a regulator, the SSMSC is holding an ongoing information campaign to explain various requirements of the Law, concerning for instance the Law’s transition clauses, the new cumulative voting procedure, the election rules of the Supervisory Board, and the planned dematerialization of shares. Also, the SSMSC drafts legal documents necessary for the full implementation of the law. In this regard, the Commission has prepared some particular regulatory adaptations in light of the financial crisis that will loosen significantly mandatory listing requirements for public companies. Notably, the changes prepared by the SSMSC are going to suspend for two years the requirement that companies applying for listing on one of the exchanges should have reported at least a break even profit and loss in their financial statements for the previous year, and exclude the requirement that a company listed on the second tier have at least 100 shareholders.

Oleh Ustenko, the President of the Bleyzer Foundation, questioned whether Ukraine is ready to enter a new business-cycle after the crisis. "Ukraine has already exhausted its traditional sources of growth - export and consumption," he noted. "From now on, Ukraine has to move to a new level of development, and investments are the opportunity that can turn into a new spiral of development," he said. So how Ukraine will come out of the financial crisis depends a great deal on its ability to attract foreign and national capital to bring the economy out of collapse, he warned. And since investing in joint stock companies is one of the best ways to develop production, "the quality of the JSC Law is key to creating the proper environment: an environment where investors feel safe entering the market, offer rules transparent and clear, similar to those existing in other Eastern European countries."

Indeed, "the intention to draw investors to the stock market was one of the concepts behind the Joint Stock Company Law," Diana Smakhtina, Vice President and Corporate Governance Director at SigmaBleyzer said. But Ukraine’s problem is that only 10% of transactions are actually traded on the regulated market, while the other 90% are traded off the regulated market to which disclosure requirements do not extend. "So the regulated market will not attract, as such, a sufficient inflow of investments," she explained. "It is clear that investors will not invest in a market where there is no true price discovery." "We must find a way of getting these 90% of transactions to be at least reported on the regulated market for full price transparency," Smakhtina urged.

"Ukraine has stated that it is ready to adjust its standards to European regulations which recognize the investor as a key figure. Nothing will work until our country turns towards the investor and creates favorable environment for this investor through the actual operation and effective implementation of the JSC law," Smakhtina said to summarize her speech.

September 17-20, 2009, Alushta, Crimea

USAID Capital Markets Project Sponsors Investor Forum

Market professionals flocked to the Black Sea Coast last week-end for a forum organized by the PFTS Stock Exchange, Ukraine’s largest stock exchange. The four-day event was attended by representatives of the banking and investment sectors, Ukrainian Government and financial sector regulators representatives, and by international experts. USAID Capital Markets Project was an official sponsor of the forum.

Following opening remarks by the PFTS President Iryna Zarya, conference participants attended sessions on the role of the state and markets in the aftermath of the global crisis, the prospects of internet-trading in Ukraine, as well as a long session dedicated to presenting and discussing investment strategies. Division Chief for Commercial Law and Finance of the Office of Economic Growth at USAID/Ukraine Kevin McCown spoke about the prospects of the Ukrainian banking sector. He described USAID’s plans to help the development of the sector, specifying that USAID had decided to prolong its capital markets development and pension reform technical assistance for another 3 years. Marius Vismantas, the World Bank Private and Financial Sectors Project Coordinator for Ukraine, Belarus and Moldova took the floor to announce that the World Bank’s Board of Executive Directors had recently approved the Programmatic Financial Rehabilitation Development Policy Loan 1 for Ukraine in the amount of US$ 400 million. PFRL 1 is the first of two development policy loans designed to address the impact of the financial sector crisis in Ukraine.

CMP’s Senior Advisor John Crowley addressed the audience on the timely issue of derivatives and whether Ukrainian capital markets could benefit from the introduction of such financial instruments. Crowley reminded listeners that although derivatives were often portrayed as instruments for speculation, "derivatives actually began as a vehicle to offset risk in the real economy and that they are still often used for that purpose", for instance to hedge currency risks. Therefore, certain types of derivatives, such as foreign exchange derivatives for example, could benefit the Ukrainian market, Crowley argued, as a way of hedging risks attached to the high currency fluctuations. "In addition to bringing some stability for Ukrainian borrowers on their existing foreign currency debt, introducing derivatives "would facilitate foreign portfolio investing in Ukrainian securities", he said. However, the introduction of derivatives would need to be backed up by a "sound market structure" in order to minimize the risks associated with derivatives trading.

September 16, 2009

Top Level Pension Reform Commission Prepares Draft Concept on the Advancement of Pension Reform in Ukraine

The Pension Reform Commission, a top level commission of pension affairs specialists representing state, labor, and scientific authorities finalized a Draft Concept pushing forward pension reform during their third session held September 14 at the Ministry of Labor and Social Policy of Ukraine. One of the Commission’s priorities was to prepare a Draft Concept on the Advancement of Pension Reform in Ukraine by September 15 and submit it to the Cabinet of Ministers.

Created in accordance with Resolution #749 of the Cabinet of Ministers of Ukraine dated July 17, 2009, the Commission has met three times since its first session September 3 and receives technical assistance from USAID Capital Markets Project (CMP). The Commission’s mission is to further pension reform in Ukraine thanks to the input of a wide base of specialists in the field. It is presided by Liudmila Denisova, Minister of Labor and Social Policy. The Vice-President of the Commission is Oleksiy Zarudny, Head of the Pension Fund of Ukraine. Members include state officials, representatives from both employers’ organizations and trade unions, as well as scientists from research institutions.

Project Chief of Party Ann Wallace, International Experts Richard Symonds and Robert Van Leeuwen, and Senior Pension Lawyer Natalia Goryuk, have been called in from CMP to sit at several meetings to provide expertise as independent specialists. Dzhejla Pazarbaziolu, Head of the IMF Mission to Ukraine attended part of the Committee’s first session held on September 3.

During the Commission’s first session, Deputy Minister of Labor and Social Policy of Ukraine Olena Haryacha, the Secretary of the Commission, laid out the content of the Draft Concept. Commission members then discussed a possible design for introducing a Pillar II mandatory pension accumulation scheme into which workers would be obliged to contribute in order to save up for retirement in pension accumulation accounts. Opinions diverged over whether mandatory individual contributions should be centralized – in other words, contributions are collected and the Accumulation Fund is administered by the Pension Fund of Ukraine – or partially decentralized – collected and their timely payment controlled by the Pension Fund of Ukraine but then transferred to non-state pension funds (NPFs).Both under a decentralized and under a centralized scheme, private asset management companies would be entrusted with the workers’ pension assets to invest and manage them adequately.

During the commission meetings, some members underlined that Ukraine’s non-state pension funds are not ready to work with pillar II pension assets. Victor Khmilovskiy, President of Leaseholders and Entrepreneurs Union strongly objected to the PFU collecting mandatory Pillar II contributions and transferring them to non-state pension funds, noting that the state first has to develop tools to prevent possible "squandering" of Pillar II funds. Other members, like Securities and Stock Market State Commission (SSMSC) Commissioner Serhyi Biryuk agreed that it is necessary to increase requirements for pillar II service providers. USAID CMP’s team of pension experts provided the Ministry of Labor and Social Policy with an overview of the international experience in operating mandatory accumulation systems, as well as with comments on the Draft Concept on how the second pillar should be set up. CMP experts cautioned that launching Pillar II during the current period of capital markets development may lead to significant losses of the pension money and create a systemic risk to the well-being of Ukrainian citizens. It was also noted that further implementation of pension reform in Ukraine is impossible without increasing the retirement age.

The Commission decided to submit the issue of pillar II implementation to public discussion and chose not to include it in the Draft Concept on the Advancement of Pension Reform submitted to the Cabinet of Ministers of Ukraine. Discussions about the issue at conferences, seminars, forums, public hearings and roundtables will also touch upon the issue of transforming the Pension Fund of Ukraine into a nonprofit self-governing organization. Based on the results of these public discussions, the Draft Concept on the Advancement of Pension Reform in Ukraine will be amended if necessary.

July 1, 2009

International Specialists Share Experience of Self-Regulatory Organizations (SROs)

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

Investment Business Conference Highlights Link Between Ukrainian Capital Markets and Pension Reform

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

Leading Ukrainian Pension Experts Agree on the Need to Introduce the Second Pillar of the Pension System

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

U.S. SEC Specialists Wrap up Seminar on Market Regulation and Enforcement

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

All-Ukrainian Securities Depository (AUSD) Receives License

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

USAID Capital Market Project Experts Share International Experience of Market Self Regulation with Industry Professionals

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

Depository Merger Conference: Ukrainian Capital Markets on Their Way to a Single Central Depository

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

USAID CMP Expert Takes Part in a Top-level Discussion about Prospects of Ukrainian Pension System

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

Ministry of Labor and Social Policy Expresses Recognition of CMP Pension Expert Gary Hendricks’ Work in Ukraine

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

Iryna Zarya, Head of the PFTS Stock Exchange Gives Interview to USAID Capital Markets Project

Robert Bond FMI President and CMP Project Manager Meets with Iryna Zarya at PFTS

"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

Asset Management Training Gives Ukrainian Professionals Fresh Insight

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

CMP Experts Share Experience at Asset Managers’ Crisis Conference

"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

CMP Launches Newsletter on International Pension Issues

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 .

News Archive 2008
News Archive 2007
News Archive 2006

Site is created and maintained by the USAID Capital Markets Project