1. Programmatic Technical Assistance Partnership
Developing capital market conditions
for the introduction and development of second pillar pensions
Roundtable with Government, market regulators, market participants and donors
Kyiv, September 27, 2007

2. Outline
I Background
II Key capital market conditions for successful introduction of second pillar pensions
III Partnership activity plan

3. I Background Joint USAID/World Bank position paper:
Developing securities markets and non-bank financial institutions in Ukraine: key impediments and reform priorities ahead.
1. Strengthening market regulatory and supervisory framework
2. Strengthening government debt management and debt market development strategy
3. Developing the sub-national debt market
4. Developing the equities market
5. Developing the market for asset-backed securities
6. Strengthening securities market infrastructure
7. Developing investment funds
8. Developing private pensions
9. Developing the insurance sector

4. II Key capital market conditions for successful introduction of second pillar pensions
1. Macro-financial stability and balanced strategy for financing of transition cost to second pillar
Privatization revenues
Taxes
Debt issuance: foreign vs domestic
-> link with government bond market development
2. Strong regulatory and supervisory framework for securities markets and NBFIs
Tracing and background checking of ultimate controllers
Political independence and financial autonomy of market regulators
Capacity of regulators (licensing, risk-based supervision, enforcement)

5. II Key capital market conditions for successful introduction of second pillar pensions
3. Efficient capital market infrastructure
Securities trading platforms
Securities depository and settlement system
Custodians and registrars
Accounting and auditing framework
Valuation of infrequently traded securities
4. Diversified supply of domestic securities in which pension funds can invest
Government bonds
Non-government bonds (munis, mortgage bonds, corporate bonds)
Equities

6. III Partnership Activity Plan (mid 2007 - mid -2011)
1. Macro-financial scenarios for introduction of Pillar 2 pensions
Alternative macroeconomic scenarios (GDP growth, CPI growth, real wage growth)
Alternative second pillar scenarios (increase in contribution rate, decrease in payroll tax rate)
Alternative financing scenarios (privatization revenues, taxes, debt (external vs internal)
-> World Bank Advisory

7. III Partnership Activity Plan (mid 2007 - mid -2011)
2. Strengthening of regulatory and supervisory framework
Policy reforms
Empowering regulators to trace and check background of ultimate controllers
Adopting strategy to increase political independence and financial autonomy of regulators in accordance with international standards
Enabling consolidated supervision
-> World Bank DPL
Twinning programs for regulators
Strengthening licensing and carrying out re-licensing program
Introducing risk-based supervision
Strengthening enforcement
FSR > USAID CMD Project, World Bank ATF Project, multilateral/bilateral donor
SCSSM -> USAID CMD Project, World Bank ATF Project, multilateral/bilateral donor

8. III Partnership Activity Plan (mid 2007 - mid -2011)
3. Strengthening market infrastructure
Policy reforms
Requiring trading of listed securities on the exchange where they are listed
Requiring electronic reporting of OTC trades to PFTS
Limiting ownership (direct or indirect) in depositories to maximum 5% (*)
Enabling implementation of G30 standards (lending and borrowing of shares, netting)
Enabling MFS to open correspondent accounts with foreign depositories
-> USAID CMD Project, World Bank DPL (*)

9. III Partnership Activity Plan (mid 2007 - mid -2011)
3. Strengthening market infrastructure (continued)
Strengthening of PFTS
Implementation of order-driven system
Implementation of EDS
Move to DVP
Developing links with EU stock exchanges
-> USAID CMD Project
Strengthening of MFS
Move to G30 standards
Support DVP
Design and implementation of guarantee fund
Developing links with EU depositories
Implementing IFRS
Designing IFRS implementation action plan (fall 07)
implementing program
-> USAID CMD Project, World Bank/FIRST Initiative

10. III Partnership Activity Plan (mid 2007 - mid -2011)
4. Developing supply of domestic securities
Developing government debt management and debt market development
Government debt management roundtable (April 07)
Government debt management and debt market development strategy (fall 07)
Strategy implementation
-> USAID ATCI Project, World Bank PFM Project/FIRST Initiative

11. Contact points USAID Rick Gurley rgurley@usaid.gov
Natalia Berezhna
World Bank
Michel Noel
Martin Raiser