NASDAQ OMX Armenia stock exchange is gearing up for technological transformation

20.02.2018 18:28
NASDAQ OMX Armenia stock exchange is gearing up for technological transformation

YEREVAN, February 19. /ARKA/. NASDAQ OMX Armenia Stock Exchange is finalizing a new development strategy, where new products and services will play a key role. In an exclusive interview with ARKA news agency the director of the stock exchange Hayk Yeganyan speaks about how this reorganization process is progressing, what role new technologies should play in it, and what opportunities are opening up for the Armenian businesses and private investors.

ARKA - Mr. Yeganyan, will the development strategy of the Armenian stock exchange change with the change of its leadership? If so, what will be emphasized in particular?

A. Yeganyan – The Armenian Stock Exchange is finalizing a new development strategy. Its most important feature is the creation of new products and services that will be in demand at the financial market. We must make sure that the services of the exchange become available to retail investors not only through banks and investment companies, registered with the exchange, but also directly, both within Armenia and outside it. The practice shows that lack of access leads to a lack of demand, so it is very important to provide investors with direct market access. But for this, first and foremost technologies are needed, which we do not have. Our market for securities is restricted and we should not expect its development without new technologies. It is necessary that people be able to get access to the stock exchange and trading through their smartphones and computers. We do not have such technological support. Therefore, first of all, we must provide technology, and then it will become clear what regional and local opportunities we have. The process of introduction of new technological support will not take much time - a year or a year and a half. It should be noted that when developing a new strategy and identifying priority development directions, we also took into account the requirements and experience of the exchange participants and are grateful to them for their active cooperation.

ARKA - With what results did the exchange close 2017? What is the volume of capitalization of the stock market, and what is the volume of transactions with shares, bonds and other instruments?

A. Yeganyan – The capitalization of the exchange in 2017 increased by 7% amounting to 143 billion drams. The main trend of the past year was a high activity in the corporate bonds market that surged by 83%. The record growth in the number of transactions with corporate bonds - 11 billion drams -was secured by a string of regulatory advantages provided by the Central Bank to local commercial banks. In particular, it has become much more profitable for banks to raise funds through bond issues than by attracting deposits. It's all about privileges regarding the composition and structure of the reserves for raised funds. At the same time, the period of lowering the refinancing rate - from the middle of 2016 to 2017 - became a good ground for offering alternatives to deposits. Therefore, in order to increase the activity of other instruments, legislative changes are needed, in particular, regarding taxation of shares. So, for example, brokerage deals today are subject to VAT. Previously, they were not subject to VAT, and now their services have risen by 20%.
It should be noted that according to the findings of a survey conducted by the World Federation of Stock Exchanges, for most individual and institutional investors, factors such as tax breaks significantly affect their investment decisions. Introduction of incentive mechanisms would also liven up the capital market in Armenia. For example, dividends of companies that have been listed on the stock exchange, can be exempted from taxes as is done in the UK, Slovakia, and Malaysia. Similar mechanisms of a reduced or zero tax rates on dividends are also applied in the member countries of the Eurasian Economic Union (EEU). - Russia, Kazakhstan, Belarus and Kyrgyzstan. In this regard, the introduction of similar tax incentives in Armenia would make the market more competitive. In addition, the listing of companies at the stock market increases the transparency of the economy, and this, in turn, improves tax collection rate.
As for the volume of exchange transactions, the year was completed with positive trends. As I have already noted, there is a high activity in the corporate bonds market, the government bonds market also recorded a 20% growth, the REPO / SWAP instruments were more active - about 38 times when compared to 2016.

ARKA - Is the Armenian business interested in entering the stock exchange today?

A. Yeganyan - By and large, for the business, the exchange is one of the best solutions in terms of attracting additional funds, as their volumes are not limited to the liquid amount of collateral, but are estimated in term of their potential for long-term business development. Today, the securities market is mainly for those companies that conduct audit, are guided by the principles of corporate governance and are transparent. So it turned out that in most cases these are financial companies - banks and credit organizations, since they are under the supervision of the Central Bank. In turn, the stock exchange itself and investment banks should attract businesses to the securities market. But unfortunately, in Armenia, on the one hand, there are almost no interested investment banks that would help companies to pass listing on the stock exchange, and on the other hand, there are small investment companies specializing in providing exchange services, but relatively small capital does not allow them to offer guaranteed placement of securities. It should be noted that it is intermediary companies providing investment services that contribute to the development of the stock market.

ARKA - One of the long-awaited projects is the launch of online purchases of government bonds. Is there any progress, and are individuals active in the process of investing in government bonds?

A. Yeganyan - Online purchase of government bonds is an innovative project of our stock exchange. I would like to note that such projects are not available in all countries. For example, if a person wants to buy US government bonds, he/she can do so only through a broker, whereas in our case one can do so directly. After we launched the online platform, naturally, there was a growth in investors in government bonds. It should be noted that the system of online purchase of government bonds is designed specifically for individuals. The activity of transactions on this site depends on marketing. Initially, this project was launched for the government, and now we are thinking of launching such a platform for financial companies and businesses so that they can also sell their bonds directly.

ARKA – In late 2016 the Armenian parliament adopted a set of amendments to the Law on the Securities Market and a legislative package aimed at developing the derivatives market. Is there a demand for these instruments, and what prevents the development of the market of derivative financial instruments?

A. Yeganyan - There is always a demand for derivatives. We just need a financial engineer - an investment bank that will create these products and offer them to all interested parties through the exchange. And again I repeat, we simply do not have such a financial engineer. Therefore, we either need to create such an institution locally, or bring t from outside. And of course, we need technological support, which will provide access to these tools. Therefore, we set a goal to find the best technology provider.

ARKA - And what instruments of derivative securities may interest the Armenian market?

A. Yeganyan - Today there are banks that issue swaps, but they rarely do it. Forwards, as well as options for the bond market could be attractive instruments for our exporters. We do not need to reinvent the wheel, all these tools exist; they just need to be offered to the business.

ARKA - What plans does the NASDAQ OMX Armenia have for 2018?

A. Yeganyan - In addition to the new technological support for 2018, the Armenian stock exchange has planned the introduction of a platform for crowd funding. We will create a start-up platform, with which start-up entrepreneurs will be able to attract capital. Today, the search for financing is not an easy task, besides, investing in startups is still risky. Therefore, we want to create a platform so that the risks for investors are controlled, and for start-ups, the opportunities for raising capital increase. That is, start-ups will be able to sell their shares, and the exchange will exercise supervision. Besides, start-ups will have the opportunity to attract investment from abroad. Long-term plans of the exchange include cross-listing and cross-trading of financial instruments. We want to open up to the world, particularly to Russia and Europe. As a result of these changes, we will be able to sell European and Russian securities through partner banks. Naturally, this can become a reality only due to technological re-equipment. -0-

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