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Derivatives Act: what's what?

29.06.2016
The National Securities and Stock Market Commission (NSSMC) debunked some of the myths concerning the Law of Ukraine on the regulated markets and derivatives (#3498). This information was released by the Commission's press service. The agency has determined ten "myths" that are misleading the professional community, and explained the true picture of things.

Myth #1. The law will lead to the closure of stock exchanges

The law introduces the term "capital market operators" instead of the term "stock exchange", but the essence of the exchange activity does not change. Type of professional activity "organization of trade in the stock market" expands on four new subspecies depending on the financial tool. The turn to the terminology of the EU directive does not require re-licensing. Stock markets continue to trade the same tools which they traded prior to the adoption of the document.

Myth #2. The law lays down the principles that are used in civilized countries

The norms of law developed on the basis of the latest legislative changes in Europe, European Guidelines MiFID II, regulations MiFIR and EMIR, IOSCO principles regarding regulation and supervision of commodity derivatives markets, as well as ISDA's recommendations.

Myth #3. Guidelines for the implementation are elected not systematically, selectively

Within the Agreement on the Ukraine-EU association and the Free Trade Agreement it is needed to implement about 50 European instructions in regulated markets. At the beginning, the legislation must have basic terms and definitions. In Ukraine, even basic definitions differ from the European ones, as the market evolved in isolation during 20 years.

Myth #4. The law creates opportunities for corruption, there is no legal responsibility of the Commission

The law directly provides the responsibility of the Commission and its experts responsible for the damage that may be caused by decisions, actions or inaction of the regulator. In addition, the Act establishes responsibility for unlawful disclosure of information. The law introduces a Code of Ethics of NSSMC.

Myth #5. The transfer of function of the Justice Ministry to register acts will make the Commission uncontrolled

The rejection of registration of regulatory acts of general actions the will not make the Commission uncontrolled. The law does not cancel the prior approval procedure of acts, including with public authorities. According to the law, the Commission is fully responsible for the consequences of their decisions.

Myth #6. It is enough to settle by the law only the scope of derivatives

Implement a new financial tool without establishing clear rules for trade by this tool, rules of working with it, requirements for trading platforms, requirements for intermediaries, the powers of regulator on regulation and supervision of the use of this tool, it is dangerous. The absence in the law of any of these elements is a threat of repeating of the 2008 financial crisis.

Myth #7. The law does not provide for mechanisms of trade on exchanges using non-listing tools

The European legislation has the terms "regulated market" and "access to trading on a regulated market." For tools which cannot meet the requirements for admission to trading on a regulated market, "market operators" will be able to organize a trade with simplified conditions of admission.

Myth #8. The implementation of the concept of MTF in most European countries has failed

In the European countries and the United States for a long time successfully operate the alternatives for major stock markets - Multilateral Trading Facility (MTF) - with simplified conditions for raising capital. Among the most famous - AIM on the London Stock Exchange, Open Market on the Frankfurt exchange, Alternext on NYSE Euronext, First North on OMX, NewConnect on Warsaw Stock Exchange. All of them are under the control of "market operators", which indicates the viability of the proposed model.

Myth #9. The law requires re-licensing for all market participants

The final provisions have a list of the licenses, which will be considered automatic renewal after the adoption of the Law. This applies to all existing activities. To get new licenses will be needed only for new activities, which are introduced by the law, and new financial tools.

Myth #10. NSSMC defines the laws in uncontrolled manner


NSSMC is not a subject of legislative initiative, but it can only participate in the development of draft legislation relating to the scope of its regulation.
 
Based on materials Stockworld