In a regulatory development that is being touted as a boost to the Ukrainian capital market and a boon for investors, the National Bank of Ukraine (NBU) adopted two resolutions (No. 100 dated 18 September 2018 and No. 72 dated 26 June 2018) that simplify foreign access to Ukraine's governmental bond market, which is currently in great demand.

Resolution 72 went into force on September 1 and Resolution 100 goes fully into effect on November 1.

Apart from technical changes to settlement procedures between the NBU and custodians, the crucial amendments focus on access to initial placement of Ukrainian governmental bonds, and settlements and purchases of foreign currency under the governmental bonds transactions.

Access to the primary market

Previously, only primary dealers (banks identified by the Ukrainian Ministry of Finance) could participate in initial governmental bond placements. Other stakeholders were able to purchase these bonds only on the secondary market (e.g. from primary dealers or bond owners). Resolution 72, however, allows primary dealers to act as brokers for their clients during the initial governmental bonds placement. This means that primary dealers can act on the instructions and expense of their clients while bidding for governmental bonds during their initial placement. The NBU then credits the bonds to the client’s securities account held with the primary dealer. 

Clients of primary dealers acquire ownership of the governmental bonds the moment they are credited to their securities accounts. The ownership is, however, restricted until payment for the acquired bonds takes place. Before the NBU annuls a transaction, such a payment can be delayed subject to penalties for up to five days, instead of the previous two days. 

Settlement options for non-residents

The NBU has clarified and to some extent restricted settlement options for non-residents in governmental bond transactions. According to Resolution 100, non-residents are allowed to conduct over-the-counter (OTC) transactions with securities on “delivery versus payment”, “delivery without payment”, and “payment versus delivery” settlement terms only if the counterparty is a bank or another non-resident.

At the same time, the NBU will facilitate settlements between a non-resident and its other counterparties only if the transaction takes place via the exchange and on “delivery versus payment” terms.

Liberalisation of FX purchase

Starting 1 November 2018, a FX purchase for repatriating an investment in a governmental bond and any profit earned will require less paperwork and provide investors with more discretion.

According to Resolution 100, investors will no longer be required to submit documents confirming acquisition of governmental bonds in order to purchase FX after selling or otherwise disposing of these bonds. Moreover, if a sale of governmental bonds takes place via the exchange, both residents and non-residents can purchase FX by submitting a purchase application and any of the following: (i) an excerpt from the transactions register of the respective exchange, or (ii) a sale agreement and excerpts issued by a custodian either from client’s securities accounts, or showing client’s transactions with securities. In case of an OTC transaction, however, a sale agreement is still required for the FX purchase.   

In addition, non-resident investors are no longer obliged to submit excerpts from their securities accounts or excerpts showing the transactions with securities provided the FX is purchased via the bank holding both the investment and securities accounts of such investor. This exception applies for the repatriation of both an investment in a bond and any profit earned.

Legislation:

Resolution of the NBU No. 100 dated 18 September 2018 “On Amendments to Some Normative Legal Acts of the National Bank of Ukraine”

Resolution of the NBU No. 72 dated 26 June 2018 “On Adoption of Changes to the Regulation on the Procedure for the Carrying-out of Operations Related to the Placement of Internal Governmental Bonds"