The Armenian market is preparing to appear before the world joint stock
community

Interview by Emmanuil Lazarian, ArmInfo, 04.05.2008

2008-05-04 13:45:00

The placement of the Armenian Stock Exchange (Armex) and the Central
Depositary of Armenia (CDA) under the auspices of the
American-Scandinavian stock exchange operator, NASDAQ OMX, was the key
event for the Armenian financial market participants last year. The
initiator of the deal, the Central Bank of Armenia, perfectly realized
that the market needed a push. So, it decided to usher the local
capital market into a new `commercially-oriented’ phase of development.
The market has rejected its `spoke-in-the-wheel’ self-regulation
principle and is looking forward to new work style under the world
renowned brand and most advanced technologies. The coordinator of the
reforms at Armex and CDA, representative of NASDAQ OMX Johan Fredholm
has told an ArmInfo correspondent about the development plans of the
market.

– Mr.Fredholm, as far as I know, your work in Armenia is part of your
policy on Eastern Europe and the Caucasus. NASDAQ OMX has obtained a
stake in the IXSP (International Exchange St.Petersburg) and is
negotiating for entering the market of our neighbor, Georgia?

– We are interested in expanding in Eastern Europe, in general. We are
talking to different stakeholders in many different markets and Georgia
is one of them.

In Armenia, we are actively reforming the market: there have been
changes to the charter of the companies Armex and CDA to transform them
into open joint stock companies. Now further changes are required
because of the new securities law: Armex and CDA have to submit new
rules before the end of June this year. But most importantly we will
improve the way Armex and CDA work, and work with other stakeholders to
develop the market.

– Are you planning changes in the listing and trading rules?

– We will develop them over time. For us it is very important that the
rules are adapted to the market development level and as the market
develops the rules will also be changed, but it is not possible to use
exactly the same rules in Armenia as in the Untied States or in Sweden.
We will review the rules many times and will make sure that they suit
the market at any given time.

The important thing is that this will make it possible for
international investors to invest in Armenia. For them, the most
important thing is that they trust the companies they invest in and
they trust the stock market they invest in. NASDAQ OMX will improve the
processes, enforce the rules and make sure that Armex and CDA are
trusted and work just as any other NASDAQ OMX company anywhere in the
world, . We will also have high requirements on the companies that list
here – they have to be transparent and provide good information. We
also have to make it easy for foreigners to invest from technology
point of view and from rules point of view

– What do you think, is the Armenian market attractive for foreign
investors?

– Already today there are lots of foreigners who are prepared to invest
in Armenia, but the big problem is actually that there are not enough
transparent, interesting companies with enough shares available to buy
on the stock exchange. Today, brokers have foreign investors who want
to buy shares but there is nothing to buy.

There are lots of foreign funds and other investors who specialize in
Eastern Europe. They are interested in finding investments here but
they cannot find shares to invest in.

An interesting example is IXSP (International Exchange
St.Petersburg)where we own a 33.3% stake. To a large extent, the same
kind of investors are interested in investing in Russia through IXSP
and in Armenia through Armex. The similarity between these two projects
is that there is trust in NASDAQ OMX and in what we do. We create good
markets where we operate and therefore we are interesting for listing
companies and for investors.

– How tough will your listing requirements be? I think they must be
tough lest investors might face unjustified risks?

– We will have high requirements for listing. In fact, we already have
different levels of listing, but unfortunately, today there are no Ð?
listed companies (with the toughest listing requirements). We will have
high requirements and it will also be in the interest of the issuers:
if you have high requirements and provide good information the
investors trust the company and will pay more for its shares. This is
the way we do listing, not just B or C listing but A listing with
highest requirements. It will give the issuers the highest price for
their shares. We will encourage them to do that and we will help them
to comply with these high requirements and this will make it much
easier for them to attract foreign capital.

– Quite recently you introduced a new investment instrument ` corporate
bonds. But the trade in these bonds is not very active. Why?

– Last year was very positive. We got bonds of five companies. Before
that we had zero. So, in that way it has been positive growth. Of
course, I hope there will be more bond issues. I also hope that the
companies issuing bonds will take the next step and issue shares. From
volume prospective and the stock exchange perspective, there is usually
much more activity in trading in shares than in bonds. Especially for
foreigners, investing in shares is much more interesting than in bonds
and there is much more capital to be found if you list shares.

– Are you satisfied with the clearing and settlement system?

– We are going to improve clearing and settlement as now it is too
complicated and will discourage investors and make the activity lower.

We will develop it first by improving the rules. We will then also use
technology solutions to make improvements. We will do all this. We are
right now planning exactly when and how we will do it. It is important
to improve the functions of the depository and the clearing settlement
process.

We have to move from pre-deposition to T+3 settlement, which is the way
we work on other NASDAQ OMX markets. This will be important.

– When will our market be ready for attracting investments?

From our side, we will do everything we can to improve the exchange and
depository. We also need companies who are prepared to list, and
release more shares and not only trade a very small percentage. There
are already companies who want to raise capital on the exchange. When
they do that we will help them with the listing procedures. We will do
what we can to help and convince them that it is a good idea.

– Will the currency exchange remain under the control of the Central
Bank?

– I cannot answer for the Central Bank. Of course, they are controlling
this sphere. What we can do is to make sure that we provide good
platform for currency trading, which is working well already now, and
we can provide a good platform for securities trading, and we think
investors will want to use that platform. The CB sees that it is useful
for the market and we make sure that the services we provide to the
market are working well