- Ukraine approves derivatives law, helps private sector hedge foreign exchange risks
- EBRD provides technical assistance to develop legal framework
- Milestone for further development of local currency market
The Ukrainian parliament has passed a law creating the legal and regulatory framework for derivatives – a financial instrument that helps to provide hedging opportunities against prices, interest rates or currency rate movements.
This will have a tangible impact on producers and consumers. For instance, the introduction of certain derivatives such as swaps will allow Ukrainian entities, including banks, farmers and manufacturers, to hedge their foreign exchange exposures.
The European Bank for Reconstruction and Development (EBRD) has worked closely with the National Securities and Stock Market Commission of Ukraine on the preparation of this framework. The work was also coordinated with and supported by the International Swaps and Derivatives Association (ISDA).The EBRD welcomes the approval as an important new chapter in the development of Ukraine’s capital market.
The new derivatives law, which is aligned with EU legislation, provides for the enforceability of derivatives transactions and introduces mechanisms such as netting and close-out netting, and financial collateral arrangements. Derivatives also help in price discovery and risk management.
The new law puts Ukraine on the map for the derivatives market and for netting, allowing companies to safely and efficiently hedge their risk and exposure, thus contributing to the development of a local currency financial market.
Matteo Patrone, EBRD Managing Director for Eastern Europe and the Caucasus, said: “The new law will contribute to the establishment of a derivatives market in Ukraine. We look forward to working with the securities commission on other capital market development initiatives. This is a major step forward to putting Ukraine on investors’ radar screens.”
Timur Khromaev, Head of the National Securities and Stock Market Commission, added: “We are very grateful to the EBRD for providing us with expertise and experience in the development of this important legal package. It represents a big step forward in creating the conditions in which our economy can move to a more sophisticated stage of development.”
The EBRD is the largest international financial investor in Ukraine. To date, the Bank has made a cumulative commitment of almost €15 billion through 466 projects in the country. The EBRD recently signed a US$ 500 million swap facility with the National Bank of Ukraine (NBU) to secure reliable access to Ukrainian hryvnia liquidity and provide local currency loans to new and existing clients.