To Ukrainian Exchange trading members, Ukrainian and foreign investors
Last days, instead of development of the Ukrainian stock market, we are forced
to analyze the inevitable negative consequences of the sanctions provided for
in paragraph 9 of item 372 of Annex 2 to the Decision of the Council on
National Security and Defense of Ukraine (hereinafter - CNSD) "On the
Application and Revocation of Personal Special Economic and Other Restrictive
Measures (Sanctions)" as of May 02, 2018 for the Ukrainian economy, its
financial markets and the investment climate of the country.
Along with the personal sanctions to PJSC "Moscow Exchange MICEX-RTS"
(hereinafter - the "Moscow Exchange"), the CNSD’s Decision provides for
application of restrictive measures to and against certain Ukrainian entities that
use the software produced by Moscow Exchange (hereinafter - "Software").
Such Software is used, in particular, by JSC "Ukrainian Exchange"
(hereinafter – "Ukrainian Exchange") and professional securities brokers
and dealers, which are participants of the Ukrainian Exchange.
Currently, there is no software available at the Ukrainian Exchange, which
could replace existing electronic trading systems provided by Moscow Exchange.
The Ukrainian Exchange is working on a solution to this issue. However,
according to our preliminary plans, the estimated time frame for customization and
localization of alternative software, its testing and transition of operations
to it may be at least a year. At the same time, the termination by the
Ukrainian Exchange of use of the electronic trading systems and consequently partial
stopping of stock exchange operations will result in the temporary suspension of
full-scale securities and derivatives trading.
Over the past 10 years, the Ukrainian Exchange has become the most effective
platform for development of regulated trading in shares of Ukrainian and
foreign issuers, bonds including government loan bonds (T-bills), futures
Due to transparency of the auctions at the Ukrainian Exchange, the Deposit
Guarantee Fund was able to sell a number of shareholdings at historically high
As a result of the activity of professional securities brokers, dealers and
individual investors, the Ukrainian government bonds on the Ukrainian Exchange got
additional liquidity that attracts attention of foreign investors.
Trade suspension on the Ukrainian Exchange will inevitably lead to significant
damage to all its participants - Ukrainian securities brokers and dealers (over
90 professional participants of the securities market including banks), investment
funds managed by asset management companies (more than 110 funds), foreign
investors that invest in Ukrainian shares and ordinary Ukrainian investors - physical
persons (more than 10 thousand accounts are registered at the Ukrainian Exchange).
According to the National Securities and Stock Market Commission, the market share
of the Ukrainian Exchange in equities trading (excluding privatization)
amounted to 88.3% in 2017. Last year the equities index of the Ukrainian
Exchange, which is followed by a large number of foreign and Ukrainian
investors, showed an increase of 80%, which, according to Bloomberg, reflects
investors' expectations about the recovery of Ukraine's economy.
In 2017 the volume of trades executed on the Ukrainian Exchange amounted to UAH
13.4 billion (an increase of 279% to 2016), of which volumes of T-bills
transactions amounted to 57.5%, shares - 12.8%, and derivatives (futures and
options) - 23.6%.
Long term suspension of trading at the Ukrainian Exchange will lead to the loss
of jobs at a wide range of professional participants of the stock market and
will negatively affect investors' perception of Ukraine as a country where
investor's interests are not taken into account.
In addition, the other exchanges in Ukraine do not provide effective derivatives
trading, so there is currently no alternative for the Ukrainian Exchange as a
In our opinion the application of restrictive measures
to the Ukrainian Exchange and its participants does not correspond to the
principle of effectiveness, which is enshrined in Article 3 of the Law of
Ukraine "On Sanctions", as the execution by Ukrainian legal entities
of point 9 of paragraph 372 of Annex 2 to the decision of the CNSD as of May
02, 2018 does not create for Moscow Exchange serious negative consequences as
such. On the contrary, this leads to the creation of uncompetitive conditions
in the stock market of Ukraine and, in effect, the damage to the leading stock
Taking into account the above, we have sent letters to the President of
Ukraine, the CNSD and the NCSSM with a request to study this issue for the
abolition of the above-mentioned sanctions against Ukrainian business entities
or their delay in order to reduce the negative consequences for the investment
climate of the country.
At the same time, understanding the legal risks of our trading members and
their clients related to the use of the Software provided by the Moscow
Exchange, the Exchange Council of the Ukrainian Exchange decided, in the
absence till June 15 of responses from the above mentioned state bodies that
remove such legal risks, to terminate using of Software provided by the Moscow Exchange and switch trading stocks,
bonds, certificates of investment funds, futures and options to bilateral trade
Procedures for submitting of trade reports signed with
electronic signatures will be published on our site later on.
We apologize in advance to all Ukrainian and international investors for
temporary inconvenience should we have to suspend order-book trading.
Thank you for your understanding and support,
The team of the Ukrainian Exchange