Modern economic POTENTIAL OF UKRAINE

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Stock market of Ukraine

As of November 1, 2005, 33,873 joint stock companies, with almost 17 mn stock holders, were registered in Ukraine. More than a third (34% or 11,547) were open joint stock companies (OJSC), the rest (66%) – closed joint stock companies (CJSC). Only 21,604 joint stock companies (10,055 OJSCs and 11,549 CJSCs) have registered issues of securities.

State regulation of the stock market is run by the State Stock Market and Securities Commission (SSMSC), while self-regulating organizations and market operators themselves conduct non-state regulation.

The stock market in Ukraine handles the following securities: stocks, bonds (corporate, municipal, government), bills, options, and other securities. The list of securities for market turnover is delimited by the Law of Ukraine “On Securities and the Stock Exchange”.

The largest portion of security issues throughout 2004 were in shares – 81.5% (UAH 28.3 bn) and corporate bonds – 11.8% (UAH 4.1 bn). Corporate investment funds accounted for 0.4% (UAH 150.4 mn), municipal bonds – 0.1% (UAH 45 mn), investment certificates of investment share funds – 5.8% (UAH 2.01 bn) (Figure 1). Initial estimates show that in 2005, shares narrowed their portion in favor of debt securities.

The increase in the issue of shares has been fluctuating from UAH 17 to 23 bn. As of early 2005, the gross volume of shares issued and registered by the State Stock Market and Securities Commission totaled UAH 127.6 bn. In the 9 months of 2005, the Commission registered issues of shares for total value of UAH 9.3 bn, which is much less than in the same period of 2004 (UAH 18.8 bn).

Figure 1. Structure of securities issues in 2004.

In 2004, the largest portion of issues of shares came from open joint stock companies established from state companies through privatization and corporatization, while in 2005 their percentage seriously narrowed.

Another category of securities which are in active turnover in Ukraine includes debt securities. This covers bills, corporate bonds, municipal bonds, and investment certificates of investment share funds. In the second quarter of 2005, trading volumes in bills came to UAH 32 bn, whereas the trading volume in shares totaled UAH 40.4 bn. Since the end of 2001, Ukraine has seen increases in the volumes of bond issues by enterprises (Figure 2)

Figure 2. Volume of registered issues of corporate bonds in Ukraine over 1995-2004, UAH bn

In the first 9 months of 2005, the volume of corporate bond issues amounted to UAH 3.8 bn, which is much higher than the total figure for 2004 (UAH 2.2 bn). The pattern of trade in corporate bonds by businesses in 2004 is illustrated by the picture 3.

Picture 3. By-industry pattern of trade in corporate bonds over 2004, %

From 1995 to 1998, the volumes of government internal bonds issued (OVGZ) grew dramatically. A subsequent reduction has seen peaks in 2002 and 2005. This can be seen in the data in table 1.

Table 1. Results of auctions for government internal bonds’ location (OVGZ) at the primary market

The derivatives market was formally created in 2000, with the first registrations. As of early 2005, the State Stock Market and Security Commission registered issues of options worth UAH 310.42 mn.

Activity on the organized stock market includes 10 stock exchanges and trade-and-information systems. In the first 9 months of 2005, the volume of organized stock trade made up UAH 10,638.3 mn.

Table 2. Structure of trade at the organized stock market of Ukraine in September 2005, UAH mn

Major volumes of stock exchange operations in Ukraine (94%) are handled over-the-counter market. As of July 1, 2005, only 797 security traders were licensed to conduct operations on the stock market, and they traded both at organized and over-the-counter security markets. The most active traders were in the city of Kiev and Kiev region, Dnepropetrovsk, Donetsk, Kharkov, Zaporozhye, Lvov, and Volyn regions. Yearly rises in the volumes of security market operations are the norm, although with periodic corrections. In general, the volume of security trading at stock market today is comparable to the rate of Ukraine’s GDP.

Table 3. Volumes of operations by security traders

The highest capitalization rate is related to securities of issuers from the communications sector, electrical engineering, trade and public catering, ferrous metallurgy, construction, fuel industry, as well as chemical and petrochemical production. The issuers with the highest capitalization are UkrTelecom, UkrNafta (Ukrainian Oil), Nikopol Plant of Ferroalloys, NefterOrgSintez, and electrical engineering enterprises. The market has issuers from all regions of the country.

Figure 4. Ratio of security market indicators to GDP

As shown in Figure 4, the ratio of securities trading volumes to GDP has been rising recently. At the same time, the nominal capitalization to GDP ratio has been growing at a far slower rate.

The top level of Ukraine’s depositary system has three depositaries: National Depository of Ukraine (NDU), Interregional Stock Union (MFS), and the Depository of the National Bank of Ukraine. Deposit activities at Ukraine’s stock market are also performed by custodians, which include banks and stock traders that have received the appropriate license. To serve the allocation and turnover of government securities, the National Bank of Ukraine established a specialized electronic depository in 1996.

As of early 2005, 371 licensed registrars operated in Ukraine, who maintained the registrars of named securities owners (837 issuers have their own registers), as well as 124 custodians. In the last 5-6 years, the number of registrars maintaining the registers of named securities owners saw no particular changes. As opposed to registrars, in 1998-2005 the number of custodians increased almost fourfold, foremost, thanks to new issues of stocks in non-documentary form and their immovability, as well as the opening of accounts by local and foreign investors in depository institutions.

Investment funds and mutual funds of investment companies keep increasing the balance cost of their financial investments (UAH 209.7 mn as of July 1, 2005), and expanding their regional presence (12 regions throughout the country). As of July 1, 2005, only 116 companies received corresponding licenses and managed assets of 175 institutions for joint investing, assets of which are estimated at UAH 245 mn. 59 companies received licenses to manage assets of non-state pension funds.

Ukraine’s stock market is actively developing. New issuers are entering the market, and the pattern of securities trading is changing. Companies owned by foreign investors are very active on the market. Some Ukrainian issuers place their securities at foreign markets. Information disclosure on Ukraine’s stock market is becoming more efficient. The capital market in the country is more and more active in using stock market instruments.

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