DISPERSAL OF THE STOCK SECTOR

When the world is facing another economic crisis and there are increasing calls to try to at least maintain financial stability, it is very unpromising to predict any rapid development in a separate wing of the economy, especially when it comes to such an unpopular area in Azerbaijan as securities.

But the regulators of this market in the country seem to lose no hope for positive changes. They believe that this will be facilitated by the application of the new law "On the Securities Market", which came into force a couple of months ago.

"The new law 'On the Securities Market' provides the basis for the dynamic development of this sector and makes it possible to expand the range of financial services offered to the population of Azerbaijan and exercise regulatory oversight over the market based on modern standards," Deputy Chairman of the State Committee for Securities Ilqar Muradov said at the presentation of the document. "The law has prepared the legal basis for a number of institutional reforms, and I think in the near future we will witness the creation of new institutions on the market. At the same time, the trading, post-trading and supervisory architecture of the capital market will be improved significantly."

The authors of the new law regard the unification of the activities of broker and dealer companies in the country as its main innovation. In other words, they will receive one licence for the activities of investment companies, and it will be indefinite. This document will determine which primary and secondary services a company is allowed to provide. Thus, the first group of services includes management of the portfolio of individual investors, the provision of investment advice, placement of securities, etc., and the second one concerns activities such as the management of customer accounts, providing investors with loans for transactions in securities, and investment and financial research related to securities.

In addition, based on international best practices, the authors of the law excluded a number of tools from the list of securities and expanded the use of popular types, for example, mortgage bonds. According to Chairman of the State Committee for Securities Rufat Aslanli, it is also planned to prepare legal conditions for the development of a system of two-tier depository storage. That is to say from now on all securities will be stored in the newly-created single Depository Centre.

According to the chairman of the Baku Stock Exchange, Fariz Azizov, the law has accumulated important nuances concerning the protection of investors' rights and the disclosure of information concerning them, companies listed at the BSE, etc. A number of regulatory articles on the activities of the stock exchange have been re-oriented from the Civil Code to the new law. Azizov also said that the requirements for the size of authorized capital for investment companies will be announced in the near future. Also, by the end of the first half of 2016, the BSE will update the information system that will secure the work of new legal frameworks on the securities market of Azerbaijan.

At the same time, according to a senior World Bank adviser for the securities market, Ketut Ariadi Kusuma, the new law is important in terms of expanding the capability of the private sector, as well as in terms of mobilizing savings, and is an excellent foundation for the formation and creation of a high-quality market. "But having a good foundation and structure is not enough for real design, so you should take other steps, in particular, practical measures, and create a balance between the law and its implementation," Kusuma said.

According to him, while implementing the law, one must take into account the level of market demand and adjust partnerships not only between market participants, but also with the regulatory authority, and it is important to have confidence in relations. "In terms of developing the capital market, one must create a corresponding strategy, which should be developed jointly by the participants and regulatory authorities," Kusuma said.

The restructuring of the market in accordance with the law on the securities market will also require a major update of the legal framework, which, according to the coordinator of the World Bank for the private and financial sector in the South Caucasus, Angela Prigozhina, should be completed before the end of this year. "It is also important to fully inform market participants about developments related to the law," she said.

However, according to the deputy chairman of the SCS, Muradov, the necessary basis is ready, but its details will be announced after its approval in the near future. "In particular, we are actively cooperating with the Azerbaijani Ministry of Taxes to optimize the tax burden for the participants of the securities market," he added.

Meanwhile, Prigozhina stressed that the market remains highly dependent on the state, and there is limited access to finances, underdeveloped financial infrastructure and low financial literacy. And in the current economic environment, Azerbaijan needs to diversify the country's financial sector and develop the capital market. "The capital market plays an important role in access to long-term financial services for many companies in Azerbaijan and is currently not at a very high level," she said. According to her, banks generally provide short-term finances, and this situation creates a favourable platform for the development of the capital market, particularly, by reducing operating costs, enhancing transparency, and so on.

It must be noted that in order to modernize capital markets, the World Bank and the government of Azerbaijan are implementing a project. "The project is estimated at 16m dollars, of which 12m dollars are provided by the World Bank in the form of a loan for 27 years and 2.4m dollars are allocated by the Azerbaijani government. In addition, 1.6m dollars were provided by the Swiss State Secretariat for Economic Affairs SECO as a grant. Almost the entire amount has been used, as the project is now coming to an end. It will end on 1 July 2016," the World Bank expert said.

However, even the adoption of the entire spectrum of legal innovations in the current environment cannot guarantee a rapid growth on the securities market of Azerbaijan, of course. The negative impact of the fall in oil prices on the economy, the February devaluation of the manat and the following problems in all segments of the financial sector, of course, could not but affect the stock market, which has just begun to gain momentum. At the same time, the new legislative levers can contribute to the preservation of potential participants' interest in it and stabilize the statistics on the volume of the market, which is already a strong positive factor in the current environment.