Tashkent, Uzbekistan (UzDaily.uz) — An international roundtable dedicated to the draft new Capital Market Law was held in Tashkent on 5 October.
The draft law has already passed its first reading in the Legislative Chamber of the Oliy Majlis and is being prepared for its second reading.
The event, titled “Capital Market Law: A New Step Towards Accelerated Development of the Capital Market of the Republic of Uzbekistan,” was organised by the National Agency of Perspective Projects (NAPP) jointly with the International Finance Corporation (IFC) and the United Nations Development Programme (UNDP).
The discussion brought together representatives of the Senate and Legislative Chamber of the Oliy Majlis, NAPP, international financial organisations and development institutions, as well as experts and representatives of capital market infrastructure.
Speaking at the event, NAPP First Deputy Director Vyacheslav Pak noted that Uzbekistan has already introduced a number of capital market instruments, including mortgage-backed bonds and corporate bonds denominated in foreign currencies. He also said that centralised dividend payments through the Central Securities Depository had been introduced.
Pak also highlighted the international IPO of the National Investment Fund of Uzbekistan, UzNIF, with a dual listing, which he said raised more than US$600 million.
According to the NAPP first deputy director, investors are interested in a clear legal framework and mechanisms for protecting their investments. He expressed hope that the new law would establish a legal foundation for further development of the capital market and stronger investor protection.
New capital market instruments
The draft law consists of 16 chapters and 123 articles. It provides for an updated regulatory framework for the capital market, taking into account international standards and practices. The document was prepared with the participation of the European Bank for Reconstruction and Development (EBRD), IFC, Asian Development Bank (ADB), Islamic Development Bank, UNDP, IOSCO and the US Securities and Exchange Commission (SEC), as well as government agencies and market participants.
One of the key areas is the expansion of the range of financial instruments. The draft law provides a legal framework for derivatives, including options, swaps, futures, forwards and contracts for difference.
It also provides for the issuance of covered and securitised bonds, bonds of international financial institutions and sustainable development instruments.
A separate section focuses on Islamic finance. The draft law provides legal mechanisms for issuing sukuk, including instruments based on partnership, leasing, trade and agency relationships.
Infrastructure and investor protection
The draft law provides for licensing custodial activities as a separate type of professional activity. Custodians will be responsible for the safekeeping and recording of clients’ financial instruments and funds, as well as confirming ownership rights to them.
It also proposes improving the regulation of rating agencies, management companies and investment funds.
Another innovation will be the introduction of a central counterparty, which will conduct clearing for capital market transactions and ensure their settlement.
The powers of the Central Securities Depository will be expanded. In particular, it will be able to centrally process dividend and interest payments, bond redemptions and mandatory buybacks of securities.
To strengthen investor protection, the draft law provides for the introduction of representatives for sukuk and bond holders. It also proposes dividing individuals into qualified and non-qualified investors based on their knowledge and experience.
International integration
The draft law also pays particular attention to integrating Uzbekistan’s capital market with international financial markets.
The document provides for improved mechanisms for resident issuers to enter foreign markets and for non-residents to place securities in Uzbekistan. It also creates a legal framework for international financial institutions to issue bonds in the country.
State regulation is to be brought into line with IOSCO principles. In particular, the supervisory powers of the authorised body will be expanded, along with additional measures to respond to violations of legislation.
During the roundtable, participants also discussed the development of bonds issued by international financial institutions in the national currency, securitisation and covered bonds, sukuk, global depositary receipts, IPOs and derivatives.
Experts from ADB, IFC, UNDP, EBRD, Franklin Templeton and Centil took part in the discussion. Representatives of the Central Securities Depository and the Republican Stock Exchange “Toshkent” presented issues related to market infrastructure, international standards and new institutions.
