SECOND STAGE FINANCIAL MARKET REFORMS UNDERWAY IN ARMENIA

ArmInfo Agency, Armenia
Oct 3 2007

ArmInfo. The second stage of the Armenian financial market reforms is
underway, Chairman of the Central Bank of Armenia Tigran Sargsyan said
at the Armenian parliament, presenting the draft law on securities
market and the related package of draft laws in the first reading,
Wednesday.

T.Sargsyan said the reforms are aimed at transition from the the
securities market regulation system to the concept of commercial
system. He added that up to this moment, the American model
has been used as a basis of reforming the securities market in
Armenia. Now the government proposes transition to the European
model. In particular, this implies several changes in the organized
securities market. Firstly, the stock market should include the
companies that make initial public offerings (IPO) or have quoted
securities. In other words, the matter concerns the companies, which
publicly collect free cash on their own initiative. Secondly, banks
and credit organizations should have the right to take a direct part
in the securities market without any additional license. Given that
now commercial banks are the key players in the securities market,
this change may have a real impact on development of the equity market.

There should be a single-whole policy of control and regulation of
financial institutions, and this is extremely important to small
countries. T.Sargsyan thinks that this will help avoiding new risks
that may expand from the securities market to the credit one, then to
the insurance market and, finally, affect the whole financial market
of the country. The Central Securities Depositary is to serve also
as a commercial organization contributing to attraction of foreign
investments.

Armenia has already signed a memorandum of mutual understanding with
the Swedish exchange operator OMX whereby the company became the
owner of the Central Securities Depositary and the Armenian Exchange.

Under the memorandum, the Swedish company is to participate in the
development of the republic’s financial market. This required changes
in the legislation of Armenia i.e. transition to the European model
of the securities market regulation. Particularly, the experience
of Estonia and Slovenia was used. As a result, a number of items
have been included in the law, which made the regulation of the
securities market more flexible and efficient. In its turn, this will
allow the Armenian financial market getting integrated into European
stock exchanges. In particular, this will allow Armenian companies
selling their shares in the leading European stock exchanges without
additional serious funds. According to the CB research, at the moment,
20 Armenian companies, which dealt with OMX, have been allowed to
this program. The draft law also solves the problem of compulsory
registration of companies’ issue prospectus only in case of public
offerings and stock floatation.

At the same time, there are more exceptions which aim to facilitate
the companies’ activity. In addition, more serious attention will be
paid to the companies which are to make IPO. The draft law stipulates
a programmed issue of shares, which is banned by the current law.

This means that a joint-stock company has the right to submit one
application to the regulating body for issue of shares, as well
as the time and volume of the issue, and not to apply constantly
to the regulator with the same request. The circle of professional
participants also increases in the market due to banks and credit
organizations.

Thus, 5 companies have already issued their bonds. The order of
internal safety of the issued securities and the responsibility
for price abuse has already been established. The Central Securities
Depositary serves as a joint-stock company, and its activity is subject
to licensing by the regulating body. This will allow the Central
Securities Depositary becoming a profit organization, which will lead
to attraction of investments and development of the financial market.

The parliament approved the draft law in the first reading.