Stock trading should become more fluid under legislation recently approved by Parliament which removes the requirement that brokers purchasing a share register the transaction with the share-issuing company. 'This is clearly a great thing,' said Western adviser Hugh Patton of Financial Markets International, a U.S. government contractor advising the Ukrainian Securities and Stock Market Commission. 'It will go a long way towards establishing the principle of custodianship in Ukraine.' Many brokers consider custodianship – the concept that a licensed trader may hold company shares on the behalf of others – a prime requisite for a stock market looking to attract foreign capital.
'The big international money funds simply will not operate here [in Ukraine] unless they can designate a local custodian,' said Patton.
Stock traders in Ukraine have had difficulty attracting foreign investment because, until now, they have been unable to make deals quickly. They have often had to wait months for a company registrar to record a share transaction.
The new law is intended to make licensed traders legal custodians of stocks and allows them to trade shares between themselves in depositories. However, further legislation must be approved before a fully functioning depository can be established.
'What the law is supposed to do is basically provide for a national depository system,' said a Western market analyst, who preferred that his name not be published. 'Whether this is a concept or [an actual] thing is not yet known. This [would] help create an infrastructure for a freer exchange of Ukrainian stock shares.'
Some analysts sound a cautionary note, citing other hurdles to continued development of the stock trading market. 'Tax law regarding capital investment remains unreformed. The tax on investment money for stock purchase is 30 percent, and the Value Added Tax is 21 percent,' said Elena Barbarova, director of the Ukrainian Association of Investment Businesses. 'That leaves [a company] only 49 percent of any money used to purchase stock in a secondary offering.'
For their part, government officials emphasize that the new law will not in itself provide a complete overhaul in securities trading regulations.
'A great deal of our codes for civilized stock trading must still be worked out in detail,' said Ukrainian Securities and Stock Market Commission member Mykola Volkov, at a recent conference. 'There's still a great deal left to do.' His office is reportedly preparing 30 articles of trading rules to support the law, which is awaiting President Leonid Kuchma's signature.
