The very fabric of the nation’s financial system – its independence and trust in the eyes of investors – is being challenged by legislative changes that would give Ukraine’s government a majority stake, and likely inside view, at an agency responsible for clearing and documenting all securities transactions.
Adopted by President Viktor Yanukovych’s ruling majority in parliament this summer, the relevant legislation was passed on to the president on Sept. 7, who now has 15 days to sign it. If he does, analysts say the “depository system law” would do lasting damage to Ukraine’s already embattled investment climate, and struggling securities market.
While traders, brokers and investors rarely give a moment’s thought to the infrastructure supporting the millions of daily transactions, a depository is, in fact, crucial to the functioning of a financial system. It is a nervous system of a market. Flowing through it is a treasure propriety information that can be used by the wrong hands for abuse.
“The depository assures that securities move between buyers and sellers as intended, once the transaction payments are processed and ownership of securities is never in doubt,” explained Marius Vismantas, an expert on financial legislation at the World Bank, which for years assisted the Ukrainian government in setting up the country’s financial infrastructure.