Foreign stocks on the Ukrainian stock market: to be or not to be?
In a strict sense, there is no stock market in Ukraine. Even the National Securities and Stock Market Commission (NSSMC) – the agency responsible for its regulation – acknowledges that. They note that 89% of securities transactions are made outside the stock exchange, in a so-called “grey” zone with only 11% of securities being traded on the exchange. Things get even worse on the secondary market. Only 8% of securities are traded there. A large-scale attempt to change this situation has been taken not so long ago. In December last year, NSSMC approved the resolution no. 871 that prescribes serious changes to operating principles of the Ukrainian stock market.
Now, any foreign company can trade their shares on the Ukrainian stock market. Before, only the companies with assets in Ukraine and that had traded on the stock markets of other countries could have had such an opportunity.
Moreover, NSSMC has materially changed the introduction procedure for foreign companies. It used to be a multi-stage process before. Now, however, a written application from the securities issuer or National Depository of Ukraine is enough. NSSMC assumes an obligation to review the applications within one month. Should the review results be positive, the issuer may start trading next day after the permit is published on NSSMC website.
What are the prospects?
The aforesaid changes should invigorate the Ukrainian stock market and encourage a plethora of new players to enter. According to the forecasts, shares of the largest and most liquid global companies (so-called “blue chips”) were first to enter the exchange. Moreover, the number of deals with securities of foreign companies, the business of which is somehow related to Ukraine, is expected to grow.
NSSMC are sure that these transformations can also bring foreign banks, insurance companies, institutional investors to the Ukrainian stock market. The agency notes that these players have long shown their interest in the Ukrainian stock market, but take their time to enter because of many restrictions. Now that these restrictions are lifted, nothing should stop them. There is a high probability that those Ukrainian investors holding shares of foreign companies on foreign accounts will transfer them back to Ukraine.
However, the barrel would not be full without a rotten apple inside. Even though the NSSMC transformations simplify it for foreign companies on the Ukrainian stock market, they still do not solve all problems on the stock market.
The purchase of securities remains to be quite problematic in Ukraine these days. Stakeholders cannot purchase shares on the stock market before obtaining special exchange permits from the National Bank of Ukraine. And obtaining them can take a lot of time and effort. Once shares are sold in Ukraine, a withdrawal of foreign investments begins, which is another complicated process and requires many permits from NBU.
Therefore, there should liberalization of exchange requirements on part of NBU to stimulate the Ukrainian stock market in addition to the legislation changes adopted recently. Whether the National Bank will do so is a matter left open.
On the other hand, the government does not show much interest in attracting foreign shares into Ukraine. The issue is that the Ukrainian stock market is used to finance the budget by selling government bonds. There is no alternative at this point, but the appearance of blue strips will no doubt shake the long-established monopoly. The government, though, is unlikely to favor this scenario.
Summing up, we can conclude that the NSSMC’s initiative is well-timed and necessary to develop the local stock market and raise new investments. Still, the commission’s effort alone is not enough. There is a wide array of internal problems waiting to be resolved before the stock market gets a solid start and attracts foreign shares.
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