Govt transfers 25% of state share of National Depository from National Securities Commission to NBU

The National Bank of Ukraine (NBU), which holds 25% of PJSC National Depository of Ukraine (NDU), will receive the state share of the NDU in the amount of 25%, which is currently managed by the National Securities and Stock Market Commission.

Taras Melnychuk, the representative of the Cabinet of Ministers in the Verkhovna Rada, reported on Telegram that the government approved the relevant order at a meeting on Monday. The government also declared the November 2013 order designating the National Securities and Stock Market as the body managing the state share of the NDU invalid.

In early September, the National Bank announced the start of implementing the memorandum of cooperation for integrated capital markets infrastructure. This memorandum was signed in Rome in July of this year with the European Bank for Reconstruction and Development (EBRD) with the participation of the Ministry of Economy, the Ministry of Finance, the National Bank, and the National Securities and Markets Commission. The first stage involves optimizing the ownership structure and corporate governance of the National Depository of Ukraine by transferring the state share to the NBU's management.

"The transfer of the National Depository is a zero phase. It is a mandatory condition that launches an effective, conflict-free process of construction with a clear division of functionality between shareholder ownership and the regulator's functions," said NBU Governor Andriy Pyshnyy on September 11, emphasizing that such a transfer has been agreed with the International Monetary Fund and the EBRD and should be implemented as soon as possible.

A holding company is planned to be created with the participation of a reputable international strategic investor (an operator of trading and post-trading infrastructure), which will be selected through an open tender. This holding company will also include international financial organizations, local market participants, the state and state banks. The holding company will then establish a new stock exchange in Ukraine that will become the majority owner of the central clearing institution, the Settlement Center, instead of the National Bank. Additionally, the exchange will hold a minority stake in the NDU, while the National Bank will hold a majority one.

The final stage should be consolidating depository services based on the NDU. The NDU should function as a central securities depository by taking over the National Bank's accounting and servicing of government bonds.

At the same time, the National Securities and Stock Market Commission on September 9 approved a draft government order on the transfer of the state share of the NDU to the National Bank, but proposed to postpone such a transfer until the preparation of a priority roadmap for financial market infrastructure reforms agreed with international financial organizations (IFOs). In the Commission's opinion, such an approach will minimize potential risks to the proper implementation of the current cooperation program with the IMF.

Deputy Governor of the National Bank Yuriy Heletiy in response noted that the IMF representatives were familiar with and supported the nine-step plan for implementing a vertically integrated capital markets infrastructure model, which was supported by the Financial Stability Council. He recalled that the transfer of the state share of the NDU to the National Bank was also reflected in the memorandum.

Regarding the potential buyout of private minority shareholders' shares in the National Depository, Heletiy said that the National Bank "knows how to become the majority shareholder, alongside the holding company and the recognized international investor."