BUSINESS WITH MONEY

On the whole developed market, any significant, not only economic but also political and social events immediately affect the situation on the stock and currency markets that act as a kind of indicator of the economic welfare of a country.

In Azerbaijan, fluctuations on the foreign exchange market are strictly regulated by the efforts of the Central Bank (CB), which annually allocates some funds to support the national currency. In the first half of 2013 against the background of a significant surplus of the balance of payments in Azerbaijan, supply on the foreign exchange market exceeded demand, and to maintain the stability of the exchange rate of the manat the Central Bank purchased foreign currency in the amount of $ 1.3 billion on the foreign exchange market.

At the same time, the situation on the foreign exchange market depends on trading within the framework of the Baku Interbank Currency Exchange (Baki Banklararasi Valyuta Birjasi - BBVB) whose creation 20 years ago was intended to form an organized exchange market. The expansion of the range of financial services in the future predetermined the principle of the universality of forming the exchange.

For the first time in the Caucasus

Evolving from chaotic and primitive ways of regulating the market and carrying out exchange transactions, the foreign exchange market of Azerbaijan has grown over the past period attracting an increasing number of new segments of the financial market and bringing the total turnover of the BBVB to 15 billion in the dollar equivalent. One final important touch was the beginning of the distribution in July of this year of information on BakiBID and BakiBOR rates through the financial terminals of Bloomberg.

In any case, at the beginning of the work of the first and so far, the only stock exchange in Azerbaijan there were a lot of doubts about the advisability of creating it and general prospects for the country's foreign exchange market and the manat itself. Admittedly, the development of these segments was due to the strengthening of the country's economy and the increasing interest in exchange games by potential market participants. Therefore, if the exchange initially used primitive "voice trading", requiring the presence of representatives of players on the ground, a long wait for receiving applications on rates, etc., the BBVB soon launched the first inter-bank credit auctions on the money market and a universal trade-settlement exchange complex on the foreign exchange market. The latter became the prototype of the first electronic trading system (BEST) in the Caucasus, which was launched in 2002. The creation of BEST greatly improves the liquidity of the domestic monetary market of Azerbaijan. Thus, the foreign exchange market of the country moved to a new stage of development.

BEST covers two sectors of the market: the Exchange Currency Market (Forex) and the Organized Interbank Credit Market (Money-Market). Each of the sectors operates independently and differs from the other by a set of financial tools, users and various rules of trading sessions. Thanks to the information terminals of BEST, treasurers of credit institutions, financial directors of holdings, as well as the media are able to monitor the segments of the financial market in the country in real time.

The head of the BBVB, Farhad Amirbayov, told R+ that to mark its 20-year anniversary, the BBVB launched a new version of BEST supplemented with innovations for the development of the money market.

The new version of the money market will consist of four segments: the first one forms monetary indicators of BakiBID and BakiBOR (declared average interest rate of market maker banks in local and foreign currency), the second one is the segment of the deposit auction, where participants can be both commercial banks and insurance companies, the third one is the segment of the limited money market for placing and raising funds, and the fourth one is the segment of the guaranteed money market.

New links

Moreover, the upgrading of the trading system is also intended to ensure the involvement of insurance companies in the money market. Work to attract insurers was launched in April 2013, and today the BBVB has reached an agreement with three companies, as well as with the only reinsurance company in the country, while negotiations with others are continuing.

According to Amirbayov, the exchange has considered such a possibility in the last few years. "We have observed the evolution of the insurance market for the last 5 years and assumed that sooner or later, there will be qualitative changes at some point and insurance companies will capitalize and significantly increase their accumulated insurance fees. This jump occurred in 2011. Last year, within a few months, we met with leading insurers. We believe that the insurance industry is now able to accumulate fairly substantial financial resources, some of which may be directed at the domestic money market," Amirbayov said.

At the first stage insurance companies will subscribe to BEST only as creditors.

According to him, banks are certainly interested in an additional channel of liquidity. "After all, working with companies is much easier and cheaper, and it does not require advertising campaigns, points of sale in the form of branches and electronic products. The cost of the process is very low, and the benefits are quite obvious. This is a substantial amount of money measured by hundreds of thousand manats.

In order to get this amount from the market of private deposits, you need more time. For insurance companies the benefit here is that here they have direct access to all banks and an opportunity to have the best prices on their proposals and investment," Amirbayov said.

The new, third category of BEST users (after banks and insurance companies) will be non-banking credit organizations. This autumn, the BBVB will begin negotiations with non-banking credit organizations. A meeting with representatives of non-banking credit organizations has already been held at the stock exchange, and they were informed about the possibilities of BEST.

"I think that non-banking credit organizations can become full participants in the money market and work as borrowers and lenders. Non-banking credit organizations, just like banks, are regulated by the Central Bank and use the same card of accounts, i.e. for commercial banks they are transparent. This will be the third class of institutional users of BEST, with which we will begin to work in autumn. At the same time, the dates on which they will be able to connect to the system and become its direct participants will be announced," Amirbayov said.

Thus, the list of participants in the foreign exchange market will expand qualitatively and quantitatively, which speaks in favour of not only the market but also the insurers themselves and non-banking credit organizations, for which involvement in the exchange will become a new stage of financial strengthening.

The manat reaches out to the world

As far as the abovementioned cooperation with Bloomberg is concerned, it is definitely a pretty significant event for the Azerbaijani manat to rise to the international level. Through financial terminals the BBVB began distributing information about BakiBID and BakiBOR rates in July this year. "These indicators are generated in our trading system, first of all, in the manat and in the dollar. We have been negotiating for a long time, and in July of this year, these rates became available to the world. We want to achieve more solidity and representativeness of BakiBID and BakiBOR," Amirbayov said.

According to him, connecting to Bloomberg terminals, which is a joint project of BBVB and commercial banks, will increase the interest in the manat as a financial instrument. "The interest in the manat will continue to grow in the world, especially among our trading partners. The internationalization of the manat is a promising trend in the development of the financial market of Azerbaijan. This work requires a long time, consistency and patience," Amirbayov said.

In short, economic preconditions for the further sustainable development of Azerbaijan's currency market are there, and that will be an additional incentive for the promotion of the manat on world markets.