THE BILL ON CAPITAL MARKETS AND REGULATED MARKETS (registration number 7055)

1. THE BILL ON CAPITAL MARKETS AND
REGULATED MARKETS
(registration number 7055)
November 2017, First Reading

2. A well-developed financial sector is a key pre-requisite for economic growth in any
country.
PRE-REQUISITES FOR DRAFTING BILL 7055
One of the main components of a full-fledged financial sector is a well-developed
capital market.
A wide range of financial instruments in capital markets, conditions of their
issuance, redemption and payment of income, different trading arrangements and
relationships between capital market entities should ensure the maximum
mobilization of financial resources, their efficient allocation, reallocation, and
effective use.
A lack of clear market rules, transparency, fair price indicators gives rise to
distrust. Distrust always deters investments. Any investor expects to have
access to information, transparent pricing, and rules.

3. WHY COMMODITY MARKETS DO NOT WORK IN UKRAINE
An almost complete lack of regulation by the government
“Wild West”: Everyone does what he wants
A lack of fair pricing procedures
A complete lack of transparency on the market both at a pre-trade stage
and at a post-trade stage
620 commodity exchanges, including 100 exchanges in liquidation
If commodity markets in Ukraine remain nontransparent and pricing –
unfair, the entire country will suffer.

4. WHY LEGISLATION NEEDS TO CHANGE
Gaps in current
legislation
No regulation of the commodity
exchange market
No consolidated supervision
of the derivatives market
No derivatives
guarantee system
Low disclosure standards
Regulation of market participants
not consistent with the EU
standards
No transparent
pricing

5. The purpose of this Bill is to implement international best practices in Ukraine’s capital
markets, including the most recent legislative changes in the European Union, specifically:
o Recommendations of the International Swaps and Derivatives Association, Inc. (ISDA)
o Directive 2014/65/EU of the European Parliament and of the Council of Europe of 15
May 2014 on markets in financial instruments (MiFID II)
o Regulation (EU) No 600/2014 of the European Parliament and of the Council of
15 May 2014 on markets in financial instruments (MiFIR)
o Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July
2012 on OTC derivatives, central counterparties and trade repositories (EMIR)
INTERNATIONAL STANDARDS AND EUROPEAN LEGISLATION
Requirements of the abovementioned European pieces of legislation are binding for all the EU
Member States and also states within the European Economic Zone.

6. WHAT IS A MODEL OF REGULATED MARKETS IN EUROPE
Regulated markets – a mechanism that provides confidence to an investor in the quality of an
instrument and to companies – in the availability of liquidity on the market
MULTILATERAL TRADING BILATERAL TRADING
Regulated Market
Multilateral
Trading Facility
(MTF)
Organized
Trading Facility
(OTF)
Systematic
Internalizer
 The market is divided into tiers: upper and lower – a regulated market and MTF/OTF
 Simplified trading rules and lower requirements for lower tier participants (MTF/OTF)
 Clear structuring of trading platforms by level of asset quality requirements
 Making a distinction between a trading platform and a licensee
 Expanding the range of categories for trading – not only securities
 Introducing separate rules for trading in each type of assets

7. BILL 7055: WHAT IS FUNDAMENTALLY NEW
Regulating the operation of the derivatives market
Regulating the operation of regulated markets and
developing their infrastructure
A mechanism of securing the protection of bond owners

8. BILL 7055: KEY INNOVATIONS FOR REGULATED MARKETS AND
DERIVATIVES MARKETS
Creating a legal framework and addressing relations arising from exchange-traded and OTC
derivatives
Developing infrastructure necessary for the full operation of the derivatives market, in particular,
by implementing EMIR provisions with respect to the establishment of a trade repository and a
central counterparty
Introducing qualified investors and an alternative multilateral trading facility (MTF) in accordance
with MiFID І/II; transforming securities traders into a full-fledged investment firm; classifying
professional activities in compliance with the requirements of European law
Harmonizing approaches to the regulation of exchanges that carry out trading in securities,
derivatives, currencies, commodities and other assets. Introducing a market operator status – a
person who obtains a license for organizing trading in such assets in a respective market
Implementing settlement finality provisions (Directive 98/26/EU on settlement finality in payment
and securities settlement systems) and close-out netting provisions (ISDA Model Netting Act of
2006)

9. BILL 7055: KEY INNOVATIONS FOR REGULATED MARKETS AND
DERIVATIVES MARKETS
CONFIDENCE IN THE SECURITY OF SETTLEMENTS
Close-out netting
Liquidation netting makes it possible
to reduce mutual obligations of
derivatives transaction parties (in
the event that one party is insolvent)
to a single total obligation (the
difference between amounts owed
by each of the parties to each
other).
Settlement finality provisions stipulate
that funds and securities transfer orders
cannot be revoked after a moment
defined by Ukrainian law.
Legal requirements related to
recognizing one of the parties to a
derivatives transaction insolvent shall
not be applied to rights and obligations
of the parties for the settlement of
derivatives.
Settlement finality
Establishing a moment of the unconditional performance of transactions on a regulated market.

10. BILL 7055: THE REGULATED MARKET CONCEPT
Regulated
stock market
Regulated
derivatives market
Regulated
commodity market
Regulated
money market
Unregulated
stock market
Unregulated
derivatives market
Unregulated
commodity market
Unregulated
money market
NATIONAL SECURTIES AND STOCK MARKET COMMISSION
The same
approach
regardless of
the asset
The same
market
regulation
standards
Investment firm
(a securities trader)
Regulated market
operator (a stock or
commodity exchange)

11. Broker activities
Dealer activities
Securities management activities
Broker activities
Sub-broker activities
Dealer activities
Financial instruments portfolio management activities
Investment consulting
Underwriting not on a firm commitment basis
Underwriting on a firm commitment basis
Clearing activities involving the determination of
obligations
Clearing activities of a central counterparty
Securities trading organization activities
Activities that existed previously Activities according to the Bill
Underwriting
Clearing activities
Stock market trading organization
activities
Derivatives organization activities
Money market instruments trading organization
activities
Licenses considered reissued by
default
INVESTMENTFIRM
REGULATEDMARKET
OPERATOR
PROFESSIONALACTIVITIESONCAPITAL
MARKETS
Commodity trading organization activities
PROFESSIONALACTIVITIESON
OTHERREGULATEDMARKETS
*licenses for depository activities are not changed by
this bill

12. Qualified investors are persons who possess the capital market skills, experience and knowledge sufficient for
making investment decisions on entering into financial instrument transactions
International
financial
organizations
Foreign states and
their central banks
The State of Ukraine
and the National Bank
of Ukraine
Financial institutions*
THE FOLLOWING INSTITUTIONS ARE CONSIDERED QUALIFIED INVESTORS:
QUALIFIED INVESTORS CAN BE:
Qualified investor criteria for a legal person** Qualified investor criteria for an natural person**
any legal person or natural person that meets the established criteria
*Professional participants in capital markets and regulated markets, banks and insurance companies
BILL 7055: THE QUALIFIED INVESTOR CONCEPT
Total assets
Annual revenue from the sale of goods, work
and services
Equity capital
At least 10 transactions per month (over a year)
Funds in bank accounts and securities
At least one year of practical experience working
for a financial institution**it is enough to meet 2 out of 3 criteria

13. Regulated market
Multilateral trading
facility
Trading facility operator Regulated market operator Regulated market operator
Market rules More detailed
Initial capital requirements
Adequate capital in accordance with
national requirements 730,000 euros
Instruments
High requirements
Prospectus is needed
Standard requirements
Prospectus is not needed
Trading disclosures annual / quarterly / special / insider Annual / special
SME growth markets
Compliance supervision
Algorithmic trading
Market maker optional optional
CCP optional

14. Regulated market Multilateral trading facility
Market rules Consist of the following procedures :
- Admission of regular market participants to regular
trading;
- Organizing and conducting regular trading;
- Admission of financial instruments to trading on a
regulated market, suspension and cancellation of such
admission;
- Disclosure and publication of information about the
operation of a regulated market;
- Settlement of disputes between regulated market
participants;
- Monitoring compliance by regulated market
participants with the regulated market operation rules;
- Applying sanctions for the violation of the regulated
market operation rules;
- Interaction with the person that carries out clearing
activities involving the determination of obligations
and/or the Central Counterparty under transactions in
assets admitted to trading on regulated markets,
except when a market operator carries out such
activities on its own, based on a relevant license for
clearing activities involving the determination of
obligations;
- Interaction with NDU (National Depository of
Ukraine) when provided by law;
- Interaction with NBU when provided by law;
- Creating and ensuring the operation of a mechanism
for identifying, preventing and resolving conflicts of
interest between the following persons:
а) a regulated market operator and its owners;
b) persons that exercise control over the regulated
market operator or the regulated market;
c) participants in such regulated market.
Consist of the following procedures:
- Admission of participants to trading on an MTF;
- Organizing and conducting trading;
- Admission of financial instruments to trading on an
MTF, suspension and cancellation of such admission;
- Disclosure and publication of information about the
operation of an MTF;
- Monitoring compliance by MTF participants with the
MTF operation rules;
- Applying sanctions for the violation of the MTF
operation rules;
- Interaction with the person that carries out clearing
activities, except when an MTF operator carries out
such activities on its own, based on a relevant license
for clearing activities involving the determination of
obligations;
- Interaction with NDU when provided by law;
- Interaction with NBU when provided by law;
- Creating and ensuring the operation of a
mechanism for identifying, preventing and resolving
conflicts of interest between the following persons:
а) an MTF operator and its owners;
б) MTF members.

15. BILL 7055: BENEFITS FROM IMPLEMENTING REGULATED
MARKETS
Full-scale protection of exchange players and other regulated market
participants
The effective market is possible only if transactions on exchanges are fully
transparent
A wider range of services that are provided for on-exchange transactions
Understandable and transparent pricing for all trading participants
Fair markets are additional opportunities for attracting investments.

16. КУДИ РУХАТИСЬ ДАЛІ. КЛАСИФІКАЦІЯ ПОРУШЕНЬ.BILL 7055: CONSEQUENCES OF THE PASSAGE
Development of derivative securities and derivatives markets
Development of exchange infrastructure based on uniform approaches
Transparent prices for assets to be admitted to regulated markets and representative
exchange price indicators
Better price risk management, lower counterparty risks
A wider range of financial services provided by capital market participants
Conditions created for ensuring the effective protection of ownership rights and
development of the corporate bonds market
Greater trust of domestic and foreign investors in capital markets
Compliance with the Association Agreement requirements with respect to the
implementation of EU Directives 98/26/EU, 2014/65/EU, EU Regulations 648/2012 and
600/2014