YEREVAN, September 29 /ARKA/. In an exclusive interview with ARKA news agency CEO of Armenian Securities Exchange (AMX) Hayk Yeganyan spoke about the strategy of the exchange, prospects of the securities market development, as well as the obstacles on this path.

ARKA - How has AMX's strategy changed with the arrival of the Warsaw Stock Exchange? And in general, what prospects do you see for the development of the Armenian securities market?

A. Yeganyan - Our cooperation with the Warsaw Stock Exchange started not so long ago. What is important here is that we have attracted very experienced international specialists to the AMX Board such as ex-director of the Stuttgart Stock Exchange and a well-known investment banker from Poland, who help us in developing our strategy - a long-term five-year development plan.

ARKA - What are the main target directions of the strategy?

A. Yeganyan - The five-year strategy will be divided into three stages - short-term, medium-term and long-term. The emphasis is placed on the development of investment banking and brokerage activities. The goal is to attract players to the capital market so that people who have savings do not just invest them in deposits, but also enter the capital market. And it is not only about technology, but also about proper professional work with people. That is why we initiated the establishment of the AMX Academy in Armenia.

Besides, we are planning to introduce qualification requirements for brokers who wish to trade on the securities exchange and use the services of the Depository. Qualification criteria for brokers, dealers and anti-money laundering specialists will be in line with the standards of the International Capital Market Association (ICMA) or certificates developed by it.

We have reached an agreement with ICMA, whereby the AMX Academy will become its affiliate member and will represent its interests in Armenia. This will make all services more accessible to the public, as well as to investment banking providers. Lectures will be organized with the involvement of foreign specialists. It is impossible to develop the capital market without education. In our country, unfortunately, there is a gap in educating specialists for the financial sector.

In addition, we are seriously tightening compliance and bringing a new level of client and partner compliance and risk assessment. We are constantly adapting our risks to new global realities. Therefore, our risk management policy will comply with European and American standards. This is a requirement for a group of subsidiaries of the Warsaw Stock Exchange, and we, being one of them, must follow all standards.

ARKA – Can we say that one of the goals of selling a stock in the AMX was to attract non-residents. Could you give some statistics on the number of potential and real market participants?

A. Yeganyan - Since January of this year the volume of investments in government bonds by foreign investment funds has exceeded 400 million US dollars. I.e. non-resident investors have already purchased our government bonds for this amount.

ARKA - Is there an indicator for comparison?

A. Yeganyan - For comparison, from 2016 to the end of 2022, this indicator was equal to $100 million. Thus, more than 10% of our AMD government debt is already held by Western investment funds. For them, when assessing the country's economy, a positive signal is that one of the key infrastructures of the capital market is European (in fact, we are a European organization). In Armenia, they pay attention to the infrastructure, to who is conducting the auction. If the auction of government bonds is carried out by an exchange, whose shareholder is the largest European exchange, it inspires a certain confidence that the organization of the auction is more transparent. If the Warsaw Stock Exchange had not been our shareholder, this figure, which exceeds 400 million dollars, could have been lower. I.e. this is one of the criteria of confidence.

ARKA - Earlier you said that the capital market and the financial sector of Armenia, though still at the stage of development, are already comparable to the European financial system in a certain sense. What did you mean by that?

A. Yeganyan - We have very good legislation on securities. Our "Law on Securities" is much better than those of the other countries of the region. It is understandable for Europeans and Western investors.  When we talk about the capital market, our target client should be the West, because the capital is formed mainly in the West. And our legislative regulations on the capital market are comparable to international standards. Besides, we have a good supervisory body - the Central Bank. The regulator is a transparent partner for all international supervisory structures. We also have a good infrastructure: the Central Depository with its technical equipment and regulations, which is now being developed and brought in line with international standards; the securities exchange with a very good trading system and technical equipment.

ARKA - In your opinion, what areas should be improved to comply with international systems and standards?

A.Yeganyan - In Armenia, unfortunately, there is no investment banking organization that would organize at least a couple of public issues per year with correct market valuation of securities, like, for example, Georgian companies TBC Capital and Galt & Taggart.  Besides, there is no serious specialized brokerage company in Armenia to work with investors and train them. The same TBC Capital and Galt & Taggart work with people, provide them with analytical materials, comparative characteristics, information on bonds and ratings. That is why we are going to open the AMX Academy; we intend, among other things, to educate the public and try to fill this gap.

ARKA - Konstantin Saroyan, Secretary- General of the Federation of Euro-Asian Stock Exchanges, believes that the main weak link in Armenia's capital market is corporate governance. What is the way of solving this problem, and what other measures, in your opinion, are necessary to stimulate the attraction of foreign investments in Armenia?

A. Yeganyan - Corporate governance itself can become a problem if you are trying to attract funds from the population or from a third source. Lack of corporate governance in a company makes it high risk for an investor. Corporate governance is necessary to demonstrate transparency of operation.  But without an investment banker or a banker who will wake up every morning and think about which company he should persuade today to become a JSC or issue bonds or shares, and on the other hand, without a broker working with the investment banker, thinking about who to sell a potential issuable security to and how to convince people that it is a good security - no matter how good the corporate governance is, nothing will develop. So, in our view, this is a secondary issue.

There are many companies in Armenia which, although not listed, are JSCs. There is a need for a structure that will supervise them. There is no such structure, and this is a big problem. The stock exchange can exercise supervisory function if the companies are listed. But this function ends in case of delisting.

In my opinion, it is necessary to revise the laws "On Joint Stock Companies". There should be a link that will supervise the interests of investors. This structure can be called anything, for example, the Supervisory Body for Corporate Governance.

In the early 2000s, Armenia had a Securities Commission, and the relevant companies were subject to its monitoring. This structure could impose penalties by force of law. For example, in England, if a company did not register its annual meeting in the state register or did not submit the relevant reports to the state register, it could be bankrupted. In Armenia, there is no structure with such functions, and this is an obstacle.

The law "On Bankruptcy" is also an obstacle. It is not uncommon for many frauds to be carried out taking into account its loopholes. In short, there is certainly a need for reforms. Many countries follow the ideology of "English law", which is very different from the continental law in its simplicity and clarity. If countries want to develop their capital market and cannot reform their laws, they create special economic zones where English laws apply. Similarly, capital market development can be stimulated in Armenia as well.

Ultimately, the rights of a person purchasing a security, any investor, must be protected by law and be regulated in a certain way. At the highest level, the right of ownership should be protected and there should be no mechanisms for fraud.

Ultimately, the rights of the person purchasing a security, any investor, must be protected by law and be regulated in some way. At the highest level, ownership should be protected and there should be no mechanisms for fraud.

ARKA - What is the capitalization of the stock exchange at the moment in comparison with the same period of the last year?

A. Yeganyan - The market capitalization reached 280 billion drams by the end of 2022, increasing by 7% compared to the previous year.

ARKA - Does AMX plan to establish cooperation with other international exchanges, if yes, then with which ones and in what directions?

A. Yeganyan - First of all, of course, it is the Warsaw Stock Exchange. The goal is to have our securities admitted to trading on one of its platforms. This is a one and a half year project and we hope that we will achieve it. We are also interested in the Georgian market. We have mutual interest here: we have something to share with them, and at the same time they have a lot of things that we are interested in. For example, the brokerage companies operating there. We do not have such a developed brokerage industry, and they do not have such a developed infrastructure as we do, in particular, they do not have a developed depository, AMXTrader platform. An interesting partner for us is the Kazakhstan Stock Exchange. We are considering the possibility of cooperation, including cross-listing.  Without disclosing brackets, I will say that some developing countries on different continents are interested in buying our AMXTrader program.

ARKA - Do you think that the recent investment boom observed in Armenia has more pluses or minuses for the stock market?

A. Yeganyan - If money comes from very high-risk countries (for example, two large neighboring countries are high-risk countries), it is fraught with great reputational risks for your country. And when other states or Western investors want to assess the risk of your country and cooperation with a local company, seeing the source of funds coming from a risky country, they automatically classify your country as high risk.

Any assessment of a partner also takes into account publicly available information about that partner. And if the partner is in a jurisdiction, information about that jurisdiction is also taken into account.

The approach at our group level is also to moderate the risk appetite. Taking into account that we are a European company, as well as the fact that the Central Depository holds all pension assets, i.e. the future of the Armenian population, we have no right to put it at risk. We have to be very careful.

ARKA - What can you say  about the current situation on the global stock market? What areas of the economy are especially in demand this year, and what areas inspire fear?

A. Yeganyan - During the pandemic, so much money was printed, which got into the stock exchanges, that there was overheating. Now the recession has started. Unfortunately, there are no good expectations for the Eurozone.  Because the interest on bonds is high, individuals and investment funds have started investing in bonds, and this has led to the fact that there are practically no stock issues. All over the world, new shares are not being issued practically because they are not interesting to the investor at the moment.

When a lot of shares are not issued, the inflows of money into companies are much less than they would have been in the past as equity capital. And that leads to slower economic growth. And this is a global trend.  On the other hand, sanctions, and the fact that a lot of goods are not being exported from a major country to developing countries will in turn lead to new problems. I believe that we are entering a new geopolitical historical stage where the whole economy has to adapt to the new reality and search for alternatives. This takes time. We may witness the closure of some industries due to lack of resources, which will be replaced by new ones

ARKA - Are new players expected to come to the Armenian stock market, new issues?

A. Yeganyan - There is interest, everything depends on the availability of investment banks. At the same time I do not agree with the opinion that there are no issuers in Armenia. There are a lot of potential issuers of shares. What remains is for investment banks to persuade them and organize the placement. Many companies come to us and ask what to do? They need to find an investment bank that will draw them up a prospectus, conduct financial analysis, sell the newly created securities, and so on.

Commercial banking is well-established in our country, as well as retail banking, but investment banking is not developed at all. These are underwriters connected with potential issuers in the economy, businesses, who persuade them to issue and organize the whole process. We do not have this sphere created, otherwise many companies would go public.

However, you can see a conflict of interest here. If a company is healthy, an investment bank may be more interested in granting it a loan than in organizing the issue, because it will make more money that way. Therefore, it is advisable to separate the two functions, otherwise it will not work. -0-