At the end of 2018, a new institution called FINARM Financial Market Members Association was created in the Armenian financial market, which aims to put on institutional basis the rise of the issues that market participants are currently facing, as well as their efforts to ensure consistent solutions to those issues.

Banks.am has interviewed the Chief Executive Officer of FINARM, former Deputy CEO of NASDAQ OMX Armenia, Karen Zakaryan about the prerequisites for the establishment of the institution, its objectives and its role in the financial market development.

Mr. Zakaryan, why and how did the idea of creating FINARM association come up?

The idea of creating a capital or financial market members association, as usually said, was in the air for many years, however, as it often happens, the last and the most decisive step was still remaining untaken.

The changes that took place in our country in 2018 reminded us once again that making changes is a matter for each one of us, and that we should not wait until the government and state authorities bring prosperity to our country.

There are professionals in the Armenian financial market who have a great deal of expertise and deep knowledge and who, may not apparently agree to work in the public sector due to, among other factors, relatively low salaries. However, not using their knowledge and potential, including during the development of the state policy, would be a blameful lavishness for a country like ours. As per this, the purpose of FINARM is also to contribute to serving this potential that is currently present among its members for the country’s development.

Generally speaking, the association intends to promote the introduction of modern, innovative solutions, new tools and mechanisms in the financial market and to increase the level of financial literacy among the public.

Who are the members of the association?

We unite all the sectors of the financial market and, in fact, can be seen as the most representative institution of the financial market.

The association includes banks, investment companies, companies representing financial market infrastructures, other institutional investors, which themselves include professional market participants with the following statuses: government bonds market agents, corporate securities market makers, securities underwriters, issuers of publicly traded stocks and bonds, the stock exchange and the central depository.

We expect this structure to expand in the near future and to include fund managers as well.  

We furthermore aspire to integrate foreign members interested in the Armenian market.
Our goals include also an active cooperation with other associations, such as the Union of Banks of Armenia, and we do not exclude the possibility that we come up with several joint initiatives in times to come.

Moreover, we see a huge potential of cooperation with the IT sector, particularly with UATE. The partnership in this case may relate, for instance, to the fin-tech sector.”

I would ask you to slightly open the brackets: what specific issues will the association target in the near future?

There are problems in our country, which have been turned into “costs” for many years due to being unsolved and forgotten. We make these “costs” and do not even remember what for. They have become an ineffective business habit, absorbed into the working mechanism of the system and have slowed down its development.

We are going to reveal those problems, clean the years of dust and rust that they carry, offer efficient and, as far as possible, innovative solutions, sometimes even non-standard ones. Most importantly, we are going to actively participate in the implementation of these solutions.

Can you bring an example of the problems you are mentioning?

For example, a market cannot be developed if the conditions in which its most active participants operate are not sufficiently convenient to them. This relates, in particular, to market makers. They are the players in the market, who have assumed a commitment to maintain market’s liquidity by constant bid and ask quotations for securities.

On the one hand, there are logical requirements for those quotations, but on the other hand, there are no appropriate technological solutions to help market makers control their compliance with such requirements.

Leaving such mechanical work on qualified traders and keeping them in work tension in the 21st century is simply unacceptable and wastes the time of these professionals.

We intend to design a technological solution to this problem as a software module and to provide it to our members, thus helping their traders devote their time to more creative and qualification requiring work..

And this is not the only issue.

Mr. Zakaryan, besides providing solutions to those issues, are there any other development initiatives?

Sure. We need to boost domestic investments in every possible way, and the fact that state authorities speak about this regularly is very encouraging.

We intend to provide practical assistance to our government in this regard and to develop a concept of the so-called “individual investment accounts”, which after setting of a favorable regime will be quite attractive for our natural person potential investors. With the use of intelligent marketing policies, we will have a stable army of retail investors, which will significantly reinforce the capital market. This, in its turn, will boost the confidence of our business that when entering the capital market their securities will have buyers. After all, we will get out from the endless cycle of searching for the origin of the absence of domestic investments, resembling the all known history of chicken and egg.

This initiative will not surely solve all issues, but will allow to bring new quality and breathe to the capital market.

Thanks to the literate and promoting policy of the Central Bank of Armenia during the recent years, we are witnessing a real boom in the bond issuance by the banking sector. This is a wonderful example to explain and prove everyone that our business responds quite reasonably to clear signals given by the regulatory framework and is ready to transform its activities to meet new requirements, in case it is beneficial to them.

The whole problem is that we have to make the responsible and transparent  manner of doing business profitable, and the state can give clear signals to the business, particularly with the following steps:

-    Envisage a softer regulatory and supervisory regime for companies having implemented corporate governance and transparency standards and, all other things being equal, give preference to such companies in public procurement, for instance.

-    Exempt from taxes the dividends paid on publicly traded shares, considering that these companies are making additional expenses from their profits to ensure transparency.

-    Eliminate the artificial disparity between government and corporate bonds and exempt from the income tax the interest paid on corporate bonds as well.

-    Consider brokerage and other similar financial mediation services exempt from VAT. The decision to tax those services was introduced in 2018 and has provided insignificant revenues to the state budget, while becoming instead a huge ineffective burden for the market and reducing our competitive advantages in attracting investors.

-    With the purpose of increasing confidence towards the mining industry, set up a requirement of being/becoming an open joint stock company and listing on the domestic stock exchange, while defining similarly that at least 30% of the shares should belong to the public (free float), otherwise increasing dramatically the tax burden. We must take into account that crust belongs to people and people should have the opportunity to benefit directly from the profits earned from the exploitation of their property, including becoming a shareholder of the exploitative company. This will also allow having a more responsible and transparent mining industry.

Our suggestions are not limited to what was said. These and other issues will be discussed with our partners in state authorities, and we hope that positive results will not make us wait too long.

In this context, what do you think is the role of FINARM in the financial market development?

The banking segment of our financial system is highly developed and stable, and it proved its exceptional stability also during the days of the revolution, resisting a rather serious pressure.

It is now the time to also develop the non-banking sector of the financial system - the capital market, together with other sectors of the financial market so that our economic development is carried out in the balanced way and without any deformations.

For the strength of the state, the support from organized and institutional associations is essential, which is more often than before being mentioned by various high-ranking officials.

We can clearly consider that with the creation of FINARM we added another pillar on the walls of our homeland, which will aid in keeping the roof of our statehood even stronger.

Tatev Hovhannisyan talked to Karen Zakaryan
Photos by Emin Aristakesyan