Finance

The initiative on the establishment of a currency exchange was put forward by the National Bank of Azerbaijan, International Bank of Azerbaijan, Savings Bank, Industrial-Investment Bank and Agro-Industry Bank in as early as July, 1993.
Farhad Amirbayov, the General Manager of BICEX Joint-Stock Closed Company, gave an interview to APA-Economics on the activities and prospects of exchange trade of the BICEX.

- BICEX has been in operation for over 15 years. Which achievements were gained over this period?


- I consider that establishment of BICEX became one of key steps to the creation of a modern financial system and market economy in Azerbaijan. From the moment of creation of a currency exchange in the country there was an organized currency market. As a matter of fact, it from this point on also became the interbank market as with the beginning of the currency auctions at an exchange "the black" market of cash currency has disappeared. And, introduction of the currency auctions and definition of a market rate of national currency was welcomed not only by business circles, but also by the population. I think that the exchange has brought the contribution to transition to market economy. And it is not casual that since first days of work of the exchange currency market the market rate of Azerbaijan manat became one of the major economic indicators. The next years we managed to take strong positions in the market, to earn trust of banks, to introduce the front lines exchange and an information technology. Although the name of exchange is considered "currency", BICEX became the pioneer in securities market construction. With a name of our exchange inseparably linked history of formation of a securities market in Azerbaijan, development of the mechanism of refinancing of commercial banks, start of the money market. So that marking 15th anniversary of BICEX, we celebrate rather significant anniversary for all participants of the financial market and bank community in particular. I admit that the fifteen-year way is a continuous process of self-improvement.

-How you estimate development prospects of exchange business in Azerbaijan?


- In my opinion, exchange business in our country has more potential for development. As you know, after all the exchange business of Azerbaijan in general have a history of years. More than 120 years has passed since the establishment of the first exchange in Baku. We got luck to be continuers of exchange traditions of Taghiyev, Naghiyev, Asadullayev and many others who were at the beginning of exchange business in Azerbaijan. Owing to considerable experience, which is stored by years, today BICEX takes the central place in an infrastructure of Azerbaijan capital market, integrating on a uniform technological platform trading and settlement systems. I am sure that dynamic growth of the Azerbaijan economy and development of an exchange infrastructure will promote the further growth of the attractiveness of the financial market. In the near future BICEX plans to introduce a new technological ideas, new financial tools and services for clients. We will continue to work on the improvement of the technological infrastructure of the exchange and risk management system. The objective of exchange innovations is not only service of currency transactions of banks. For us, it is very important that the exchange market began to play more and more significant role in banking system. Thereupon I especially would like to allocate such projects, as the start of the market of currency swaps. The main objective of development of the exchange currency market consists in increase of its appeal at the expense of expansion of number of the interconnected tools circling on it.
We make the plans proceeding from necessity to reach the world standards both on technologies, and on a spectrum of offered tools and services. Out future plans prioritize these targets.

- How is BICEX ready to the expansion of transactions after all to credit and technological risks constantly grow proportionally?


- Let me remind that on May 1 we successfully finished the migration of users on new trading-settlement system. Almost all banks are connected to Bourse Electronic System of Trades (BEST) by means of more than 50 trading and information terminals. BEST became in region the first exchange electronic system and during 6 years from the date of start it became an integral part of the currency and money markets of Azerbaijan. Today BICEX is the exchange structure integrated into the financial market, rendering services of electronic trade, clearing, settlements on transactions and information services. Our system constructed on the basis of a principle of universality in rendering of exchange services, represents a modern platform for complex management of liquidity and risks of banks. BEST allows banks not only to spend conversion operations by foreign currencies, but also to carry out placing and loan of means, operative calculations on transactions on the exchange, distribute the limits, and also to conduct monitoring of segments of the financial market of the country in a mode of real time. In my opinion, the electronic trading system possesses sufficient potentials for the further development as from the point of view of attraction of new participants and increase in number of circling tools, and volume of spent operations. Certainly these possibilities demonstrated by BEST, open also new prospects for development of the currency market of Azerbaijan, and in the future also for integration with trading systems of the recognized world financial centers. We hope that in the long term the ruler of exchange products will be added, including fill ride the introduction of new term tools, though to which banks can more reliably and effectively hedge arising financial risks.

- Every year the volume of transactions sees a twofold rise. Do you think the money market has turned to an integral part of the financial market?


– Yes, today the interbank credit market on BICEX is a dynamically developing segment of the money market. I would like to say that the development of the money market in Azerbaijan is necessary, first of all, for damping the influences of external negative factors. I agree that the global capital markets endure hard times after mortgage crisis in the USA. And crisis influence got about all world markets, and the debt market has especially sensitively reacted. Banks all over the world have lifted interest rates on credits and debt instruments became less accessible. In this context for maintenance of liquidity of the national market and expansion of possibilities of regulators in the field of refinancing of commercial banks we consider that creation of the liquid money market is a priority problem for today. We perceive that development of the money market - the complex problem, which decision demands the system approach and participation of all interested parties. Presence of the liquid money market creates additional preconditions for the development of the stock market. Coming back to quantity indicators, I would like to pay attention to qualitative formation of an exchange segment of the money market. BICEX is on a threshold of formation of the uniform effectively functioning internal hi-tech money market, and with equal conditions of access for all participants and wide enough tooling. And it is not casual that in the interbank credit market approximately half from banks operating in the country actively trades. They dynamically increase volumes of the operations - as a whole volume of transaction in the organized money market, including interdealer REPO, was stabilized at the level of 60-70 million manat in a month. Average volume of each transaction consists 1.5-2 million manat, and the most demanded have appeared credits for the period till 60 days. The money market, and in particular the market of interbank credits has turned to the important tool, which allows banks to operate effectively with the liquidity.
-Has the development of money market allowed for the formation of interest rates indicators?


- The role of the market as important index of money proves to be true dynamics of the average rates of BakIBOR and BakIBID. These indicators have been in existence for more than ten years but last years the importance of given indicators has considerably increased. It is not defined any more by a polling method, and calculated under rates of markets-makers of BEST money market. We even develop a new order of formation of indicative rates on attraction and placing of credits in the money market. Besides, bank community, experts and analysts can use the information on the interest rates developing under transactions actually concluded in system, as a reference point reflecting real market cost of money resources in the interbank market. It speaks well that the advantage of money market of BEST is not only reliable and hi-tech access or the automated mode of the conclusion of transactions, but also an information transparency of operations.

-The bank community supports your initiative to set up the Caucasian Universal Exchange. How soon may this project be implemented?

- As an innovation the model of creation of such exchange has been offered to the bank communities of Azerbaijan and Georgia in May, 2007, within the limits of passing in Tbilisi of 2nd Caucasian International conferences "Banking and Finance".
It is a question of creation of a uniform regional universal exchange. In our opinion, presence of such exchange will allow to professional participants of the financial market to get access to all its segments, and to the state bodies-regulators to conduct the uniform and coordinated strategy of the further cooperation in the field of development of the financial markets of two countries. It is obvious that association of the several markets within the limits of one exchange is equitable to interests of investors, emitters and the state regulating bodies. While we all together with the Tbilisi interbank currency exchange (ТIСЕХ) study possibility of unification of rules of carrying out of trading sessions and we plan to study expediency of creation integrated, or the uniform interface of trading-settlement systems. On the basis of the cooperation agreement signed with the Tbilisi interbank currency exchange, the joint annual program according to which for the end of 2008 BICEX and ТIСЕХ will prepare offers on integration of the trading systems is prepared. And it is a question not of creation of one dominating centre, and about the integrated trading system which can support simultaneously in the same interface of operation in the national markets, and also will allow operators to carry out from one market operations in other market. In this context model of formation of a uniform regional exchange is necessary to consider as institutional base for creation of the financial centre. It is obvious that our service should correspond to the highest world standards.
But creation of the national financial centre of regional level is a hard problem. First, we need to study foreign experience. Secondly, it is impossible to construct the regional financial centre without the developed national financial centre. It is important to create the internal financial market, which would be attractive, first of all, for our banks, emitters and investors. Such market can become the centre of gravity for foreign investors. Frankfurt, New York, London, Hong Kong, Singapore, Istanbul, Mumbai - all of them are the original international and regional financial centers. But at the same time these exchange markets lean, first of all, against possibilities of national participants. Thus it is not necessary to forget that the Azerbaijan banks, the financial companies and real sector cannot wait infinitely when necessary preconditions in the country will be created. Already now many Azerbaijan companies are financed in foreign banks, which are ready to offer them a wide spectrum of tools. It is obvious that creation of the uniform exchange centre in region will provide not only close integration of Azerbaijan into the world market, but also will give the big stability to a country financial system. And here the importance of the exchange market as infrastructural element of a financial system consists in performance of variety of the unique functions which realization by other institutes either is impossible, or is inconvenient. Sincerely I hope that realization of these plans will allow us to strengthen the positions, rendering to the trade participants the service at best world practice level, and to become a basis for creation of the high-grade regional financial centre.

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