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Overview of Securities Market in the CentralAsian countries, Azerbaijan and Mongolia
Sixth OECD Conference on Financial Sector Development in
the Central Asian countries, Azerbaijan and Mongolia29-30 April 2004, Istanbul
Shigehiro SHINOZAKI
AdministratorOutreach Unit for Financial Sector Reform
OECD
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Agenda
Macroeconomic Performance in the RegionMarket StructureMarket PerformanceRegulatory and Supervisory StructuresSome thoughtsExamples of the selected advanced markets
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1. Macroeconomic Performance
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
%
Kazakhstan
Uzbekistan
Kyrgyz Republic
Tajikistan
Turkmenistan
Azerbaijan
Mongolia
(Source) EBR D Trans itio n Re po rt 2003, *Count ry No te in the 5th Co nference (1991-1997), The Ec o no mist Intelligenc e Unit and ADB s tatistics (1998-2003)
(1) Real GDP Growth Rate
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1. Macroeconomic Performance (cont.)
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
1998 1999 2000 2001 2002 2003
Year
%
Kazakhstan
Uzbekistan
Kyrgyz Republic
TajikistanTurkmenistan
Azerbaijan
Mongolia
(Source) EBR D Trans itio n Re po rt 2003, Co untry No te in the 6th Co nference and ADB s tatis tics
(2) Inflation Rate
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2. Market Structure
Three Basic Characteristics:
1. Relatively advanced market infrastructure
1) Sophisticated electronic trading systems:
- Electronic Trading System of KASE in Kazakhstan
- Stock Trade System BTS in Kyrgyz Republic
- INIST in Azerbaijan
2) E-trading for small investors:
- ELSIS-SAVDO in Uzbekistan
3) Central Depository System (except for Tajikistan)
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2. Market Structure (cont.)
Three Basic Characteristics:
2. Still restricted market participants
1) Almost no foreign investors
2) Intermediaries structure varies
3) Listed companies: very small scale
- Mongolia: 402 (Y2003)
- Others: less than 70 companies (Y2003)
- JSCs are basically privatised companies.
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2. Market Structure (cont.)
0
100
200
300
400
500
1998 1999 2000 2001 2002 2003 Year
Number
Kazakhs tan (KASE)
Uzbekis tan (TSE)
Kyrgyz Rep. (KSE)
Tajikis tan (CSE)
Turkmenistan
Azerbaijan (BSE)
Mo ngolia (MSE)
Number of Listed Companies at the end-of-year
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2. Market Structure (cont.)
Three Basic Characteristics:
3. Still narrow range of securities products /
1) Flagship products:
- Short-term government bonds- REPO (Kazakhstan, Azerbaijan)
2) Derivatives: very restricted
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2. Market Structure (cont.)Major Products
n/a,n/a,- Short-term T-bond(14 days)
- Mid-term T-bill
(3 years)
- Short-term bond(6-month, 1 year)
- Common stock
Mongolia
- REPO on T-bill
- Promissory Note- Privatisation checks
- Privatisation options
- Futures (only in 2001)- Short-term T-bill
(3-, 6-, 9-month)
- Short-term bond
(3-, 6-month)- Long-term bond
(up to 5 years)
- Common stock
- Preferred stockAzerbaijan
n/a,n/a,n/a,n/a,n/a,Turkmenistan
n/a,n/a,- T-bill (up to 1 year)
- Financial Ministry
bond (2 issues; 20-year)- National Bank bond
(short-term)
n/a,- Shares in state-owned
and private companies
- Registered and bearercommon and preferred
stock
Tajikistan
n/a,n/a,- Short-term T-bill(3-, 6-, 9-month)
- Long-term T-bill
(5 to 15 years)
- Short-term bond- Long-term bond
(1 to 3 years)
- Common stock- Preferred stock
Kyrgyz Republic
n/a,n/a,- State short-term bond(6-, 9-, 12-month)
- State mid-term bond
(1.5 year & 5-year)
- Corporate bond, tradedfreely.
(3-, 6-, 9-month & 1.5
year)
- Common and preferredstock, traded freely both for
UZC and USDUzbekistan[1]
- REPO- Promissory Note
- Foreign Exchange
- Undelivered 6 monthfutures on the rate
USD/KZT and EURO/USD
- Municipal bond- T-bond (MAOKO)
- Short-term T-bill
(MEKKAM)- Mid-term T-bill
(MEOKAM)- Long-term T-bill
(MEAKAM)
- Indexed T-bill
(MEIKAM)-Eurobond
- Corporate bond- IFO bond
- Common stock(A-, B-listing, OTC)
- Preferred stock
- State Block of Shares(SBS)
Kazakhstan
OthersDerivativesGovernment BondCorporate BondEquity
[1] State short-term bonds are traded on the Currency Exchange from 1996. State mid-term bonds are to be issued from April 2004.
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2. Market Structure (cont.)
Domestic
Investors
- Pension Funds:
20.5%
- Banks: 13.7%(2003)
Foreign
Investors
Brokers/
Dealers
- Banks: 29
- Others: 27
(Securities firms)(2003)
KASECentral
Securities
Depository
(CSD)
Kazakhstan
InterbankSettlement
Center(KISC)
InternetTrading
Trading System Clearing & Settlement System
(1) Kazakhstan
IntermediariesInvestors
Foreign exchange
Settlement
in KZT
Electronic Trading
System of KASE
- Equities / Bonds
- Derivatives- over 90% of trades
Floor trading:less than 10%
CS: T+0/T+N(
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2. Market Structure (cont.)
Small
Investors
Brokers/
Dealers
- Banks: 6
- Others: 101
(Securities firms)
(2003)
Trading System Clearing & Settlement System
(2) Uzbekistan
IntermediariesInvestors
CS: T+ ; GS: T+
Domestic
Investors
- PIFs: 2.1%
- Banks: 9.3%
(2003)
- 77% of the total
Foreign
Investors- 23% of the total
TSE
- Equities / Bonds
- 12 branches
State Central
Securities
Depository
(UzSCSD)
- First level depository
Second-tier
Depositories
- 32 depositories
Elsis-Clearing
Settlement-ClearingHouse
ELSIS-SAVDO
- Electronic OTC trading
- Over 20 offices
- Started from 2000
Electronic links
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2. Market Structure (cont.)
(No foreign
investors)
Brokers/
Dealers
- Banks: 7
- Others: 26
(Securities firms)
(2003)
Trading System Clearing & Settlement System
(3) Kyrgyz Republic
IntermediariesInvestors
CS: T+ ; GS: T+
Domestic
Investors
- 21 Banks
- 10 Insurance
companies
- 1 Pension Fund
- 5 PIFs
(2003)
KSE
- Equities / Corporate bonds
- Only floor trading
(no electronic trading system)
- Located in Bishkek
Central Depository CJ
Stock Trade System (BTS)- Electronic trading system (trading, clearing & settlement)
- Independent CJSC from KSE (no listing procedures)
- Located in Osh city
- Started from 2000
National Bank
- Government bonds
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2. Market Structure (cont.)
(No foreigninvestors)
Trading System Clearing & Settlement System
(4) Tajikistan
IntermediariesInvestors
Domestic
Investors
- No institutional
investors such
as insurance
companies and
pension funds
(No Brokers/
Dealers)
- Law exists
(Government
Decree on broker
and dealer
activity on the
securities
market)
CSE
- Established in 1994
- No securities trading at present
- Listed companies exist: 30
(2003)
(No clearing & settlement
institution)
-Law exists
(Government Decree on the
Central Depository)
New Tajik Stock Exchange
-MOF plans to transform CSE
into a new stock exchange.
(Future plan)
National Property Exchange
- Equities (privatised JSC) / no corporate bonds
Ministry of Finance / National Bank
- Government bonds
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2. Market Structure (cont.)
Brokers/
Dealers
- Banks: 20
- Others: 4
(Securities firms)(2003)
Trading System Clearing & Settlement System
(5) Azerbaijan
IntermediariesInvestors
Domestic
Investors
- Insurance
companies:
20.0%
- Banks: 73.0%
(2003)
Foreign
Investors-0.1% of the total
BSE
- Established in 2000
- pre-listed companies
securities are traded.
- Equities / Bonds
(Corporate bonds started
from 01.01. 2004)
- Derivatives (futures)
National
Depository Center
(NDC)-depository & registrar
licence
Partner InvestmentCo.Ltd.
BSE
Electronic TradingSystem INIST
- 30 booths for brokers
Clearing-house
CS: T+ ; GS: T+
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2. Market Structure (cont.)
Brokers/
Dealers
- No banks
- Others: 26
(Securities firms)(2003)
Trading System Clearing & Settlement System
(6) Mongolia
IntermediariesInvestors
Domestic
Investors
- Individuals:
99.86%
- Banks: 0.01%
(2003)
Foreign
Investors-0.03% of the total
MSE
- Equities / Bonds
- All trades are conducted
via MSE Pure-Order
Driven System
(electronic trading system)
Securities Clearing House
& Central Depository
- Established in Oct. 2003
- State-owned limited liability company
- Fully computerised
MSE Pure-OrderDriven System
- Started from 1995
Shares: T+1 ; Bonds: T+0
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3. Market Performance(1) Market Capitalisation: US$ million, % of GDP
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1998 1999 2000 2001 2002 2003 Year
%
Kazakhstan
Uzbekistan
Kyrgyz Republic
Tajikistan
Turkmenistan
AzerbaijanMongolia
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
1998 1999 2000 2001 2002 2003 year
US$ million
Kazakhstan
Uzbekistan
Kyrgyz Republic
Tajikistan
Turkmenistan
Azerbaijan
Mongolia
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3. Market Performance (cont.)
(2) Trading Volume: US$ millionFigure 11-1: Kazakhstan
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
30000.0
35000.0
40000.0
1998 1999 2000 2001 2002 2003Year
US$ million
Total
Equities
Corporate Bonds
Government Bonds
REPO
Others
Figure 11-2: Uzbekistan
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
1998 1999 2000 2001 2002 2003Year
US$ million
Total
Equities
Corporate Bonds
Government Bonds
Others
Figure 11-3: Kyrgyz Republic
0.0
5.0
10.0
15.0
20.025.0
30.0
35.0
40.0
45.0
1998 1999 2000 2001 2002 2003Year
US$ million
Total
Equities
Corporate BondsGovernment Bonds
Others
Figure 11-4: Tajikistan
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1998 1999 2000 2001 2002 2003Year
US$ m illion
Total
Equities
Corporate BondsGovernment Bonds
Others
Figure 11 -5: Azerbaijan
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
1998 1999 2000 2001 2002 2003Year
US$ million
Total
Equities
Corporate Bonds
Government Bonds
Others
Figure 11-6: Mongolia
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1998 1999 2000 2001 2002 2003Year
US$ million
Total
Equities
Corporate Bonds
Government Bonds
Others
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3. Market Performance (cont.)
(3) Primary and Secondary Market: US$ millionFigure 12-1: Kazakhstan
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
1998 1999 2000 2001 2002 2003 Year
US$ million
P rima ry ma rket
Sec o ndary market
Figure 12-2: Uzbekistan
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
1998 1999 2000 2001 2002 2003 Year
US$ millio n
P rima ry ma rket
Sec o ndary market
Figure 12-3: Kyrgyz Republic
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1998 1999 2000 2001 2002 2003 Year
US$ millio n
P rima ry ma rket
Sec ondary market
Figure 12-4: Tajikistan
0.0
50.0
100.0
150.0
200.0
1998 1999 2000 2001 2002 2003 Year
US$ m illio n
P rima ry ma rket
Seco ndary market
Figure 12-5: Azerbaijan
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
1998 1999 2000 2001 2002 2003 Year
US$ million
P rima ry ma rketSeco ndary market
Figure 12-6: Mongolia
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1998 1999 2000 2001 2002 2003 Year
US$ m illio n
P rima ry ma rketSeco ndary market
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3. Market Performance (cont.)(4) Stock Price Movement (end-of-year)
28 August 1995895.9933.9814.0469.9255.7235.0TOP-20[2]
Mongolia
n/a,n/a,n/a,n/a,n/a,n/a,n/a,n/a,
Azerbaijan
n/a,n/a,n/a,n/a,n/a,n/a,n/a,n/a,
Turkmenistan
n/a,n/a,n/a,n/a,n/a,n/a,n/a,n/a,
Tajikistan
November 199668.859.656.870.184.6122.0
KSE Index
Kyrgyz Republic
1 January 2000131.9136.2114.285.178.688.3TASIX[1]
Uzbekistan
12 July 2000142.4140.2104.5106.0n/a,n/a,
KASE_Shares
Kazakhstan
Base-date (=100)
200320022001200019991998
Name of index
[1] TASIX: Tashkent Aggregate Securities Index. TASIX in 1998 and 1999 is recalculated based on 1 January 2000.[2] In Mongolia, price index was named as TOP-75 between year1995 and year2002.
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3. Market Performance (cont.)
1. Market capitalisation: very small scale
- Trading volume: US$ 14 3,400 (Y2003)- but growing at very slow pace except for Uzbekistan
2. Short-term government bonds: dominant status
3. Active REPO transactions: Kazakhstan
4. Corporate securities (equities & bonds): underdeveloped
(very limited volume)
5. Secondary market:
- Active : Kazakhstan & Kyrgyzstan
- Inactive: Uzbekistan, Tajikistan, Azerbaijan & Mongolia
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4. Regulatory and Supervisory Structures for
Securities Markets
Kazakhstan:Financial Supervision Authority (FSA)
, MOF & National Bank of Kazakhstan
(NBK)
Uzbekistan:The Center for Coordination andControl of the securities Market (CSM),
MOF & Central Bank (CB)
Kyrgyz Republic:
State Commission on the Securities
Market (SCSM), MOF & National Bank
(NB)
Tajikistan:Ministry of Finance (MOF)(Securities and Foreign Investment Office)
Azerbaijan:
State Committee for Securities (SCS)
Mongolia:
Mongolian Securities & Exchange
Commission (MSEC)
Plural RegulatorsSingle Regulator
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4. Regulatory and Supervisory Structures for
Securities Markets (cont.)
Kazakhstan:
- Association of Financiers
- Association of Assets
Managers- Kazakhstan Association of
Registry Holders
Uzbekistan:- National Association ofInvestment Institution
Azerbaijan: BSEKazakhstan: KASE
Uzbekistan: TSE
Kyrgyz Republic: KSE
Tajikistan: CSEMongolia: MSE
Independent SRONo SROSRO
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5. Some thoughts (cont.)
- Still remaining state-owned companies
- Laws and regulations
- Globalisation
- Still remaining state-owned companies
- Laws and regulations
- Globalisation
- Still remaining state-owned companies
- Laws and regulations
- Globalisation
Threats
- Rapidly growing economy
- Privatisation scheme
- Population: 5.12 m (2003)
- Moderately growing economy, but
downward in 2003
- Privatisation scheme- Population: 25.8 m (2003)
- Rapidly growing economy (booming oil
revenues)
- Privatisation scheme- Population: 14.8 m (2003)
Opportunities
- Very low level of market capitalisation
- Restricted market participants
(no foreign investors)(small scale of listed companies)
- Very low level of market capitalisation
- Still restricted market participants
(little foreign investors)(small scale of listed companies)
- Low liquidity (volatile by year)
- Low transparency
- Double land locked situation
- Low level of market capitalisation
- Still restricted market participants
(little foreign investors)(small scale of listed companies)
- Heavily depending on short-tem gov. bonds
& REPO
- Derivatives: very restricted
Weaknesses
- Partially advanced market infrastructure--Consolidated electronic trading system
(BTS) exists, but there is no electronic
trading system in KSE.
--Central depository system
- Relatively advanced market infrastructure--Sophisticated electronic trading system
--E-trading (OTC): Elsis-Savdo
--Central depository system
- Relatively advanced market infrastructure--Sophisticated electronic trading system
(Electronic Trading System of KASE)
--Central depository system
Strengths
Kyrgyz Rep.UzbekistanKazakhstan
SWOT Analysis of the Central Asian markets
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5. Some thoughts (cont.)
SWOT Analysis of the Central Asian markets (cont.)
- Still remaining state-owned companies
- Laws and regulations
- Globalisation
- Still remaining state-owned companies
- Laws and regulations
- Globalisation
- State-owned companies (dominant status)
- Laws and regulations
- Globalisation
Threats
- Moderately growing economy
- Privatisation scheme
- Population: 2.56 m (2002)
- Moderately growing economy
- Privatisation scheme
- Population: 8.3 m (2003)
- Moderately growing economy
- Population: 6.5 m (2003)
Opportunities
- Very low level of market capitalisation
- Still restricted market participants
(little foreign investors)
(small scale of listed companies)- Depending on short-tem gov. bonds
- Low liquidity
- Very low level of market capitalisation
- Still restricted market participants
(little foreign investors)
(small scale of listed companies)- Heavily depending on short-tem gov.
bonds
- Derivatives: very restricted
- Low liquidity
- Very low level of market capitalisation
- No securities trading in stock exchange
(off exchange market)
- Heavily depending on short-tem gov.bonds
- Low liquidity
- Low transparency
Weaknesses
- Relatively advanced market infrastructure
--Sophisticated electronic trading system
(MSE Pure-Order Driven System)
--Central depository system
- Relatively advanced market infrastructure
--Sophisticated electronic trading system
(INIST system, but no remote trading)
--Central depository system
n/a,Strengths
MongoliaAzerbaijanTajikistan
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5. Some thoughts (cont.)
Key factors for successful development
of the securities market in the region:
1. Mobilise individual savings in order to create active
secondary market of corporate securities;2. Make the best of institutional investors (e.g., pension
funds, PIFs, etc.) to enhance the market liquidity and the
trading volume;3. Attract foreign investors to raise the market capitalisation
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5. Some thoughts (cont.)
To this end;
1. Improve corporate governance in order to build up
investors confidence;
2. Make the best of the existing advantages (e.g., electronic
trading technology) so as to reach the high-yield markets
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5. Some thoughts (cont.)
Question:
Possibility of consolidation of stock exchanges in
the Central Asian region?
Examples of the well-functioning trading schemes in the
selected advanced markets;
Example 1: ASX-SGX Co-trading LinkageExample 2: Euronext
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Australian Market Singaporean Market
SGXBroker[SESOPS]
[SGXAccess]
CLOBSEATS
ASX CHESS SGX CDP
Sell orderASX
Broker
Buy order
FDI
100Stocks
100Stocks
Appointment
Matching ofbuy & sell
order
Matching ofbuy & sell
order
Investor A
Buy order
Buy order
Buy order
Sell order
T+2
SG$
Dividends (SG$ or A$) / Capital gains Dividends (A$) / Capital gains
Buy order
FDI FDI
Investor B
Buy order
Buy order
Buy order
Sell order
Sell order
A$
T+3
Example 1: ASX-SGX Co-trading Linkage
Sell order
Investor Bs account
Australian Custodian
Investor As account
FMP(ASX FIX Client)
LMP(ASX FIXServer)
FMP(SGX FIX Client)
LMP(SGX FIXServer)
ASX-PD (SPV)
ASX World Link(Trading Network)
SGX-PD (SPV)
SGXLink(Trading Network)
Inter-
MarketNetwork
WAN
Trading scheme
Settlement scheme
SG$ or A$A$
FIX Trading Session FIX Trading Session
FIX Market Data Session FIX Market Data Session
Sell order
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Trading
Participants
(Brokers)
Cash products
NSC
Derivatives
LIFECONNECT
Trading System
Clearing 21
(cash &derivatives)
Euroclear France/ Euroclear Bank
BXS-CIK
Euroclear
Netherlands
Own clearing & settlement system
Paris
Brussels
Amsterdam
Lisbon
Clearing
SystemSettlement System Marketplaces
Example 2: Euronext
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ConclusionMerits of Co-trading (ASX-SGX)
& Cross trading (Euronext):
1. Cost reduction (cost efficiency, paperless)
2. High quality service for investors
- speedy dealings- diversified investment portfolios
- customer-oriented services
(provide the same environment as domestic markets)3. Increase of order flows (increase liquidity)
Advanced technology
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Conclusion (cont.)Possibility of the Securities Markets
in the Central Asian region:
Existing advantage in the region
(relatively sophisticated electronic trading technology)
Cross access trading among the Central Asian region
(consolidation of stock exchanges in the region)
may be a key factor to vitalise the securities markets in
the Central Asian countries, Azerbaijan & Mongolia
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Thank you very much for your attention.
For your questions, please feel free to contact me:
Shigehiro SHINOZAKI
Tel: +33 1 45 24 78 35
Fax: +33 1 45 24 18 33
E-mail: [email protected]