Caspian Energy (CE): Creation of the State Committee for Securities can be viewed as the starting point in development of securities market in Azerbaijan. How can you evaluate the 15-year development of the market and what achievements have been made?

Rufat Aslanly, Chairman, State Committee for Securities of Azerbaijan: I believe it would be correct to view the assessment of the activity of the State Committee for Securities by the public including by professional press.

The past 15 years became an important period in creation and institutionalization of the securities market.

The legal basis of the securities market was formed at that period with the purpose to ensure its activity in accordance with the new economic environment, the operating structure of the securities market was automated which led to its facilitation, the coverage of financial mediators was expanded, the depth market indicator was raised and new financial tools of different terms and profitability were launched.

The institutionalization and adoption of creative measures resulted in transformation of an infrastructural organization supporting the privatization process into a sector creating opportunities for investments into the nonoil enterprises. Now it is already possible to say that the essential basis has been formed on the securities market for using financial instruments, raising and managing financial resources.

CE: What values does the State Committee for Securities set as a priority in formation of a serious regional center for securities in Azerbaijan?

Rufat Aslanly: The State Committee for Securities does not set a task for transforming the country’s securities market into a regional financial center in the middle-term perspective.

Our purpose is to create the institute of stable financial mediator ensuring appropriate and stable financial support to business and opportunities for high-quality investments for retail and instrumental investors.

The goals I have mentioned were indicated in the State Program for development of the securities market in Azerbaijan Republic in 2011-2020, ratified in 2011 by the head of our state.

In line with the state program, the formation of an effective and regulated capital market to provide broad financial opportunities to a private sector in accordance with advanced standards is set as a task for a middle-term perspective.

It is natural that the execution of measures envisaged in the state program as well as growth of stability and competitiveness of the country’s securities market will undoubtedly promote the regional expansion of the sector in the long-term perspective which will become just a dialectic process.

CE: What are the preliminary results of implementation of the State Program for development of the security market in Azerbaijan in 2011-2020?

Rufat Aslanly: The State Program covering a 10-year period is a middle-term program. For its effective implementation, the State Committee for Securities has developed and is being implemented the two-year action plans. The tasks envisaged in the two-year action plan over the past period have been fully implemented.

The following has been done through that period:

- the operating infrastructure of the capital market is largely overhauled and automation level is raised;

-formation of the legislative basis for the third generation capital market to carry out the activity in a new quality continues. The interstate discussion of the bill on securities was completed and normative 24 rules and standards were approved over the past two years.

- a number of important steps were taken to overhaul the regulatory mechanism. Introduction of the new control and regulation conception was launched to raise the institutional potential of brokers and dealers, increase professionalism, strengthen risk-management and internal control systems and ensure stable financing.

- in order to stimulate demand and proposal on the securities market the Baku Stock Exchange with the support of the State Committee for Securities prepared the Listing Consultation Program. The program is designed to prepare the companies for entering the capital market and ensures professional support to companies that have a trade potential. The program is to be launched in the coming months. 

- in order to raise the professional level of the securities market participants and public awareness of securities market, the concept of the training center on securities market, curriculum and business plan were developed. The functionality of the training center will be ensured in the months to come.

CE: What instruments are of special demand in the Securities market in Azerbaijan today?

Rufat Aslanly:  Debt securities are prevailing in the structure of the securities market of the developing countries. Their main reason is:

-the lowest complexity of debt instruments from technical and fundamental viewpoints compared to other instruments of the capital market and as a result their easier perception by a broad layer of investors;

- the lowest probability of their distribution among smaller investors with respect to business sizes in the country.

For the mentioned reasons a significant share of the securities market of Azerbaijan belongs to debt instruments. Thus, by results of 2012 the share of debt instruments in the overall market structure made 88% against 95% within nine months of this year.

It is especially necessary to note that the State Committee for Securities does not set the goal of specific provision for development of debt or share securities. Our goal is to ensure support to the development of the sector of corporate securities and development of the nonoil economic sector in whole.

The work conducted in this direction is already producing effect.

While several years ago the state securities prevailed on the market, today the overall share of private sector exceeds 50%.

CE: What is done to develop new directions on the Azerbaijani securities market?

Rufat Aslanly: Financial mediation as well as the securities market are aftermarkets. Thus, the services in this sector are provided with the use of existing economic conjuncture and realities.

In this respect, while defining the priorities of the securities market development, the State Committee for Securities takes the economic needs as a basis.

From this point  in order to support the twofold economic growth of the country, the provision of new business initiatives with cheaper and more diversified financial support is set as a priority direction of the committee.

In this direction, the main tasks on agenda are the provision of support to formation of private investment and venture funds.

Both legal and operating infrastructure has been formed lately to ensure the activity of the indicated institutions. Though we do not deal directly with the formation of these funds, the State committee promotes the accelerated development in this direction.

CE: Trust assets management is among the most popular directions worldwide. What frameworks are needed to ensure safe development of this direction in Azerbaijan?

Rufat Aslanly: Basic principles of ensuring trustful assets management are identical for the economies of all regional states.

It has to be noted that unlike placement of deposits in a bank, asset management contains more risks and profitability and investors working in this sector are well informed about it.

In general, in order to ensure reliability and stability of asset management, the regulation of this sector should be based on fair, effective and transparent principles and mechanisms.

The state role in this process lies in provision of effective mechanisms and their timely application. In this respect, the State Committee is engaged with formation of a legal basis and institutional mechanisms. 

CE: Is it planned to form the share and investment funds market in Azerbaijan? What conditions will be created for their formation?

Rufat Aslanly: As I have already noted, the support of new business initiatives in the country through formation of shared and private investments funds has been the main direction of the State Committee for Securities.

The legislative basis for activity of investments funds in Azerbaijan was reflected in the law ‘On investment funds’ approved in 2011. This law is prepared in accordance with international standards with the support of international organizations.

All the same, measures to ensure the activity of investment funds have been taken in trade and operating infrastructure of the Baku Stock Exchange and National Depository Center.

However, we should point out the lack of legislation and infrastructure in ensuring the efficient operation of private equity funds. Thus, for the efficient operation of private equity funds it is necessary to make important qualitative changes directly in the corporate sector.

To do this, local companies should implement more transparent operations, implement advanced corporate governance principles and have a clear and reasonable medium-term development strategy for the market, in short, must be ready to enter the capital market.

It should be noted that the corporate sector is developing dynamically along with the Azerbaijani economy. Dynamic processes occurring in the corporate sector in the country will allow such funds to carry out activities in the coming months.

CE: Is it planned to integrate the Azerbaijani securities market into European structures?

Rufat Aslanly: The development of the securities market of Azerbaijan and its competitiveness are passing the way of integration and cooperation with global financial markets. It is well known that the investment does not know borders, and each national financial sector operates on this principle.

However, our work with the European institutions in the sphere of cooperation and integration is not for the sake of formal membership or by the format of foundation. Integration would help Azerbaijani companies and investors to use the infrastructure of the securities market of the country so that to enter the foreign markets as well as foreign companies and investors with their infrastructure to gain access to our securities market.

As the State Committee for Securities, we have defined exact goals in this direction. They are:

- market regulation and enforcement of the legal framework in line with international standards;

-liaising trading and operational infrastructure with leading financial centers;

- promotion of principles based on mutual interest.

The staff of the State Committee for Securities is working with the set goals and today we have close ties with the London Stock Exchange, Istanbul Stock Exchange and the respective financial institutions of Luxembourg as well.

CE: To what degree  is Azerbaijani market interesting for foreign investors, in your opinion?

Rufat Aslanly: Azerbaijani securities market as a whole, as well as Azerbaijan's economy attracts a certain interest of foreign investors.

Foreign investors through purchasing government securities began to carry out investments in the stock market since 2007.

This interest of foreign investors is still observed. In particular, foreign investors have appealed to the SSC and BSE for the purpose of investment in debt market instruments of Azerbaijan.

In particular, four of the 20 shareholders of the Baku Stock Exchange (BSE) are foreign companies.

CE: Are our market participants ready to enter the financial markets of bonds? What steps can SSC take to provide for their technical support?

Rufat Aslanly: A number of companies in Azerbaijan have been funded by the international debt markets for already several years. Thus, the state oil company, Railroads JSC have carried out successful placement on the London Stock Exchange. This is an indication of the readiness of our companies to enter the global financial market. Despite the fact that the entry of the local companies to foreign markets is a loss for the local market, SSC is upbeat on this process.

I believe that the increase in the number of companies financed through the capital market will cause a more severe institutionalization of corporate sector, development of financing through the capital market and overall diversification and development of the financial sector.

CE: Do you think the number of local market participants complies with the market potential?

Rufat Aslanly: Today the market of securities issued professional licenses including 15 to brokers, 14 to dealers, one for securities management, 2 for clearing activity, 3 for depository services, 1 for stock exchange and 2 for keeping the registry. Considering the fact that the market is in a development stage, the number of participants is sufficient. However, institutional investors layer type of venture like capital funds, private equity funds, pension funds have not been formed yet.

In the medium term we set ourselves the task of shaping the institutional investors layer turning them into active participants in the market.

Thank you for the interview