The Parliament of Ukraine has adopted a law on the creation of a single central securities depository (CSD) and clearing center in the market, which would centralize depository and clearing functions for on- and off-exchange trades in the market.
The law says a single CSD should be created to develop and oversee the recordkeeping system and maintain all securities records, except government securities, which are held at the National Bank of Ukraine (NBU). Furthermore, the law says the CSD should handle the circulation of securities belonging to non-residents and institutional investors; the clearing and settlement of stock exchange trades; appearance, amendment, transfer and stoppage of securities ownership rights; and ownership rights with regard to securities registration and realization, according to a newsflash from SEB.
As for the clearing center, the law calls for a single institution to handle cash settlement for securities and other financial instruments traded on exchange and OTC on a delivery versus payment (DVP) basis. NBU will set up the center and initially own 100% of its stock, after which it may decrease its shares to no less than 25% ownership by selling stock to market participants, according to the local Kommersant-Ukraine newspaper.
Before it was released in its current form, it was anticipated that the law would call for clearing to be done by exchanges, the central depository, NBUs government securities depository and by other licensed clearing organizations. But the final version of the new legislation essentially gives a monopoly on the clearing function to the clearing center, according to Kommersant. The Central Clearing Center will automatically become the central counteragent, which means that it is now not necessary to keep other counteragents at stock exchanges, according to an English-language version of the Kommersant report on GAAP-IFRS.com.
Ukraine has been working on infrastructural reforms in recent years, with the lack of a single CSD high on the wish list for foreign institutional investors. Sub-custodians in the market have been lobbying for a single CSD for several years. For more, see “Reducing risk in Ukraine,” Global Custodian, Summer 2010.
In addition to clearing, the clearing center will open and maintain cash accounts for stock market participants and provide for payment of income for securities circulating abroad, SEB says.
The clearing center will also be licensed to perform certain banking functions along with a general currency license for its role as a currency control agent. It will also be an NBU electronic payments participant. SEB says the likely candidate to fill the clearing center role is the existing All-Ukranian Securities Depositary, which already serves as a NBU electronic payments participant.
(CG)