Ukraine simplifies access of non-residents to local securities market

The Ukrainian parliament approved on May 15
legislation that introduces the category of a nominal holder of securities. In
this way, the law simplifies access of non-residents to Ukrainian securities,
who will be able to invest via international custodians that will open nominal
holder accounts in Ukraine. Nowadays, non-residents can only invest by opening
individual securities accounts with Ukrainian custodians. The legislation’s
adoption will lead to up to 100 bln in increased exposure of international
investors to local government bonds in the mid-term, according to the estimates
of Ukraine’s National Depository.

Alexander Paraschiy: This law is
a breakthrough for the local securities market, as it indeed will make local
securities much more accessible to non-residents, who currently have to spend
three-six months to open individual accounts if they want to invest in Ukrainian
stocks and bonds. New legislation should significantly improve liquidity on the
local securities market, particularly local government bonds, which are far
more attractive than equities at the moment. If demand from non-residents
increases for local government bonds, the rate of short-term bonds will
decrease from 17%, which is now supported by the rate of two-week certificates
of deposit (the alternative investment for local banks who are the main players
on domestic bond market).

Becoming more liquid, local bond market may become
more interesting for government and private issuers. In the mid-term, indeed,
inflow of international investors’ money to local bond market can be observed
(with their holding to increase up to 30% of total bonds float – or UAH 100 bln
– alike in other emerging markets). This may lead to significant inflow of
foreign currency to the country and be supportive to stability of Ukrainian
hryvnia. However, to trigger speed up of such inflow, Ukraine needs to secure
short-term currency stability by signing a new tranche with the IMF.