Capital Markets: Legal Reform

Liquid capital markets, coupled with healthy banks, foster savings and investment which, in turn, drives development and growth of the private sector. However, for various reasons of legal and economic nature, many countries still have underdeveloped capital markets. The EBRD has committed to make all efforts to promote the development of local currencies and local capital markets since the launch in 2010 of the Local Currency and Capital Markets Initiative. The work on the legal framework underpinning capital markets contributes to these efforts.

The EBRD is currently focusing its work on:
- supporting the derivatives transactions legal reform in Morocco and Ukraine to provide for the enforceability of derivatives transactions (including OTC deals) and introduce netting and close-out netting concepts and
- advising the Ministry of Finance and the Financial Supervision Authority of Poland on the proposed legislation on covered bonds.
- Assisting the Albanian Financial Supervisory Authority in drafting new legislation in order to provide corporations and municipalities with alternative means of raising debt capital and finance their development.
Strong globalisation and consolidation trends in the world financial markets raise concerns whether transition country capital markets will ever achieve the necessary economies of scale to compete internationally. These considerations have made some countries question whether it is worthwhile for them to invest time and resources to establish individual capital markets.

While the adoption of legal and regulatory frameworks similar to those in the developed countries is not difficult, the key to developing and maintaining sound capital markets in the long term lies in strong supervision of market activities and rigorous enforcement. Supervision and enforcement require qualified and sophisticated capital market professionals in the public sector, such as market regulators and judges. This is an area where international financial institutions and bilateral donors should play a role in providing financial and technical assistance.