Capital Market Development

Uzbekistan’s Capital Market: New Rules and Development Strategy


     A year ago, a Decree of the President of Uzbekistan established the Agency for the Development of the Capital Market, which should be in charge of protecting the rights and interests of investors and introduce new types of financial instruments. In October last year, the President held a meeting on development of the stock market, during which it was noted that there are about 100 regulations that restrict and hinder the development of the securities market. Our interview with the Chairman of the Board of the Republican Stock Exchange “Toshkent” USMONOV Bekzod Shavkatovich is about the circumstances that hinder the growth of the capital market of our country and the prospects for its development.

     – Bekzod Shavkatovich, are there any real changes in the capital market a year after the adoption of the Decree of the President of the Republic of Uzbekistan aimed at radically improving the management system of state assets, antitrust regulation and development of the capital market?
     – Undoubtedly, the fact that the capital market regulator has become a separate body gives a positive result. I think that the first was a year of determining further actions, setting the rules of the game for participants in the capital market not only for the Agency for Development of the Capital Market, but also for us. Also, in the above-mentioned Decree, the President of the country set the task to develop a Strategy for Development of the Capital Market for 2020-2025. End of last year, the Agency presented for public discussion a draft Strategy developed based on recommendations of consultants, engaged with the support of the European Bank for Reconstruction Development and the Asian Development Bank, who during the past year studied the infrastructure of the financial sector and the mechanisms of the securities market.
     Overall, the past year was a year of identifying ways to transform the capital market and was marked by increased interest from international financial institutions. And it should be noted that on November 15, 2019, an international conference was held on the role of the capital market in the development of the country’s economy, during which foreign investors noted the huge potential of this market and increased interest in the stock market of Uzbekistan. At the same time, the great attention of the leadership to development of the sector, which is evidenced by the meeting held by the President in October last year, serves as a stimulus for further development of the capital market.
     – During the above-mentioned meeting, the country’s leadership noted a low percentage of the amount of shares in relation to GDP and set a goal to increase the total volume of securities on the stock market to 10-15% of GDP. How can this be achieved, and what will it give to our economy?
     – The first thing to note is the low level of free float (the volume of freely traded securities on the stock market), which does not allow the full potential of the market to be revealed. Increasing this share increases the market liquidity, determines fair pricing, and gives a real assessment of the market condition. At the same time, the limited choice of instruments for investors was noted. Speeding up the process of creating new instruments, as well as involving new players in the capital market, for example, allowing limited liability companies to issue their own bonds and sell them on the stock exchange will help increase the market volume.
     Another factor that prevents development of the capital market is the high share of the state in the country’s economy. Conducting the privatization process through public offers will not only increase confidence and interest in the capital market but will also create a pool of investors willing to consider securities as a source of income. A competent and purposeful approach to reducing the state’s share in joint-stock companies will allow establishing market mechanisms for determining the real value of companies. In international practice, to assess the effectiveness of enterprises, the company’s value is determined through market capitalization. Also, privatization through IPO/SPO will lead to increased transparency and development of corporate governance, which is so necessary to attract foreign investors.
     – Recently, some media outlets wrote about our “twenty-year” lagging from our nearest neighbor Kazakhstan. But is this really the case? How do you assess the situation with the development of domestic exchange platforms? What level of interaction in experience exchange with foreign platforms do we have?
     – Although we are neighbors with Kazakhstan and share a common past, we should understand that after gaining independence, we had completely different ways and goals of development. If we look specifically at the example of the capital markets of the two countries, the large volume of exchange turnover in Kazakhstan is due to the fact that in recent years several platforms have been operating under the auspices of the stock exchange, while in Uzbekistan there are separate exchanges for different markets. The main turnover of the Kazakhstan exchange falls on the money and currency markets. At the same time, it should be mentioned that for a long period in Kazakhstan, the Central Bank was the regulatory body for both the banking sector and the capital market, and only last year Kazakhstan established a separate regulatory body.
     Regarding technologies for servicing exchange platforms, I can say that today the stock market uses a modern Korean system. A single software and technical complex unite all market participants and serves to trading, brokerage, clearing, settlement and depository activities. All trades are held online. Investors have the opportunity to make transactions with securities from anywhere in the world where there is an Internet connection.
     With regard to international cooperation, since 1995 we are members of the Federation of Euro-Asian Stock Exchanges, since 2000 — International Association of CIS Exchanges. Besides the Republican Stock Exchange “Toshkent” works closely with leading stock exchanges, such as Nasdaq, London Stock Exchange, the Istanbul Stock Exchange, Moscow Exchange, Kazakhstan Stock Exchange. I can say that we have quite close and friendly relations with the above-mentioned organizations aimed at further development of capital markets.
     – There are a large number of offers on the country’s stock market, including shares of enterprises, the banking sector, and government shares. But there are not enough buyers. How do we attract investors to the capital market?

You can read the entire text of the interview in the printed version of the magazine.


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