Uzbekistan has set in motion an ambitious plan for the overhaul of its capital market infrastructure. Presidential Decree aimed at establishing additional measures for the development of capital markets marks a significant stride toward transforming the nation's financial landscape and encouraging international investors to participate in the market. The comprehensive package of changes eagerly awaited and in preparation since the beginning of the year, is expected to be rolled out primarily from the second quarter of 2024.
Key facets of the decree encompass several areas:
1. Infrastructure:
- Central Securities Depository (CSD): Starting in 2025, CSD will consolidate the custody of both corporate and state securities, shifting to the ownership of the Central Bank.
- National Clearing Center: A new entity will emerge in partnership with the Republican Currency Exchange, becoming the central counterparty under Central Bank regulation.
- Automation: The dividends distribution system will be automated.
2. Legislation and Regulation:
- Regulatory Authority: The National Agency of Perspective Projects has been designated as the regulator for both the capital market and insurance market. It operates under direct presidential supervision, focusing on crypto market development, licensing, legislation, and overall development.
- Regulatory Sandbox: A regulatory sandbox regime is introduced for operations involving international clearing companies, nominees, and brokers. The legislation is expanded to accommodate terms like foreign broker, foreign nominee holder, foreign UBO, and omnibus accounts. Such organizations and clients will operate in Uzbekistan without licenses, with accounts under the protection of most types of possible seizures and limitations.
- International Connectivity: These measures will enable Uzbekistan to connect to international organizations like Clearstream by February 2025.
3. Market Activity Stimulation:
- Pension Investments: Non-mandatory pension payments may be invested in local securities.
- Tax Exemptions: Investments up to 100 minimal wage sizes (approx. $8,100) in local securities are exempt from income tax within the annual tax period.
- IPO Participation: Company employees have preferential rights to participate in the company's initial public offerings (IPOs). Their investments, limited by the monthly wage size, are exempt from income tax.
- Extended Tax Benefits: Tax benefits on dividends and income tax for corporate bonds, initially provided to investors in 2020, are extended from the end of 2024 to the end of 2028.
- Banking Share Investments: Restrictions on investments in banking shares from offshore jurisdictions will be reconsidered.
- Remote Account Services: Account opening and voting systems will be modernized and developed.
4. Minority Rights Protection:
- Dividend Distribution: Companies going public must distribute at least 30% of their profit as dividends within seven years.
- Regulatory Intervention: The regulator will have the authority to replace the management of companies that violate reporting and announcement requirements twice or more within a year.
These comprehensive changes are expected to enable the long-awaited integration of Uzbekistan's infrastructure with international clearing organizations and depositories. The move aims to facilitate foreign investors' access to the market and enhance liquidity. While the initial connection is likely to commence with state debt securities, subsequent integration with the equity market is expected to follow.
Notably, the decree outlines a broad framework for operations. Detailed instructions and rules are anticipated to be developed in the coming months. The indicated timeline, spanning from mid-2024 to 2025, appears realistic, provided that state organizations remain resolute in achieving these milestones and creating an inviting environment for market participants and investors. The reforms set the stage for a transformative era in Uzbekistan's financial landscape, positioning the nation as an attractive destination for international investors and global capital flows.
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