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Ukraine Overhauls Capital Markets Rules

On 19 June 2020, the Ukrainian parliament adopted the long-awaited Draft Law No. 2284 “On Amending Certain Legislative Acts of Ukraine in relation to Investment Attraction and Introducing of New Financial Instruments” after a second reading.

This Capital Markets Law is based on broad provisions of key EU directives and regulations establishing rules for the operation of capital and financial markets, including the MiFID II, EMIR, and MiFIR. In addition to changing the current financial market infrastructure, the Capital Markets Law creates a new comprehensive legal framework for the proper functioning of financial markets. The law also introduces important concepts for implementation of ISDA and GMRA master agreements, which are the key requirements for the development of derivatives and repo markets in Ukraine.

Among other measures, the Capital Markets Law introduces the following:

  • a solid legal framework for derivative transactions, clear definitions of various financial instruments, qualified versus unqualified investors, etc.;
  • new trading venues, including the Multilateral Trading Facility (MTF) as a trading venue for small and medium-sized businesses, and the Organised Trading Facility (OTF) to deal with non-equity financial instruments (i.e. derivatives or bonds);
  • concepts of master agreements, netting and settlement finality in transactions with financial instruments, currency related instruments and certain commodities;
    a concept of close-out netting in derivative transactions;
  • new actors of the capital markets, such as central counterparty, regulated market operator, investment firms (substituting existing traders), trade repositories, bonds administrators, meetings of the bondholders, etc.;
  • new financial instruments, such as green bonds, state derivatives, bank deposit certificates, option certificates, stock warrants, credit notes, depository receipts, etc.;
  • new licensing rules for market operators; and
  • issuance of corporate bonds under the new procedure.

Among other important changes, the Capital Markets Law enshrines the differentiated approach to the licensing of financial intermediaries with the principle “less requirements for less responsibility”. This approach significantly simplifies the entry into and operation of intermediaries, and creates the conditions for healthy competition.

The Capital Markets Law provides an alternative to adjudication in national courts. Based on the parties’ agreement, the disputes with international element between bonds administrators, bonds issuers and/or parties providing collateral for such bonds may be submitted to international commercial arbitration.

The revolutionary Capital Markets Law should pave the way for a viable and liquid capital and commodities markets in Ukraine. Furthermore, the Ukrainian parliament has expressed a willingness to cooperate extensively with leading experts in the IMF and World Bank as the law continues to be harmonised with the best international practices.

The Capital Markets Law is awaiting a signature from the Ukrainian President and, save for certain clauses, is scheduled to enter into force on 1 July 2021.

The final key pieces in the revived capital markets puzzle are to fall into place when commodity market regulators and the National Bank of Ukraine (NBU) adjust their by-laws with the Capital Markets Law.

For more information on this law and the Ukrainian capital markets, contact your regular CMS advisor or local experts: Ihor Olekhov, Maria Orlyk.

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