GSS Press Group Securities Services Monthly

April 2018 GSS Press Group Securities Services Monthly

In this issue Ukraine

AT A GLANCE Ukraine Small steps that make the difference 2

TALKING POINT Yuriy Butsa Deputy Minister of Finance 4

MARKET ROUNDUP 6

SOCIETY Ukraine's unique places 10

IMPRINT & DISCLAIMER 13 Reform promise ATTILA‘S PHOTO BLOG 14 Located between different spheres of publication may have noticed already that This document is intended for geopolitical interest, Ukraine has been en- there is news about improvements to the institutional investors only. meshed in armed conflicts which dominate market environment nearly every month. the newsflow. But with this issue of GSS Press, we would like to shed a light on the On a somewhat macabre note, our colle- reform progress the country has been ma- ague Katherine Yevtushenko points out that king. A courageous new approach puts an Chernobyl has turned into the number one end to over-regulation and excessive bu- attraction for international visitors to Ukrai- reaucracy, which is most beneficial to the ne. She suggests a number of other places development of the economy. promising a more comforting ambience such as the Optimistic Cave or the Tunnel Bohdana Yefremova, Head of GSS Ukrai- of Love. ne, sums up the results of the reform program. From talking with Yuriy Butsa, Depu- Kind regards, ty Minister of Finance, we could understand Attila Szalay-Berzeviczy how determined the government in Kyiv is Executive Director in that respect. Attentive readers of this Head of Group Securities Services

GSS Press | April 2018 1 AT A GLANCE

UKRAINE Small steps that make the difference

Ukraine continues strengthening its economic shape, while eagerly working on far- reaching reforms.

The restoration of the paying capacity of both the corporate sector and private households was accommodated by the mo- derate economic growth of 2.5% in 2017, the National Bank of Ukraine (NBU) has stated. Ukrainian banks kept expanding their loan portfolios both for individual and for corporate clients. Capital investments, more attractive for foreign investors. Based citizens were required to obtain individual by the official statistics, surged by 22.1% on their full understanding of what needs licenses, they can now invest abroad. Mo- (against 18% in 2016). to be improved, a number of practical reover, the intentions to replace the archaic steps have been taken. Among them was system as a whole have materialized in the Other positive factors include the high level the liberalization of the outdated FX con- draft law “On Foreign Currency”, which, of consumer activity, a rapid growth (over trol system. In 2017, the NBU continued after consultations with market participants, 20%) in construction and IT, strong dyna- gradual deregulation in this area and lifted was submitted to the Parliament. The bill is mics in machine building, food production, a majority of the restrictions introduced in based on the idea that everything which is the light industry as well as the chemical 2014-2015. In addition to that, repatriati- not forbidden shall be allowed. It is expec- sector. Also, Ukrainian exporters are enjo- on of income from government bonds was ted to unblock flows of capital to the benefit ying the extended presence of Ukraine in simplified. Unlike in the past, when local of investors and local market participants. the EU markets due to the free trade zone.

The figures may not be extraordinary, however, the fundamental changes which are going on, require some time to show full effect. In addition to the long-term projects already started in the past, the year 2017 brought the initiation of important reforms in education, the pension and health care systems as well as the legal framework to develop the energy sector and agriculture. Decentralization is another important pil- lar, prompting initiatives to elevate of the role of the regions.

Focus on financial markets development With respect to financial markets, the authorities are committed to making them

GSS Press | April 2018 2 AT A GLANCE

For majority shareholders this means a decrease in administrative expenses, stream- lined decision-making process and mitiga- ted risks regarding blockades by minority owners stretching their rights. On the other hand, the minority owners obtained the possibility sell their shares at a fair price. Based on the new legislation, squeeze-out procedures have already started in some 45 companies, and more are expected to come.

All these are gradually changing the investment environment. However, further growth is subject to completion of the reforms already started as well as the cou- rage to initiate other necessary changes, including unpopular ones, still in this pre- election year.

Bohdana Yefremova Head of GSS Ukraine

Shaping the future of the stock market Corporate governance gradually improving Last year, the local regulators signed The emphasis on corporate governance a Memorandum of understanding on a for listed Ukrainian companies is based on local market infrastructure, which envisa- newly introduced corporate agreements, ges changes to clearing procedures, a con- independent directors, as well as the deri- solidation of depository functions within a vative suit concept. With these instruments, modernized CSD and a number of other minority shareholders got better protection ambitious novelties. of their interests and additional measures to influence key corporate decisions. While the framework legislation is being drafted, this project has already started Moreover, squeeze-outs have become pos- off in practical terms. Particularly, the law sible as of last year. Considering that a vast which enables implementation of the nomi- majority of Ukrainian joint-stock companies nee concept passed the first reading in Par- were created in the course of the mass-pri- liament and is awaiting further approvals. vatization process, it is quite common that nearly 100% of a company’s shares are At the same time, the CSD is actively wor- concentrated with one single shareholder, king on modernizing its IT systems. The de- while the rest belongs to thousands of mi- pository is now in the process of defining nority owners. In this situation, the squeeze- respective business requirements, not without/sell-out mechanism allows to balance out active consultations with the market. the interests of shareholders.

GSS Press | April 2018 3 TALKING POINT

Attracting international investors Yuriy Butsa, Deputy Minister of Finance, presents the government’s comprehensive reform agenda, designed to support the economy as well as financial market development, to GSS Press.

Mr. Butsa, in your opinion, to which extent has the investment climate in Ukraine improved over the past couple of years? Improvement of the investment climate is a top priority of the government and since 2014 many initiatives were implemented in this area. Our economy was overregu- lated, therefore we initially concentrated on cutting red-tape in multiple areas. For example, the number of permits needed to run a business was decreased twice and the number of economic activities subject to licensing shrank to 32.

Rudimentary factors such as price controls for food were removed completely as well. Moreover, we decreased the need for business to communicate with the authorities through the digitalization of state services and simplified this communication by ope- view, was the introduction of an automated duties were abolished, we observe conti- ning one-stop shops. VAT-refund mechanism last year as this was nuous integration into the European value considered as the biggest problem for our chains with EU companies opening pro- All of this resulted in the significant impro- exporters over years. duction facilities in Ukraine. vement of our positions in the Doing Busi- ness rating, where Ukraine went up 36 We definitely don’t stop there and have In 2017 the level of foreign direct invest- places since 2014. ambitious plans for this year. Among them ments increased by 26% to USD 1.8 bn. are a simplification of capital controls, the The most actively invested areas were fi- What are the initiatives to simplify market reduction of the pressure of law enforce- nance and insurance, the industrial sector, entry for foreign investors? ment agencies on businesses and an im- wholesale and retail. This year we plan to At the Ministry of Finance, we have con- provement of intellectual property rights increase the amount of direct investments, centrated on the Tax and Customs reform, among others in the pipeline. in particular, thanks to the introduction of two areas which were often named as the a transparent privatization mechanism. We biggest cost factors for running a business. How have foreign direct investments de- regard the state participation in the econo- The number of taxes was decreased twice veloped recently? And where do investors my as excessive and plan to sell off many from 22 to 11 as well as the rates of some come from? of the state-owned enterprises with the goal of them which were not competitive compa- Today foreign investors are really interes- to raise around EUR 700 mn from privati- red to our neighbors. We also decreased ted in Ukraine. We have strong competitive zation in 2018. the cost of paying taxes through abolishing advantages such as a cheap but skilled la- various tax-reporting forms and moving to bor force, growing domestic demand and How would you evaluate the cooperation online reporting. the logistical benefits of proximity both to with the IMF? EU and Middle East markets. After DCFTA Our current program with the IMF is the The most important step in this area, in my with the EU was signed and most of the most ambitious in our history and it is hard

GSS Press | April 2018 4 TALKING POINT

ty. Now our goal is to demonstrate that we continue with this approach and that these achievements prove to be irreversible.

According to the budget for 2018, Ukraine plans to attract UAH 124 bn via domestic borrowings. How much thereof will be raised from the market and much will be directed to the state owned banks' recapitalization, given last year around UAH 50 bn went into their recapitalization? We finalized the recapitalization of state- owned banks last year and this amount of domestic borrowing is dedicated to budget financing. We issue both local and foreign currency denominated instruments on the domestic market with a clear priority on local currency borrowing. At the moment, a significant proportion of our debt stock to find such a comprehensive ongoing pro- nistration, state-owned banks' reform, land is denominated in foreign currency, so our gram in any other country. The reforms in reform and others. target is to increase placements in local Ukraine which we have done during last currency. four years with the help of our partners Does Ukraine plan to issue Eurobonds this from the IMF helped us to achieve macroe- year? We have introduced a lot of changes to conomic stabilization, implement a sustai- After a successful return to the internatio- make our offer more attractive to investors, nable fiscal policy and remove many dis- nal bond market last September, we plan such as a zero-tax rate, a streamlining of balances in the economy. to continue our presence with a proactive auction procedures and the introduction of debt management approach. Within the new instruments. As a result, the interest of We keep on pursuing this way and, since IMF program we have an indicative amount international investors in our local currency the last IMF review, two major laws came of USD 2 bn of external commercial borro- bonds has increased significantly with in- into force – on the pension reform and on wing for 2018, however, this number can flows of more than USD 500 mn during the the simplification of privatization procedu- be adjusted based on the amount of con- last 6 months. res. We also wait for the Parliament to vote cessional financing which will be available in the second reading the draft law which for us during this year. Together with the central bank we continue will found the basis for an anti-corruption to integrate our market infrastructure with court. Our priority is to complete the esta- I think that investors acknowledge the trans- the international markets and we believe blishment of this body, which will be the formation of the country which took place that, once the links are established, these final stage in forming an anti-corruption during the recent years, allowing us to re- inflows will be much bigger. infrastructure in the country. turn to growth after a dramatic decrease of GDP in 2014-2015. Moreover, our pru- At the same time, we continue discussions dent monetary and fiscal policy enabled us with the IMF on the next steps in other are- to accumulate a sufficient amount of reser- as where further improvements are needed. ves and maintain a low level of budget de- They include energy market liberalization, ficit, which was only around 1.6% in 2017 social protection, improvement of tax admi- and resulted in improved debt sustainabili-

GSS Press | April 2018 5 MARKET ROUNDUP

Biliana Stefanova, Head of GSS Bulgaria BULGARIA Spotlight news Bulgaria transposes fourth anti-money laundering Directive BG: New rules for custodians At the end of February, the Bulga- rian Financial Supervision Com- Bulgaria has imposed stricter standards on money laundering and re- mission has adopted a new Ordi- porting to supervisory authorities. The new Law on Measures against Mo- nance on safeguarding financial ney Laundering entered into force as of 27 March. Due to the considerable instruments and funds belonging on number of required amendments to the existing regulation of AML measu- clients, product governance obliga- res, and their significance, legislators opted for drafting an entirely new tions and rules on fees, commissions Money Laundering Act. or any monetary or non-monetary benefits. Although many of the concepts of the Directive were already part of the local legislation, the new Law refines and details the measures to prevent the abuse of the financial system The requirements of this Ordinance for money laundering purposes and introduces adequate safeguards. apply to banks providing investment and custodial services, investment The emphasis was put on a risk-based approach, i.e., identification of the ultimate bene- intermediaries, asset management ficial owner of a customer or any natural person who exercises ownership or control over companies and managers of al- a legal entity. To mitigate or prevent identified risks, a wider scope of obliged entities will ternative investment funds. These be required to establish either specific simplified or enhanced measures that need to be entities must comply with the requi- taken vis-a-vis their customers (KYC), and their customer’s customer (KYCC). rements of Ordinance No. 58, trans- posing EU Directive 2017/593, with The new Law also introduces wider definitions (i.e. politically exposed persons, obliged immediate effect. entities). Moreover, it enhances the requirements concerning a risk-based approach in the activity of obliged entities and stiffens the sanctions for violations of the law. In addition to that, it puts more emphasis on senior management responsibility.

Apart from increased harmonization with EU legislation, it is expected that the new Law, together with the more vigilant rules on UBO identification in particular, will improve the transparency of assets and transactions, as well as the ownership of companies. To that end the two existing registers (Trade Register and BULSTAT Register) will record the UBOs of local and non-resident entities conducting business in the country, including trust struc- tures. Like the old law, the new one also prohibits anonymous accounts or accounts in fictitious names as well as opening or maintaining anonymous deposit certificates.

GSS Press | April 2018 6 MARKET ROUNDUP

Andrei Mezdrea, Head of GSS Romania ROMANIA Spotlight news Amendments to the Depozitarul Central Rulebook RS: Project IPO Go! The Financial Supervisory Authority (FSA) has approved several The Belgrade Stock Exchange star- amendments of Depozitarul Central’s (DC) Rulebook. ted implementing a new project The recent modifications which have become effective as of 20 titled “Serbia: IPO Go!”. Initiated April, refer to: in cooperation with the EBRD and PricewaterhouseCoopers, it is sup- Internal audits: The obligation of participants to run monthly in- posed to bring the capital market ternal audit missions certifying that the number of the instruments closer to the Serbian economy, reported to the clients is congruent with the positions booked as stated by the National Bank of into the internal systems of the participants has been replaced with the obligation to run Serbia. According to the Director monthly verifications as described above, in accordance with the internal procedures. of the Belgrade Stock Exchange, Such verifications will be subject to regular internal audit missions and, upon DC solici- Siniša Krneta, the Belgrade Stock tation, the participants shall provide the audit reports in three days from DC’s request. Exchange should become an engine Participants are required to confirm to the CSD that the reconciliation process has been for the national economy, namely as controlled in accordance with their internal procedures. Such confirmation should be sent a new source of growth funding for during the first five days of the month following the reference month. the private sector.

Segregation of operations: The obligation to segregate settlement-related operations from reconciliation processes has been maintained, while the obligation to segregate the issu- ance of confidential codes from the reconciliation function has been removed (such codes are used for transferring certain financial instruments from CSD accounts to participant’s global accounts).

Reconciliation procedures: The obligation of entities providing custody services to execute the daily reconciliation of securities positions along the entire custody chain has been replaced with the obligation to use recording practices and safekeeping procedures which ensure the protection of clients’ assets (segregation of own from clients holdings, daily reconciliation, internal checks assuring that the number of the financial instruments reported to clients is the same as the volumes from the global accounts).

Our view Even if participants already comply with the monthly verification and daily reconciliation obligations, some of the new DC provisions, especially with regard to the segregation of settlement from reconciliation functions, might complicate local custodians’ activities, as distinctive users of DC systems have to be utilized.

GSS Press | April 2018 7 MARKET ROUNDUP

Additional DC fees on instructions Spotlight news The Board of Directors of the Bucharest Stock Exchange CSD, Depozitarul Central (DC), has approved the levels of the supplementary charges applied by the depositary for settlement instructions bearing a settlement cycle higher than T+0 transmitted in the HR: New Capital Market Act settlement date (SD). The new fee structure will be applied as of 1 May. As announced earlier this year, the Croatian market will be enriched by In accordance with the current fees and commissions charged by the DC, additional a new Capital Market Act, which charges for settlement instructions transmitted to DC on the settlement date have been should come in force by mid-2018. Its introduced: adoption paves the way for the integ- • RON 50 / instruction, if the instruction is submitted before the COT for the first net ration of the financial market into the settlement session, respectively before 11:00 (EET) EU market. Since the Republic of Cro- • RON 100 / instruction, if the instruction is submitted after the COT for the first net atia has become a part of the single settlement session, respectively after 11:00 (EET) European Union internal market, it has been obliged to continue the harmo- According to DC rules, if the number of settlement instructions transmitted into the sett- nization of its regulatory framework lement date reaches the level of 5% of the total settlement instructions processed in the with the simultaneous application of CSD’s system within one calendar month, the level of the additional tariff may be incre- the provisions of the EU regulations. ased by decision of the DC's Board of Directors. The new fee structure approved by the Novelties of the draft act in relation DC is related to the incidence of instructions placed in SD, as if follows: to the applicable act are primarily related to MiFID II and the so-called If the number of settlement instructions transmitted in SD represents between 0 to 5% "Quick fix” Directive. from the total of settlement instructions executed during the month: • RON 50 / instruction, if the instruction is submitted before the COT for the first net Their transposition into Croatian law settlement session, respectively before 11:00 (EET) bears the following novelties: • RON 100 / instruction, if the instruction is submitted after the COT for the first net • increased transparency before settlement session, respectively after 11:00 (EET); and after trading • improved investor protection by If the number of settlement instructions transmitted in SD represents between 5 to 10% enhancing business conduct ru- from the total of settlement instructions executed during the month: les and an obligation to provide • RON 100 / instruction, if the instruction is submitted before the COT for the first net to clients with higher quality of settlement session, respectively before 11:00 (EET) information • RON 200 / instruction, if the instruction is submitted after the COT for the first net • description of duties of superviso- settlement session, respectively after 11:00 (EET); ry bodies of the Croatian Financi- al Services Supervisory Agency If the number of settlement instructions transmitted in SD represents between 10 to 25% and other competent bodies, as from the total of settlement instructions executed during the month: well as organizational require- • RON 250 / instruction, if the instruction is submitted before the COT for the first net ments regarding organizational settlement session, respectively before 11:00 (EET) accountability • RON 500 / instruction, if the instruction is submitted after the COT for the first net • detailed description of administ- settlement session, respectively after 11:00 (EET); rations and management bodies • extended rules for investment If the number of settlement instructions transmitted in SD represents over 25% from the companies from third countries total of settlement instructions executed during the month: wishing to carry out investment • RON 500 / instruction, if the instruction is submitted before the COT for the first net services on the territory of the Re- settlement session, respectively before 11:00 (EET) public of Croatia • RON 700 / instruction, if the instruction is submitted after the COT for the first net • obligation to comply with the settlement session, respectively after 11:00 (EET); restrictions in relation to de- rivatives positions, as well as sanctions for non-compliance.

GSS Press | April 2018 8 MARKET ROUNDUP

We remind our readers that, according to DC procedures, CSD’s Board has to analyze the incidence of settlement instructions with a settlement cycle higher than T+0 transmitted in the settlement date (SD and, if such instructions reaches the level of 5% of the total settlement instructions processed in the CSD’s system within one calendar month, to increase the level of the additional tariff.

During the last months, the ratio of instructions placed in ISD vs. the total settlement instructions was: 3.42% in March, while in February and January they amounted to 5.55% and 6.09%, respectively.

Our view The additional fees imposed by the DC aim at increasing the settlement discipline among the CSD participants. Participants will acknowledge the value of the fees charged by DC for late settlement instructions at the end of the month, which might hinder some operational processes which imply the collection of the settlement fees at the settlement date. Additional settlement facilities (e.g. renunciation of the suspension of a participant for failed transactions and introduction of a pecuniary sanction, creation of a central counterparty, revi- sion of the settlement limits) would reduce the incidence of transactions instructed in ISD.

GSS Press | April 2018 9 SOCIETY

Ukraine's unique places

I believe each of us is fond of travelling. By exploring new places, we not only refresh our brains, but collect new emotions, new thoughts, new experience; we change ourselves and widen our horizons. Due to the complicated economic situation in the country, most Ukrainians now prefer budget-friendly travelling. Many of our fellow-citizens have replaced expensive long-distance journeys with local destina- tions and found new, fantastic places to visit. As a result, over the last few years we have observed a boom of domestic tourism in Ukraine.

And there are indeed quite a few places in our country to visit: • Odessa – for fans of beach holidays, clubs and restaurants; But for our readers I would like to reveal The cave is now a well-equipped tourist at- • the numerous seacoast areas on the some places which are unique, or at least traction. It was opened in 1966, but many Black sea and Azov sea - with resorts unusual for travelers that follow the com- of its passages are still unexplored. which suit every pocket; mon routes prescribed in the guidebooks. • the Carpathians – perfect both for tho- Askania-Nova se who like outdoor activities such as Optimistic Cave skiing, hiking, trekking as well as for Adventure seekers will enjoy an unfor- those who prefer to relax in balneo- gettable experience in the Optimistic therapeutic health resorts and for fans Cave, located in the Ternopil region. It is of common nature contemplation; actually the second largest gypsum cave • Lviv – the city in western Ukraine that in the world after Flint Ridge in the Mam- interests history-lovers; moth Cave National Park in the USA. The • and certainly Kyiv, the capital – for length of all its maze is 240 km. Here you those who prefer social and cultural will find exiting walkways, lakes, halls of activities. This year Kyiv will be hos- underground beauty similar to a museum ting 2018 UEFA Champions League of shining crystals with walls of incredible No, this is not Africa! It is Askania-Nova, Final! natural drawings. a wildlife park on the south of Ukraine.

GSS Press | April 2018 10 SOCIETY

The reserve consists of a zoo, a botanical (dendrological) garden, and an open territory with a virgin steppe stretching over 33,300 hectares.

You can find rare animals brought from Asia, Europe, Africa and America. The Lake Synevyr park home to zebras, Indian and African wildebeests, gayals, Watussi bulls, hump- backed zebras, deer, lamas, antelopes, buffaloes, ponies and saigas which are the oldest ungulates, the same age as mammoths.

Tunnel of Love Looking for a nice place for the wedding photocall? The Tunnel of Love in Rivne region became popular only recently. What almost no one had heard about a few years ago, is now referred to as the most romantic place in Ukraine.

This phenomenal tunnel occurred acciden- tally. The intriguing background story is that under the Soviet regime, a railway led to a military base, surrounded by trees planted Chernobyl for camouflage reasons. In recent years, trees and bushes were given up to crop, and a natural tunnel has been formed. phere in reality while being here: a ghost an altitude of 989 m above sea level with Its ideal forms result from the train which town with schools, kindergartens, offices, the area up to 7 hectares. regularly goes to a local factory, breaking institutions, households which were left Since the old times there have been lots up the growing branches along the way. over the sound of the alarm 32 years ago. of legends and mysteries around this pic- The exclusion zone, formed after the ac- turesque lake. I believe that they were Chernobyl Nuclear Power Station cident in the atomic reactor, became a caused by its unusual heart-shape. The radioactive pearl of Ukrainian tourism touristic business card of Ukraine. Visitors – no kidding! Chernobyl is a magnet for come to see deserted engineering objects, foreign tourists: about 50,000 came in abandoned cities and an extraordinary Katherina Yevtushenko 2016, and figures are rising every year. wildlife (it is possible to feed monsters, Relationship Manager GSS Ukraine 80% of the visitors are foreigners, which e.g. 2-3 m long catfishes). is evidenced by statistics from the government and tour operators. Lake Synevyr Synevyr is the largest and most beautiful Looks pretty terrifying, but fans of films like lake in the Carpathian Mountains of Uk- Walking Dead, Resident Evil, I Am Legend raine. Scientists estimate that it formed or 28 Days Later can easily feel the atmos- about 10,000 years ago. It is located at

GSS Press | April 2018 11 CONTACT US

GSS Central Team Bulgaria Russia Raiffeisen Bank International AG Raiffeisenbank (Bulgaria) EAD AO Raiffeisenbank Am Stadtpark 9 55, Nicola Vaptzarov Blvd., Business Center Smolenskaya-Sennaya Sq. 28 1030 Vienna, Austria Expo 2000, 1407 Sofia 119020 Moscow www.rbinternational.com Biliana Stefanova Evgenia Klimova Attila Szalay-Berzeviczy Head of GSS Bulgaria Head of GSS Russia Head of GSS [email protected] [email protected] [email protected] Phone: +359 2 91985-463 Phone: +7-495-721 9900 Phone: +43 1 71707-8252 www.rbb.bg www.raiffeisen.ru Jürgen Sattler Head of GSS Regional Management Croatia Serbia [email protected] Raiffeisenbank Austria d.d. Raiffeisen banka a.d. Phone: +43 1 71707-1882 Petrinjska 59 Djordja Stanojevica 16 Bettina Janoschek 10000 Zagreb 11070 Novi Beograd Head of GSS Sales & Relationship Management Mensur Hodžic´ Ivana Novakovic´ [email protected] Head of GSS Croatia Head of GSS Serbia Phone: +43 1 71707-1820 [email protected] [email protected] Phone: +385 1 6174-327 Phone: +381 11 2207572 www.rba.hr www.raiffeisenbank.rs

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GSS Press | April 2018 12 IMPRINT & DISCLAIMER

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GSS Press | April 2018 13 ATTILA‘S PHOTO BLOG

PHOTO OF THE MONTH by Attila Szalay-Berzeviczy

Celebration after the resignation of the Prime Minister 23 April 2018 Yerevan/Armenia

GSS Press | April 2018 14