Nasdaq Lends Ukrainian Market Helping Hand
June 30, 2008
Suffering from a lack of liquidity and poor securities processing, Ukraine is hoping that Nasdaq OMX Group can provide some relief and bring the country's markets more international attention.
Nasdaq announced earlier this month that it had signed letters of intent with the National Bank of Ukraine and Ukrainian Interbank Currency Exchange (UICE) to help improve the country's trading environment and post-trade services with new technology platforms. UICE, founded in 1993 by a group of leading Ukrainian banks as a currency exchange, received its stock market license in 1997 and began trading government bonds and corporate securities.
Technology is only the starting point, according to Jakob Hakansson, head of new markets for Nasdaq OMX. "We will help the Ukrainian markets become more efficient through the whole value chain," he said.
"While the Ukrainian capital market has huge potential, currently it is fragmented and inefficient," said National Bank of Ukraine governor Volodimir Stelmakh in a prepared statement. "We will work on building the fundamental elements of a securities market infrastructure in order to create an efficient clearing, settlement and depository environment. This will serve as the basis for an attractive and liquid Ukrainian market."
The State Securities Exchange Commission of Ukraine oversees a dozen stock exchanges, seven of which are located in Kiev, according to Valentin Zelenyuk, chief economist of Kiev-based investment bank Millennium Capital. The largest venue is the PFTS Stock Exchange, which handles about 95 percent of exchange-listed volume, said Zelenyuk in a World Bank paper published late last year. But "low liquidity remains one of the main problems of the Ukrainian stock market," he said.
"The Ukrainian capital market has high growth potential, but it lacks efficiency and liquidity," said UICE chairman Pjotr Pereverzev, who wants to reverse that with Nasdaq OMX technology
According to a Nasdaq spokesperson, UICE is a niche player in Ukraine, primarily trading gas and oil options, with monthly turnover of upward of $200 million. The exchange, which has about 90 members, is working to reintroduce equities trading this summer.
"We will provide them with the trading system and review the whole market model in connection with that," said Nasdaq's Hakansson.
Nasdaq will work on post-trade processing, which Hakansson believes is in more immediate need of attention, with the country's central bank. "We will start with a general advisory study for the post-trade infrastructure in Ukraine, covering clearing, settlement and depository functions," he said. Beginning this summer, Nasdaq will review the situation and make recommendations.
Fragmentation and inefficiency, said Hakansson, are common characteristics of emerging markets. Ukraine's "financial infrastructure is quite young," he said. "Most countries have had a fragmented exchange infrastructure and with development they become more efficient and less fragmented."
For UICE, Nasdaq will review "their needs and see what kind of system functionality they need and what kind of system we can provide," said Hakansson. "We have quite a wide range of solutions, depending on what the needs are for the exchange, what kind of products they trade, what kind of functionality their members require."
Acquisition Potential
The research and technology agreements could be a stepping stone to more involvement with the Ukrainian securities industry, he noted. "It is too early to say today, but if opportunities turn up we might also look into the possibility of ownership in exchanges in the Ukraine," he said. "Technology is a good inroad into markets for us."
