Baku Stock Exchange is one of the main beneficiaries of the Capital Markets Modernization Project (CMMP) launched in September 2012 jointly with the World Bank and the State Committee for Securities. The CMMP is a comprehensive and multilateral project that has been designed to support the State Program “on the development of the securities market in 2011 – 2020” and increase the use of capital and corporate loans as financing and investments tools. Including the contribution of the Government of Azerbaijan the 15.8 million USD project will continue until the end of 2015.
CMMP has the following four components:
Component 1: Streamlining and Automating Market Infrastructure. The current market infrastructure in Azerbaijan is outdated and fragmented, with three depository agencies, burdensome paperwork and lack of electronic interface between market participants. This Component will address these constraints by streamlining and consolidating market infrastructure in order to create economies of scale and improve price discovery and risk management.
Component 2: Updating and Strengthening the Legal and Regulatory Framework. This Component will largely build on the preparation of the draft Law on Securities for Azerbaijan, which is designed to approximate EU directives governing securities regulation. This will include a review of existing capital markets related legislation (such as the Law on Investment Funds enacted Q3 2010) in order to determine its adequacy, gaps and enforceability to ensure that all the relevant gaps are addressed by the draft Law. The Project will also focus on developing the necessary implementing regulations. Further, the Project will assess the structure and operation of regulatory regime to promote cost-effective and proportional regulation while retaining or strengthening needed levels of investor protection.
Component 3: Stimulating Supply. The Azeri capital market is currently characterized by low market capitalization, little issuance, few financial products and low liquidity, which inhibits savings mobilization for long-term investments and deprives private sector from viable financing opportunities. This Component will promote the introduction and use of capital markets as a viable financing alternative by stimulating supply through a number of new instruments. The Project will also assist the SCS to launch a widespread corporate education program for businesses covering the advantages of raising funds in the Azeri capital market and employing good standards of corporate governance.
Component 4: Capacity Building. The capital markets regulator, potential investors and market intermediaries could all benefit from increased capacity to actively engage in their respective roles within the capital market. This Component will seek to address this challenge by launching capacity building activities which will include a series of workshops, establishment of a Capital Markets Training Center, public education campaign and similar market outreach techniques.