NEW SECURITIES MARKET ARCHITECTURE

Amid the global financial crisis, the situation on the stock exchanges remains one of the most urgent issues. Many analysts are pointing to a revival in the world's securities markets. Last month saw a qualitative change, with active growth in the main indices hitting a six-year high. As a result, the business world has formed the opinion that the worst of the recession is already over. Robert Parkes, the leading analyst at HSBC, the EU's largest bank, believes that "markets no longer think that we are moving towards a financial apocalypse". 

This optimism is based on a better than expected performance by numerous European companies in the first quarter of 2009. Investors also observe a strengthening of positive trends in key economic sectors of the world, which is first of all the result of the economic stimulation programmes adopted by many governments. The considerable growth on stock exchanges registered in April is also important because the stock market is said to be the first to overcome economic recession, leading industry and the service sector by six months.

As we know, the Azerbaijan Central Bank is not well developed yet, which may not be so bad after all, because we have managed to avoid many consequences of the crisis. Nevertheless, the hope that it will develop in the post-crisis period is based on plans by the new administration of the State Committee on Securities (SCS) to achieve real growth on the stock market. We will discuss this with the SCS chairman, Rufat Aslanli.

- Could you please tell us about the results of an assessment of the situation on the country's stock market conducted by the state committee, and what measures may be taken to develop this market segment?

- The macroeconomic situation in Azerbaijan is assessed, not only by local experts but also by international organizations, as being quite stable. Thus interest from foreign investors in the securities market is not declining despite global problems of liquidity, which may lead to a reduction of their investment. 

We have analyzed the securities market and identified key directions for reform. Namely, we have started enhancing the legal framework on securities and are now finalizing work on a draft law "On investment funds" and amendments to the Civil Code on securing mortgage bonds. These measures are expected to give a double impetus to the development of the stock market. First, the enhancement of the legal framework will encourage institutional investors, because a class of private investors has not yet formed in the country. Second, new instruments will be introduced to the market in the form of secured promissory bonds. 

- Has a specific framework been established for completion of the process of reforming the stock market?

- We have already developed a new architecture and the institutional form we see for the securities market. We have launched the process of upgrading the market structure, including the organization of auctions on the stock exchange and a system of clearing and accounts. These processes will take until the end of this year to complete. 

- What measures are being taken to protect the domestic securities market from the impact of the global recession?

- We have already begun introducing a scheme to prevent system risks, namely a mechanism for the management of system risks, which is particularly appropriate in conditions of global economic crisis. However, we are only in the early stages and there is still much to do. We also hope to upgrade the licensing regulations and to create a system of monitoring and control. The crisis gives us the opportunity to develop a long-term and stable policy, because some markets have gone down, thus enabling equal competition. 

- What do you think needs to be done to improve the trading system on the Baku stock exchange and create more favourable conditions for players in the securities market?

- By the end of summer, the Baku stock exchange and the National Depositary Centre intend to establish an electronic interface. By then I hope brokers and dealers will be able to use the stock exchange trading system from distance. This will be the first step towards automating auctions.

Last year the Baku stock exchange began switching to a new trading system. The Moscow-based company INIST has been selected as the supplier of software for the system.

By and large, the stock exchange has begun an in-depth modernization of its software and technical facilities, because the system used before is out-of-date. Nine years have passed, while a server can only work effectively for six to seven years.

Re-equipping the trading system will help enhance the stock exchange's capabilities. Remote use of the system by brokers and dealers will also require the renewal of their own programmes.

- How will cooperation be built with international organizations to develop the stock exchange market? 

- The state committee, together with several foreign institutions, is planning to establish a donors club, which will coordinate efforts to engage technical assistance to develop the country's securities market.

Today the committee is implementing joint projects with such institutions as the US Agency for International Development (USAID), to create a model for developing the securities market, and with the International Finance Corporation (IFC).

- Reforms to the stock exchange market also require better knowledge and skills from all participants. What measures are planned in that respect?

- We have prepared a comprehensive training programme for participants in the potential market and possible investors. In June we will start a one-week programme for companies which are potentially ready to disclose their capital for mini-IPO, and for possible investors and financial brokers active on the market.