Ukraine may create new stock exchange involving state-owned banks, govt bonds - IMF

MOSCOW. July 2 (Interfax) - The Ukrainian authorities are considering the possibility of creating a new stock exchange to ensure the continued smooth functioning of secondary market trading of government bonds, as PFTS, the largest and oldest stock exchange in Ukraine, is undercapitalized, and the owner has confirmed they will not infuse fresh capital, Ukrainian media said, citing an International Monetary Fund (IMF) report.

"Capital of around $0.5 million will be partly provided by state owned-banks (30 percent) and the remainder from private sources, including [international financial institutions] IFIs," the IMF said in the report published on its website following the fourth review of the Extended Fund Facility (EFF).

PFTS accounts for 68% of trade volumes, and the authorities are considering creating a new exchange in order to safeguard the functioning of the secondary market in government bonds and other instruments, it said.

Ukraine's updated economic and financial policy memorandum under the EFF program says that the National Securities and Stock Market Commission (NSSMC) of Ukraine, the National Bank of Ukraine (NBU) and the Finance Ministry in consultation with IMF and other IFIs have proposed priority actions for enhancing the capital market infrastructure. In a first phase, the NSSMC will approve the NBU regulation allowing the NBU to extend the NBU Clearstream link by end-July 2024 to facilitate access of foreign capital to municipal bonds and other Ukraine reconstruction-related debt instruments.

In the second phase, the NSSMC, National Depositary (NDU), and NBU with IMF technical assistance will target establishment of a direct link between the Central Securities Depository (CSD) and foreign CSDs by end-July 2025 to expand foreign investors' access to a broader range of instruments and markets. The NBU, NSSMC, and Finance Ministry will by end-August 2024 propose further measures aimed at enhancing capital market infrastructure.

As reported, the NSSMC notified market participants, representatives of sectoral associations and the exchanges' management in March that two of Ukraine's three stock exchanges, the Ukrainian Exchange and PFTS, might lose their licenses. Possible reasons for that included failure to meet prudential standards for liquidity and shareholder capital structure.

The commission annulled the Ukrainian Exchange's license in early June, citing an increase in the number of sanctioned individuals in the shareholders' capital structure. The Ukrainian Exchange intends to appeal this decision.

PFTS's largest shareholder since the beginning of 2022 was Hong Kong-based Bohai Commodity Exchange (BOCE Co. Limited). NSSMC data showed that PFTS did not have any other shareholders with stakes larger than 5% at the end of the third quarter of 2023, but on April 2 the exchange reported that Emporium LLC, a division of Rinat Akhmetov's SCM, had acquired 8.856607% of shares in PFTS.

Trading volume on PFTS surged 260% to 320.8 billion hryvni in 2023 and amounted to 63% of the total trading volume of securities trading organizers in Ukraine, including 28.6 billion hryvni in December 2023, or 66% of the total volume.

Apart from the Ukrainian Exchange and PFTS, the exchange license in Ukraine is also held by the Perspektyva Stock Exchange (Dnepropetrovsk).