Developing Azerbaijan’s Capital Market

DEVELOPING AZERBAIJAN’S CAPITAL MARKET: AN ASSESSMENT

Prepared for The Azerbaijan State Committee for Securities and USAID, Azerbaijan By

William G.G. Baldridge, Senior Financial Markets Advisor, USAID And Donald R. Hart, Senior Capital Markets Advisor, Chemonics, International, Inc.

March 19, 2009

Table of Contents

ABBREVATIONS ........................................................................................................................................ 3 EXECUTIVE SUMMARY .......................................................................................................................... 4 CAPITAL MARKET OVERVIEW .......................................................................................................... 13 CURRENT FINANCIAL INTERMEDIATION AND MARKET INFRASTRUCTURE ................... 13 RELEVANT CONSTRAINTS IN LEGAL AND REGULATORY FRAMEWORK ........................... 15 RECOMMENDATIONS OF SECURITIES MARKET DEVELOPMENT ......................................... 19 (1) IMPROVE MARKET’S ORGANIZATION AND OPERATIONAL INFRASTRUCTURE ........ 19 (2) STRENGTHEN DEMAND BY REINFORCING GOVERNANCE ................................................ 23 (3) STRENGTHEN THE SUPPLY OF FINANCIAL PRODUCTS ...................................................... 31 (3) COMPREHENCIVE ORGANIZATIONAL RESTRUCTURING WITHIN STATE COMMITTEE FOR SECURITIES .......................................................................................................... 36

APPENDICES

A. LIST OF PERSONS INTERVIEWED ................................................................................................ 43 B. LIST OF DOCUMENTS REVIEWED ................................................................................................ 45 C. RECOMMENDED IOSCO REPORTS ON COLLECTIVE INVESTMENT SCHEMES............. 48

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ABBREVIATIONS

AZIPS - Azerbaijan Interbank Payment System BSE – Baku Stock Exchange CIS – Collective investment schemes GDP – Gross...