## _cr1672

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---

### Executive summary — key statistics and infrastructure overview
- AIPS (Automated Interbank Payment System)
  - Average daily values settled: MDL 2 billion (US$ 214 million).
  - Equivalent to 2.7 percent of GDP in 2013.
  - 18 participants held settlement accounts with the NBM at end-February 2014 (14 commercial banks, the NBM, the State Treasury within the Ministry of Finance (MOF), the Settlement Centre from Tiraspol, the NSD, and one mandated participant—the Center for Electronic Governance).
  - Components: real-time gross settlement (RTGS) and designated-time net settlement (DNS).
- BES (Book-Entry System of Securities)
  - Average daily values settled: MDL 922 million (US$ 73 million) or 1 percent of GDP in 2013.
  - Around 80 percent of total settlement values are central bank securities.
  - 17 participants at end-February 2014.
- NSD (National Securities Depository)
  - Average daily values settled: MDL 3 million (US$ 0.2 million) in 2013.
  - Trading volumes are thin; figures are based on 252 sessions in 2013.
  - Jointly owned by market participants (MSE, a registrar company, domestic commercial banks, broker dealers).
  - 11 independent registrars currently maintain registers for joint stock companies; no issuer had transferred its share registry to the NSD as of the note.

### Reforms completed and ongoing
- Laws and institutions
  - Law on Payment Services and Electronic Money (No. 114 of May 18, 2012) came into force in September 2013.
  - Law on Capital Market came into force in September 2013.
  - National Payments Council (NPC) established; Council’s statute adopted in September 2013.
- Regulatory and standards actions
  - NBM completed a self-assessment of the BES against the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMIs) in December 2013: preliminary results indicated full observance with 11 principles and broad observance with three principles (Principle 1 on Legal Basis, Principle 22 on Communication Procedures and Standards); currently under peer review by the NCFM.
  - NBM Decision No. 123 of June 27, 2013 approved regulation on nonbank electronic money issuers and nonbank payment service providers, effective September 2013.
- Market developments
  - Trading on the stock exchange of government bonds with maturities of over one year is planned; expected start: April 2014.
  - NSD will be registrar for government bonds traded on the MSE; banks (primary dealers) will continue register for government bonds traded on Bloomberg.
  - Settlement for government bonds traded on the MSE will be made in real-time based on DVP Model 1 in the AIPS.

### Legal and oversight vulnerabilities
- Legal uncertainty
  - Legal uncertainty remains for the settlement of government and central bank securities.
  - National Plan for Legislation Harmonization for 2014 assigned NBM responsibility to elaborate draft laws on settlement finality in payment and securities settlement systems, and financial collateral arrangements.
  - Specific legal provisions needed for the BES to protect finality, collateral and netting arrangements in case of insolvency proceedings, and investors’ rights.
  - Finality of settlements in the NSD is already legislated under specific provisions in the Capital Market Law (Article 80 provides finality protection for settlements in the NSD).
- Regulatory fragmentation and oversight responsibilities
  - FMIs are subject to regulation, supervision, and oversight by the NBM or NCFM; NBM oversees the AIPS and BES; NCFM regulates the NSD.
  - Memorandum of Understanding (MoU) establishes cooperation, information sharing, and peer review between NBM and NCFM; MoU should be publicly disclosed and operationalized.
  - Recommendation: NBM focus on systemic risks and financial stability; NCFM focus on investor rights; establish a joint committee under the MoU to deepen regulatory cooperation and conduct FMI assessments.
- Powers, enforcement, and resourcing
  - NCFM sanctions include fines up to MDL 1 million and license suspension or withdrawal; in practice regulatory actions can be blocked by court action (constitutional court ruling in December 2012 limited NCFM’s powers).
  - NBM and NCFM staff resources appear stretched; NCFM staff have not received PFMIs training and would benefit from it.
  - NBM oversight policy does not clearly identify the BES as the SSS/CSD nor explicitly reference PFMIs; amended NBM-NCFM MoU specified use of the PFMIs for assessing the BES and NSD.

### FMI risk management, operational resilience, and crisis preparedness
- Assessment gaps and standards adoption
  - BES self-assessed against PFMIs; NSD has not been self-assessed against the PFMIs.
  - Recommendation: assess the NSD against the PFMIs (NCFM, NBM).
  - Adopt the PFMIs into the Policy on Payment Systems Oversight of the Republic of Moldova (NBM).
- Operational resilience and continuity
  - BES business continuity: maximum possible downtime for critical processes set at 2 hours; estimated recovery time objective for BES is less than 30 minutes; compliance tested annually.
  - Main and secondary BES servers are approximately 30 meters apart within the same compounds; NBM plans to relocate the secondary server to approximately 10 to 40 kilometers from the main site — recommendation to relocate expeditiously.
  - NSD secondary site located 10 kilometers from the main site; secondary site tested monthly without participants; NSD lacks clear recovery time objectives and a recovery plan for exceptional cases or force majeure.
- Crisis-management arrangements
  - Because of interdependencies between AIPS, BES, and NSD, crisis-management arrangements should be jointly developed between authorities in cooperation with the NSD and BES.
  - Develop crisis management arrangements under risk regulations for the AIPS and BES (NBM).

### NSD financial health, general business risk, and recovery capacity
- Financial condition and constraints
  - NSD has experienced negative net profits in recent years; shareholders increased capital to meet new minimum capital requirements.
  - NSD and MSE operated at losses during 2009–2011; MSE income did not cover total expenses during 2009 to 2011; 2012 turnover increased to MDL 623 million from MDL 241 million in the previous year.
  - NSD’s shareholders are in consultations with the NCFM for further capital increases.
- Liquid net assets and recovery planning
  - Finding: Liquid net assets do not appear to be sufficient or readily available to cover potential general business losses in the NSD.
  - PFMI Principle 15 expectation: NSD should hold sufficient liquid net assets funded by equity to cover potential general business losses and to ensure recovery of critical operations and services.
  - Explicit recommendation: NSD should maintain a viable recovery plan and hold sufficient liquid net assets funded by equity (such as common stock, disclosed reserves, or other retained earnings) to implement this plan.
  - Minimum standard stated: At a minimum, the NSD should hold liquid net assets funded by equity equal to at least six months of current operating expenses.
  - Resources from the Participants’ Risk Fund exclude the depository’s funds and are used only for participants’ debt amortization regarding obligations arising at trades settlements.
  - Establish a recovery plan with sufficient liquid net assets for the NSD (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.

### Credit and liquidity risk findings and recommendations
- NSD (corporate securities)
  - Settlement uses DVP Model 3 with simultaneous net settlement of securities and funds transfers at T+3; final cash settlement takes place at the NBM.
  - T+3 settlement cycle creates potentially large liquidity exposures if a participant fails to settle net funds debit positions.
  - NSD rules provide for a sanction of 5 percent of the total value of a transaction in the event of settlement failures; there has been no occurrence so far.
  - Recommendation: evaluate benefits and costs of a settlement cycle shorter than T+3 when settlement activity heightens.
  - The guarantee fund fee is fixed at MDL 30,000; participant’s risk fund held by the NSD amounted to MDL 1.77 as of December 31, 2013 — findings indicate insufficiency of the guarantee fund.
  - Under the PFMIs (Principle 7 Liquidity Risk), NSD should maintain sufficient liquid resources to meet payment obligations under a wide range of stress scenarios.
- BES (government and central bank securities)
  - Cash leg for government and central bank securities trades is settled in the AIPS under DVP Model 1 at T+0, reducing credit and liquidity exposures.
  - As cash leg is settled in the RTGS component of the AIPS, participants are not exposed to credit risks.
  - NBM may extend intraday credit via collateralized overdrafts to banks participating in the AIPS with various risk controls.
  - BES does not permit overdraft or debit balances in securities.

### Central Securities Depository (CSD) reform governance and sequencing
- Leadership and coordination
  - National CSD reforms should be led and driven by the NPC.
  - Mixed reactions from NCFM and MSE toward a single CSD; parliamentary support has been lacking.
  - Recommendation: establish a Working Group on CSD Reform co-chaired by NBM and NCFM under the NPC (or an alternative forum), with terms of reference and representation.
- Initial tasks and cost analysis
  - Conduct comprehensive cost analysis for a single CSD, estimating:
    - investment costs,
    - transaction costs,
    - connection costs,
    - foreseen cost recovery,
    - scale and scope economies and impact on average cost per transaction,
    - investment cost for participants including connection and network cost.
  - Assess financial and risk management capabilities of private sector participants, particularly in meeting minimum capital requirements.
  - Consider central bank involvement if NSD’s financial condition and risk management practices are weak.
  - Develop a coherent and well-sequenced reform strategy to be approved by the NPC to guide implementation and minimize industry impact.

### Corporate securities registration integrity, fraud risk, and transition considerations
- Fraud and registrar governance
  - Fraud risk continues to compromise integrity of corporate securities registration despite consolidation and replication efforts.
  - Governance of registrars is weak; back-ups are virtually nonexistent; procedures for handling and controlling data and records are poorly managed and monitored.
  - Independent registrars keep registers for about 2,000 joint stock companies out of 3,000 in the state register of securities; around 1,000 out of 2,000 joint stock companies are registered at the stock exchange; only around 200 have stocks that are traded.
  - Many contracts between independent registrars and inactive joint stock companies have expired; transfer of these companies’ registers to the central depository will be problematic.
- Legal and transitional measures
  - Proposed amendments to the Capital Market Law to transfer registers of securities holders of Public Interest Entities to the central depository; exemption for joint stock companies with fewer than 100 shareholders and capital below MDL 500,000 (US$ 37,000).
  - Adoption by parliament was expected in the first half of 2014; NCFM developing a new database system to provide daily backups of corporate securities from independent registrars once amendment is passed (data verifications to be on a random basis; verification against paper documents covering 20 years and about 3,000 companies will demand significant resources).
  - Transition to a fully dematerialized system: consider ex ante loss-sharing mechanisms to address potential data inconsistencies revealed during reconciliation (e.g., pro-rata loss allocation among security holders of a given issuance).
  - Investors’ protection fund could serve as a secondary measure but may require legal reforms as it currently applies only to clients of brokers and dealers.
  - Interim measures: increase frequency of registrar inspections (current requirement: every three years).

### Fees, charges, and transaction values (selected items)
- BES charge: 0.0005 percent of the average monthly balances of government securities and NBM certificates at par value held in BES participant's own accounts and holder’s personal accounts.
- Transfer form processing fee: MDL 1 per transfer form accepted by BES; applied to both parties except portfolio transfers (applies only to participant who becomes holder) and in “bank to customer” operations applies to participant who initiated transfer.
- NSD fees (selected):
  - Account opening fee: MDL 180 for opening a clearing account.
  - Corporate and derivative securities: 0.005 percent of the issue value, but not less than MDL 50.
  - Repurchase transactions: 0.06 percent of the transaction value (each party paying 0.03 percent).
  - Commission for sale-purchase transactions: 0.1 percent of the transaction volume (each party paying 0.05 percent).
  - Sale-purchase transactions with derivative securities: MDL 1 and 0.02 percent of the transaction value, but not more than MDL 20 (0.01 percent for each party but not more than MDL 10).

- Appendix V — Value of Transactions and Deposits in Book Entry System (Millions of MDL)
  - Primary market operations (government securities): 2013: 16,038.7; 2012: 15,928.5; 2011: 16,015.4; 2010: 15,594.9.
  - Primary market operations (National Bank certificates): 2013: 96,980.7; 2012: 98,011.5; 2011: 84,993.1; 2010: 166,951.1.
  - Value of settled securities—total: 2013: 232,356.7; 2012: 228,299.4; 2011: 203,617.5; 2010: 366,867.8.
  - Of which government securities: 2013: 35,754.9; 2012: 32,421.2; 2011: 32,728.2; 2010: 33,513.4.
  - Of which central bank securities: 2013: 196,601.8; 2012: 195,878.1; 2011: 170,889.3; 2010: 333,354.4.

- Appendix VI — Stock Exchange and Secondary Market Turnover (selected)
  - Moldova Stock Exchange total number of transactions (units): 2012: 1,877; 2013: 1,680.
  - Moldova Stock Exchange volume of transactions (millions of MDL): 2012: 623; 2013: 347.
  - Total Secondary Market number of transactions (units): 2012: 4,398; 2013: 4,104.
  - Total Secondary Market volume of transactions (millions of MDL): 2012: 1,251; 2013: 1,711.
  - OTC Market total number of transactions (units): 2012: 2,521; 2013: 2,846.
  - OTC Market volume of transactions (millions of MDL): 2012: 628; 2013: 889.

### Selected recommendations (from Table 1)
- Adopt an explicit legislation on settlement finality and financial collateral, and continue legal reforms (NBM, NCFM, Parliament) — Financial Stability Relevance: High — Timeframe: Immediate.
- Adopt amendments to the Capital Market Law to consolidate the securities records of Public Interest Entities from independent registrars to the NSD (NCFM, Parliament) — Financial Stability Relevance: High — Timeframe: Immediate.
- Adopt the PFMIs into the Policy on Payment Systems Oversight of the Republic of Moldova (NBM) — Financial Stability Relevance: High — Timeframe: Immediate.
- Increase legal protection and staff resources to conduct FMI oversight (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Disclose the NBM-NCFM MoU (NBM, NCFM) — Financial Stability Relevance: Medium — Timeframe: Immediate.
- Establish a joint committee under the MoU to conduct future FMI assessments (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Assess the NSD against the PFMIs (NCFM, NBM) — Financial Stability Relevance: High — Timeframe: Immediate.
- Develop a comprehensive risk management framework for the NSD, including crisis management arrangements (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Increase the guarantee fund for the NSD (NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Establish a recovery plan with sufficient liquid net assets for the NSD (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Relocate the secondary server for the BES (NBM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.
- Conduct a cost analysis to set-up a single CSD (NBM, NCFM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.
- Strengthen supervisory standards for registrars (NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Assess the use of loss-sharing arrangements for reconciling securities records (NCFM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.

*Source: EXECUTIVE SUMMARY and selected sections, Republic of Moldova — INTERNATIONAL MONETARY FUND (content unit: _cr1672).*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Key statistics and infrastructure overview
- AIPS (Automated Interbank Payment System)
  - Average daily values settled: MDL 2 billion (US$ 214 million).
  - Equivalent to 2.7 percent of GDP in 2013.
  - 18 participants held settlement accounts with the NBM at end-February 2014 (14 commercial banks, the NBM, the State Treasury within the Ministry of Finance (MOF), the Settlement Centre from Tiraspol, the NSD, and one mandated participant—the Center for Electronic Governance).
  - Components: real-time gross settlement (RTGS) and designated-time net settlement (DNS).
- BES (Book-Entry System of Securities)
  - Clears and settles government and central bank securities; cash settlement by DVP in the AIPS.
  - Average daily values settled: MDL 922 million (US$ 73 million) or 1 percent of GDP in 2013.
  - Around 80 percent of total settlement values are central bank securities.
  - 17 participants at end-February 2014.
- NSD (National Securities Depository)
  - Clears and settles corporate securities traded on the Moldova Stock Exchange (MSE); cash settlement by DVP in the AIPS.
  - Average daily values settled: MDL 3 million (US$ 0.2 million) in 2013.
  - Trading volumes are thin; figures are based on 252 sessions in 2013.
  - Jointly owned by market participants (MSE, a registrar company, domestic commercial banks, broker dealers).
  - 11 independent registrars currently maintain registers for joint stock companies; no issuer had transferred its share registry to the NSD as of the note.

### Reforms completed and ongoing
- Laws enacted and institutions established
  - Law on Payment Services and Electronic Money and Law on Capital Market came into force in September 2013.
  - National Payments Council (NPC) established in the same period.
- Self-assessment and standards
  - NBM completed a self-assessment of the BES against the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMIs) in December 2013.
  - Preliminary results: full observance with 11 principles and broad observance with three principles (Principle 1 on Legal Basis, Principle 22 on Communication Procedures and Standards); currently under peer review by the NCFM.
- Planned market developments
  - Trading on the stock exchange of government bonds with maturities of over one year is planned (as an addition to existing trading on the Bloomberg platform).
  - NSD will be the registrar for government bonds traded on the MSE; banks (primary dealers) will continue to hold the register for government bonds traded on Bloomberg.

### Legal and oversight vulnerabilities
- Legal risk
  - Legal uncertainty remains for the settlement of government and central bank securities.
  - New draft laws under the National Plan for Legislation Harmonization for 2014: settlement finality in payment and securities settlement systems, and financial collateral arrangements.
  - Specific legal provisions needed for the BES to protect finality, collateral and netting arrangements in case of insolvency proceedings, and investors’ rights.
  - Finality of settlements in the NSD is already legislated under specific provisions in the Capital Market Law.
- Regulatory fragmentation and oversight responsibilities
  - Risk of regulatory fragmentation between authorities could undermine effective oversight of FMIs.
  - Recommendation that NBM apply standards involving systemic risks and financial stability; NCFM focus on investor rights.
  - Need to disclose and operationalize the existing Memorandum of Understanding (MoU) and establish a joint committee under the MoU to deepen regulatory cooperation and conduct FMI assessments.

### FMI risk management and operational concerns
- Assessment gaps
  - Need to assess NSD against the PFMIs.
  - Need to develop a comprehensive risk management framework for the NSD that goes beyond operational risk controls.
- Crisis preparedness
  - Crisis-management arrangements should be jointly developed between authorities in cooperation with the NSD given linkage with the AIPS.
- Operational resilience
  - Relocate the secondary server for the BES to strengthen operational resilience.

### General business risk and corporate securities registration integrity
- NSD financial health
  - Financial constraints at the NSD due to negative net profits in recent years; shareholders increased capital to meet new minimum capital requirements.
  - Risk controls largely focus on operational risks; need for recovery planning and sufficient liquid net assets.
  - Recommendation to increase the guarantee fund for the NSD and establish a recovery plan.
- Corporate securities registry integrity
  - Risk continues to compromise the integrity of the corporate securities registration system despite consolidation and replication efforts.
  - Amendments to the Capital Market Law to transfer registers of securities holders of Public Interest Entities to the central depository were proposed; joint stock companies with fewer than 100 shareholders and capital below MDL 500,000 (US$ 37,000) would be exempt.
  - Adoption by parliament was expected in the first half of 2014; a new database system is being developed to provide daily backups of corporate securities from independent registrars once amendment is passed (data verifications to be on a random basis).
- Transition considerations
  - Move from registrar-based system to fully dematerialized system: consider ex ante loss-sharing mechanisms to address potential data inconsistencies revealed during reconciliation (e.g., pro-rata loss allocation among security holders of a given issuance).
  - Investors’ protection fund could serve as a secondary measure but may require legal reforms as it currently applies only to clients of brokers and dealers.

### CSD reform governance and sequencing
- Leadership and coordination
  - National CSD reforms should be led and driven by the NPC.
  - Mixed reactions from NCFM and MSE toward a single CSD; parliamentary support has been lacking.
  - Establish a Working Group on CSD Reform co-chaired by NBM and NCFM under the NPC.
- Initial tasks for reform
  - Conduct comprehensive cost analysis for a single CSD.
  - Assess financial and risk management capabilities of private sector participants.
  - Examine alternative governance arrangements, including possible central bank involvement to ensure safe and efficient settlement.

### Table 1 — Recommendations on Financial Market Infrastructure Oversight and Supervision (selected items)
- Adopt an explicit legislation on settlement finality and financial collateral, and continue legal reforms (NBM, NCFM, Parliament) — Financial Stability Relevance: High — Timeframe: Immediate.
- Adopt amendments to the Capital Market Law to consolidate the securities records of Public Interest Entities from independent registrars to the NSD (NCFM, Parliament) — Financial Stability Relevance: High — Timeframe: Immediate.
- Adopt the PFMIs into the Policy on Payment Systems Oversight of the Republic of Moldova (NBM) — Financial Stability Relevance: High — Timeframe: Immediate.
- Increase legal protection and staff resources to conduct FMI oversight (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Disclose the NBM-NCFM MoU (NBM, NCFM) — Financial Stability Relevance: Medium — Timeframe: Immediate.
- Review core mandates against the PFMIs and align with competencies (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Establish a joint committee under the MoU to conduct future FMI assessments (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Assess the NSD against the PFMIs (NCFM, NBM) — Financial Stability Relevance: High — Timeframe: Immediate.
- Develop crisis management arrangements under risk regulations for the AIPS and BES (NBM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Develop a comprehensive risk management framework for the NSD, including crisis management arrangements (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Increase the guarantee fund for the NSD (NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Establish a recovery plan with sufficient liquid net assets for the NSD (NBM, NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Relocate the secondary server for the BES (NBM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.
- Conduct a cost analysis to set-up a single CSD (NBM, NCFM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.
- Strengthen supervisory standards for registrars (NCFM) — Financial Stability Relevance: High — Timeframe: Near-Term.
- Assess the use of loss-sharing arrangements for reconciling securities records (NCFM) — Financial Stability Relevance: Medium — Timeframe: Near-Term.

*Source: EXECUTIVE SUMMARY, Republic of Moldova — INTERNATIONAL MONETARY FUND*

### 6.      The Law on Payment Services and Electronic Money (No. 114 of May 18, 2012) came

### _cr1672 - 6.      The Law on Payment Services and Electronic Money (No. 114 of May 18, 2012) came

### Payment Services and Electronic Money: Legal and Regulatory Implementation
- The Law on Payment Services and Electronic Money (No. 114 of May 18, 2012) came into force in September 2013.
- By Decision of the Council of Administration of the NBM No. 123 of June 27, 2013, effective as of September 2013, the regulation on the activity of nonbank electronic money issuers and nonbank payment service providers was approved.
- Regulations on credit transfers, the activity of banks within the international money transfer systems, and payment cards were modified and amended to harmonize with the new law.
- The amendments have been republished in the Official Monitor of the Republic of Moldova and publicly disclosed on the website of the NBM.

### National Payments Council (NPC) Establishment and Governance
- The NPC was established; the Council’s statute was adopted in September 2013.
- The statute describes objectives, functions, membership, rights and obligations, organizational structure, power to establish working groups, and meeting arrangements.
- The NBM’s Deputy Governor in charge of the Payment Systems Department chairs the Council; the Payment Systems Department serves as the secretariat.
- Council members are represented by senior officials from: NBM, MOF, Ministry of Economy, Ministry of Information Technology and Communications, Center for Electronic Governance, Moldovan Banks Association, and payment services providers and electronic money issuers licensed by the NBM.

### Central Securities Depository (CSD) and Securities Registry Reforms
- CSD reforms are ongoing; a coherent reform strategy has yet to be formulated following a range of technical assistance (TA) recommendations.
- Some progress: plans to consolidate the share registries held by multiple independent registrars.
- Under the Moldova Development Policy Operation (DPO), the NCFM and the World Bank have drafted a law to amend the Capital Market (CM) Law to transfer registers of securities holders of public interest entities to the central depository.
- Exemptions: Joint stock companies that have fewer than 100 shareholders (holders of any class of security) and hold capital below MDL 500,000 (US$ 37,000) are not subject to mandatory transfer and are unlikely to be included in the planned consolidation.
- Adoption by parliament expected in the first half of 2014; transfer process to be overseen by the NCFM.
- The NCFM is developing a new database system that will provide a daily backup of all corporate securities from the independent registrars, once the law is passed.
- Technical assistance delivered included: IMF TA advisory mission on single CSD design and functionalities (May 2013), World Bank TA mission on securities registration system reform (June 2013), and IMF TA mission on legal framework for CSD (September 2013).
- No cost analysis has been conducted to examine economic feasibility of a single CSD (investment costs, transaction costs, connection costs, and foreseen cost recovery).

### Trading of Government Bonds on the Stock Exchange
- Trading government bonds on the MSE is planned; NCFM, NBM, MOF, and MSE are examining trading government bonds with maturities over one year on the MSE with settlement in the NSD.
- Expected start: April 2014.
- Current state: Government securities are traded on Bloomberg.
- Under new concept:
  - Government bonds would be tradable on the MSE if the NBM accepts the NSD as a participant in the BES.
  - NBM required to open an account in the BES to hold government bonds for those who need to trade bonds on the MSE.
  - Client holdings could be held directly in the NSD instead of indirectly in BES via primary dealers; not compulsory.
  - If primary dealers trade on the MSE, flows of securities will need to move between primary dealer accounts and the NSD’s account in the BES.
  - The NSD will be required to open personal accounts for clients and maintain a register of client holdings of government bonds, and to provide to the NBM reports on owners in the format prescribed by the NBM Regulation on the BES of Securities.
  - Settlement for government bonds traded on the MSE will be made in real-time based on DVP Model 1 in the AIPS.

### Main Issues: Effectiveness of the Oversight and Supervision Framework
- Institutional roles and oversight:
  - FMIs are subject to regulation, supervision, and oversight by the NBM or NCFM.
  - The NBM oversees the AIPS and BES; the NCFM regulates the NSD.
  - A Memorandum of Understanding (MoU) establishes cooperation, information sharing, and peer review between both authorities.
- Legal and policy clarity:
  - The NBM’s statutory objective includes overseeing the payments system and facilitating efficient interbank payments to safeguard financial stability and public confidence (Article 5 (f) of Law no. 548-XIII of July 21, 1995 on the NBM).
  - Draft amendments to the NBM Law are under review by parliament; the draft will explicitly state the NBM’s role in oversight of the AIPS, and its licensing and supervision of payment services and electronic money (Article 5). The draft includes a separate chapter on payment systems but contains no details on NBM oversight and operational roles in the BES.
  - The Policy on Payment System Oversight identifies four major types of payment and settlement systems subject to oversight, including the AIPS, SSS, card payment systems, and international money transfer systems.
  - The oversight policy does not clearly identify the BES as the SSS/CSD nor refer explicitly to cooperative oversight arrangements between the NBM and NCFM.
  - The PFMIs are not specified as the applicable international standards used to assess the AIPS and BES within the oversight policy (though the amended NBM-NCFM MoU specified the applicable assessment standards for the AIPS, the settlement bank for participants of the Moldavian Stock Exchange, and use of the PFMIs for assessing the BES and NSD).
- NCFM responsibilities:
  - The NCFM identifies FMIs under the CM Law: regulated markets, financial intermediaries, multilateral trading facilities (MTF), the CSD, SSS, and independent registrars.
  - Under Article 79 of the CM Law, the NCFM and NBM jointly issue regulations on clearing and settlement arrangements that support the capital market.
- Powers and enforcement:
  - The NBM’s oversight policy permits timely information collection for periodic assessment of FMIs, including architecture and performance, rules and procedures, on-site inspection activity, audit reports, and external regulations.
  - The NBM can apply sanctions and/or remedial measures, including recommendations or mandatory orders with specific implementation terms.
  - The NCFM Law and CM Law grant the NCFM licensing, regulatory, supervisory, and control powers over the capital market infrastructure, including the NSD.
  - The NCFM’s power to obtain timely information derives from Article 141, Article 142, and Article 143 of the CM Law.
  - Under NCFM regulations, FMIs must regularly submit financial reports including balance sheet, profit and loss statement, cash flow statements, statements of changes in equity, audit reports, reports on financial investments and other assets, performed transactions, transactions in members’ accounts, open positions, direct transfers of ownership, contracts with issuers, structure of the guarantee fund, participants’ risk fund, depository activities, and so forth.
  - CM Law gives NCFM authority to approve methodology for calculating ownership equity and setting capital adequacy requirements.
  - Sanctions available to NCFM include: warning, public warning, suspension or withdrawal of qualification certificates, suspension or withdrawal of officials, suspension or interdiction of activities on the capital market of the natural person, suspension of license, withdrawal of license or authorization, or a fine of up to MDL 1 million.
  - In practice, regulatory actions can be blocked by court action, including revocation of license; a constitutional court ruling in December 2012 limited the NCFM’s powers by allowing immediate suspension of regulatory action pending court decisions.
- Staff resources and capacity constraints:
  - Staff resources at NBM and NCFM appear stretched with increased responsibilities; sufficiency of staff resources needs regular review and possible increase.
  - Since September 2013, NBM staff tasked with enforcing the Law on Payment Services and Electronic Money and supporting the NPC secretariat.
  - Since PFMIs publication in April 2012, NBM and NCFM staff have been responsible for assessing FMIs against new international standards.
  - Increased size and complexity of assessments under PFMIs may require additional resources for full assessments.
  - NCFM staff have not received training on the PFMIs and would benefit from training.
  - With planned replication of securities records from independent registrars to the NCFM, staff may face increased workload, particularly in data verification.
  - Financial resource constraints do not appear immediate, but resources may need to increase to support staff training and other needs.
  - Staffing details: PSD and MOD responsibilities—PSD operates the AIPS and MOD administers the BES. Within the PSD: Oversight of Payment Systems and Payment Instruments (five staff); Regulation, Licensing and Supervision of Payment Service Providers and E-Money Issuers (six staff); Interbank Payments Monitoring (eight staff, six working on different shifts). AIPS and BES assessments are conducted by the Oversight of Payment Systems and Payment Instruments Division.
  - NCFM staffing: General Directorate of Securities Supervision has 17 staff (seven in the Directorate for Regulation and Authorization of Professional Participants and nine in the Directorate for Monitoring and Control). There are two staff working on the NSD and MSE.
- Legal protection for staff:
  - NBM Law clarifies provision of legal protection for NBM officials, including staff in the Payment Systems Department and Market Operations Department, and safeguards against conflicts of interest.
  - Article 38 (paragraph 7, letter d) of the Law on Financial Institutions states: “the employees of the National Bank, members of the special supervision commission, the special administrator, liquidator and persons employed to assist them shall not be liable for damages, actions or omissions occurred in the course of their duties, except for cases when it is demonstrated that these were intended and illegal.”
  - In practice, NBM board members and employees (e.g., staff appointed as a bank’s liquidator) do not appear to enjoy enough protection against lawsuits while discharging duties in good faith.
  - Under Article 24 (2) of the NCFM Law, Members of the Council of Administration cannot be detained, arrested or called for administrative or criminal responsibility unless at the request of the General Prosecutor, with due consent of the Parliament. However, NCFM staff report threats of prosecution and every regulatory action taken since December 2012 has been challenged in court.
- Transparency and disclosure:
  - NBM’s Policy on Payment System Oversight is published in the Official Monitor and on the NBM website.
  - Details on the BES (functioning as the CSD and SSS) require greater disclosure.
  - FMI developments are reported in separate sections in the NBM Annual Report; BES developments are in the money market section, AIPS and oversight activities in the payment systems section.
  - Improvements recommended: oversight policy and annual report should describe systemic importance and interdependencies between AIPS, BES, and NSD; consider cross-references or a standalone oversight report.
  - The NCFM does not have an explicit FMI policy; its role is implied through the CM Law. The NCFM is in the process of adopting regulations under the CM Law, including by-laws on the activity of the CSD and market operator.
  - Any NCFM regulation is consulted in advance with stakeholders and published in the Official Gazette and disclosed on the NCFM website.
  - Recommendation: develop an explicit FMI policy statement based on the CM Law for clearer communication and public disclosure.
  - The NBM-NCFM MoU, which contains detailed information on division of responsibilities and cooperation in FMI peer assessments, should be publicly disclosed.
- Adoption of international standards:
  - The new international standards (PFMIs) should be formally adopted within a year.
  - The NBM currently applies internal instructions for oversight of the AIPS and BES against the PFMIs; the Policy on Payment Systems Oversight does not clearly establish adoption of the PFMIs.
  - The NBM-NCFM MoU established that the NBM is obliged to perform assessments of the AIPS and BES against the PFMIs every two years; the NCFM is responsible to assess the NSD.
  - The NCFM is developing regulatory framework under the CM Law where it seeks to adopt the PFMIs; it has informed capital market infrastructure entities that new licensing and regulation procedures will be based on observance of the PFMIs during the transition period.
- Regulatory fragmentation and recommended institutional cooperation:
  - Regulatory fragmentation may undermine FMI oversight effectiveness; authorities need to adopt and apply PFMIs consistently and align laws to match competencies and oversight responsibilities.
  - Suggested division of focus: NBM on systemic risks and financial stability issues; NCFM on investor rights protection.
  - The NBM-NCFM MoU provides a basis for cooperation and would benefit from creation of a joint committee where staff from both authorities work together in drafting FMI assessments and recommendations.
  - Both authorities currently perform periodic assessments under their competence (NBM: AIPS and BES; NCFM: NSD); they have agreed to exchange information and consider proposals and objections with voluntary revisions and moral suasion.
  - Existing common working groups meet on an ad hoc basis and could be further developed into a joint committee for FMI assessment.

*Source: Republic of Moldova — IMF country report text excerpt.*

### 19.      Legal uncertainty remains for the settlement of government and central bank

### 19.      Legal uncertainty remains for the settlement of government and central bank securities

### Legal framework and outstanding legal risks
- Legal uncertainty remains for the settlement of government and central bank securities; new draft laws are being prepared to address these gaps.
- Specific legal provisions are needed to protect:
  - finality,
  - collateral and netting arrangements in case of insolvency proceedings,
  - investors’ rights in the BES.
- According to the National Plan for Legislation Harmonization for 2014 (approved by the Government Decision no. 28 of 22 January 2014), the NBM will be responsible for elaborating two draft laws, including:
  - settlement finality in payment and securities settlement systems, and
  - financial collateral arrangements.
- The adoption of such laws is needed.
- Implementation of IMF TA advice on legal issues would help address uncertainties on financial collateral arrangements and international law problems.
- The average daily values handled by the BES amounted to MDL 922 million (US$ 73 million) or 1 percent of GDP in 2013.

### Protection of government bond trading on the stock exchange
- Plans to trade government bonds with maturities of over one year on the stock exchange need to be protected under the CM Law.
- Article 79 empowers the NCFM and NBM to issue regulations on the procedure of clearing and settlement of transactions with financial instruments that circulate on the capital market.
- The NSD, in accordance with such regulations, needs to clearly establish government bonds as a financial instrument for which it will carry out clearing and settlement.
- Article 80 provides finality protection for settlements in the NSD.
- Adoption of explicit legislation on settlement finality and financial collateral may require further amendments to the CM Law to ensure consistency.

### Dematerialization of private/corporate securities and registrars
- The legal framework requires changes to ensure that registrars do not hamper the process of fully dematerializing the transfer of private securities.
- Current Civil Code and Joint Stock Company (JSC) Act provisions implicitly require intervention of the registrar to enforce a transfer of securities ownership or the creation of a pledge, which does not adequately support circulation of securities in book-entry form.
- Apart from settlement finality and financial collateral rules, there is a need to fully dematerialize the transfer of corporate securities.

### Comprehensive risk management framework for FMIs
- The BES was self-assessed against the PFMIs, while its risk management framework should be strengthened with crisis management arrangements.
  - The NBM issued the Regulation on Risk Management for the BES, approved in August 2013 and effective since January 1, 2014.
  - Regulations include provisions on operational risk, settlement risk, and custody risk.
  - Under the regulation, the NBM may assess effectiveness of participants’ policies, procedures, and risk management mechanisms.
  - BES participants are required to have a governance framework with a clear organizational structure and defined responsibilities, and to adopt policies and procedures to identify, manage, monitor, and report risks.
  - The BES does not appear to have developed scenarios to prevent disruption of critical operations and services, nor a recovery plan.
  - Preliminary self-assessment of the BES against the PFMIs has been completed, in Romanian, and was submitted to the NCFM for peer review on February 20, 2014.
  - Because of interdependencies between the AIPS and BES, and AIPS and NSD, the NBM should ensure crisis-management arrangements to allow effective coordination among affected entities, including cases where its own viability or that of an interdependent entity is in question.
- A comprehensive risk management framework is lacking and a self-assessment against the new international standards is needed for the NSD.
  - Current practices largely focus on operational risks as guided by the Measures to Reduce Risks in Clearing and Settlement Operations of 2010.
  - The NSD was assessed by the NCFM against the CPSS-IOSCO RSSS in 2011 (assessment based on 15 of 19 applicable recommendations; full compliance in 11 areas; general compliance for four standards including legal framework, settlement assets, operational security, and transparency).
  - There has been no self-assessment of the NSD against the PFMIs.
  - Current risk policy covers operational risks and settlement risks (through the guarantee fund).
  - The NSD is required under the CM Law (18 months after its enactment) to develop and apply internal audit policies, perform a mandatory audit of its financial condition at least once a year, and a technical audit of its information systems at least once every 2 years.
  - The NSD appears to lack capacity to aggregate risks, identify scenarios that would prevent it from providing critical operations and services, and lacks recovery plans focused on financial constraints (e.g., holding sufficient liquid net assets funded by equity to continue operations if it incurs general business losses).
  - Because of interdependencies between NSD and AIPS, the NSD should also develop crisis-management arrangements.

### Credit and liquidity risk findings and recommendations
- Potential credit and liquidity risks remain in the NSD:
  - NSD’s settlement of corporate securities uses DVP Model 3, providing simultaneous net settlement of securities and funds transfers at T+3; final cash settlement takes place at the NBM.
  - DVP Model 3 limits principal risks, and the MSE checks availability of securities before trade execution, resulting in a very low settlement failure rate.
  - As settlement occurs on the third day following a transaction, potentially large liquidity exposures are created if a participant fails to settle its net funds debit position.
  - Some or all of the defaulting participants’ transfers may have to be unwound, imposing liquidity pressures on non-defaulting participants.
  - If all such transfers must be deleted during stressed market conditions, remaining participants could face shortfalls of funds or securities that would be extremely difficult to cover; potential total liquidity pressure of unwinding could be equal to the gross value of the netted transactions.
  - NSD rules provide for a sanction of 5 percent of the total value of a transaction in the event of settlement failures; there has been no occurrence so far.
  - The NSD should evaluate benefits and costs of a settlement cycle for corporate securities shorter than T+3, particularly when settlement activity has heightened, balancing speedier settlements with time and capacity to monitor potential raider attacks (requiring registrar reform).
  - The NSD plans to settle government bonds with maturities over one year on T+0, which will help remove counterparty credit and liquidity risks.
- The guarantee fund appears to be insufficient for the NSD:
  - The size of the fee paid into the guarantee fund is fixed at MDL 30,000 and does not appear adequate to reduce potential settlement risks.
  - The average daily value handled by the NSD was MDL 3 million (US$ 0.2 million) in 2013.
  - The size of the participant’s risk fund held by the NSD amounted to MDL 1.77 as of December 31, 2013.
  - Every professional participant in the securities market is currently obliged to hold a guarantee fund of 30 percent of the regulatory capital necessary for the respective type of activity; the fund is used only with the permission of the NCFM and, although it insures against the risk of default, it was never used.
  - The NSD does not offer credit to its participants or permit debit balances for securities.
  - A shortfall of funds is possible in the event of a participant default, resulting in unwinding of participant positions and recalculation of obligations, potentially leading to unexpectedly large funds or securities debit positions for other participants and possible second defaults.
  - Under Principle 7 (Liquidity Risk) of the PFMIs, the NSD should seek to maintain sufficient liquid resources to effect payment obligations with a high degree of confidence under a wide range of potential stress scenarios, including the default of the participant and its affiliates that would generate the largest aggregate payment obligation in extreme but plausible market conditions.
- Credit and liquidity risks are well managed in the BES:
  - Cash leg for government and central bank securities trades are settled in the AIPS under DVP Model 1 at T+0, allowing gross and simultaneous settlement of funds and securities.
  - Transactions become final on an obligation-by-obligation basis during the settlement day, reducing credit and liquidity exposures among participants or between a participant and the BES.
  - As the cash leg is settled in the RTGS component of the AIPS, participants are not exposed to any credit risks.
  - The NBM may extend intraday credit by providing collateralized overdrafts to banks participating in the AIPS, with various risk controls to limit credit risk to the NBM.
  - The BES does not permit overdraft or debit balances in securities.

### Central Securities Depository (CSD) reform, integrity, and efficiency
- National CSD reforms have progressed slowly, undermining the integrity and efficiency of the FMI landscape.
  - Despite the NCFM’s 2011 action plan for creating a modern structure for the NSD (including taking over the function of holding registers), necessary legislation has failed to gain parliamentary support.
  - Law No. 35 of March 3, 2011 approved the strategy on developing the financial non-banking market for 2011–14, requiring implementation by the NCFM.
  - Based on this action plan, the NCFM provided the NSD a license for maintaining shareholder registers.
  - Earlier efforts to amend the CM Law to replace independent registrars with a central depository were excluded from the final parliamentary version.
  - Mixed reactions from the NCFM and MSE exist regarding establishment of a single CSD, particularly on the nature of the future entity and implementation details.
- CSD reform efforts should continue under the NPC and include a cost analysis:
  - Suggested approach:
    - Form a Working Group on CSD Reform, co-chaired by the NBM and NCFM, under the NPC (alternatively create a forum outside the Council if more appropriate).
    - Establish terms of reference and representation for the working group.
    - Conduct a cost analysis, in cooperation with international partners with similar implementation experiences, to assess economic feasibility of a single CSD. The analysis should estimate:
      - investment costs,
      - transaction costs,
      - connection costs,
      - foreseen cost recovery,
      - scale and scope economies and impact on average cost per transaction,
      - investment cost for participants including connection and network cost.
    - Assess financial and risk management capabilities of the private sector, particularly in meeting minimum capital requirements.
    - Consider other feasible arrangements if NSD’s financial condition and risk management practices are relatively weak (e.g., central bank involvement to help establish the single CSD).
    - Develop a coherent and well-sequenced reform strategy to be approved by the NPC to guide implementation and minimize industry impact.

### Fraud risk, registrars, and consolidation of corporate securities registers
- Fraud risk continues to compromise the integrity of the corporate securities registration system despite efforts to consolidate and replicate records.
  - Governance of registrars is weak; back-ups are virtually nonexistent; procedures for handling and controlling data and records are poorly managed and monitored.
  - Ongoing reforms include proposed amendments to the CM Law to transfer registers of securities holders of public interest entities to a central depository; adoption by parliament was expected in the first half of 2014.
  - A new database system is being developed to provide daily backups of all corporate securities from independent registrars once legislation is passed; data verifications will be on a random basis.
  - The NCFM plans to perform data verifications based on risk profile or complaints.
  - Verification of electronic records of independent registrars against paper documents (covering 20 years and about 3,000 companies) will demand significant resources.
  - Data reconciliation measures to ensure integrity in the new database appear to be lacking.
- The planned transfer of some corporate securities into a single depository is partial; authorities should aim for fuller consolidation in the medium term:
  - NCFM plans to amend the CM Law to consolidate registration system for corporate securities traded on the stock exchange (or private securities subject to public offering) into a single depository.
  - Authorities should review criteria limiting mandatory consolidation to public interest entities to improve integrity of the whole securities registration system, though transferring public interest entities first is sensible.
  - Excluding non-public interest entities (over half of all registered joint stock companies) hampers fraud prevention efforts.
  - Interim measures could strengthen oversight by increasing frequency of registrar inspections from current requirement of three years.
  - Information from periodical shareholder meetings in joint stock companies could help reconcile securities records but is less effective than full consolidation in a CSD.
  - Many difficulties remain in the transfer process:
    - Independent registrars keep registers for about 2,000 joint stock companies out of 3,000 in the state register of securities; the rest are inactive.
    - Around 1,000 out of 2,000 joint stock companies are registered at the stock exchange; only around 200 have stocks that are traded.
    - Many contracts between independent registrars and inactive joint stock companies have expired; absence of new contracts forces registrars to keep databases on their own account.
    - Transfer of these companies’ registers to the central depository will be problematic due to impossibility of signing new contracts; central depository may face losses by keeping these registers.

### General business risk and financial constraints
- Financial constraints could risk operational disruptions in the NSD:
  - Potential impairment of the financial condition of the MSE and NSD.
  - Although new capital and increased fee income helped comply with minimum capital requirements under the CM Law, they have operated at a loss in some years.
  - The MSE’s income did not cover total expenses during 2009 to 2011.
  - Financial conditions improved in 2012 with a sharp increase in turnover on the stock exchange to MDL 623 million from MDL 241 million in the previous year.
  - Similar losses occurred for the NSD during 2009 to 2010.
  - NSD’s shareholders are in consultations with the NCFM for further capital increases.
  - Lack of sustainable income constrains modernization of the system.
  - Lack of general business risk identification, monitoring, and management could result in operational disruptions; NSD’s strong interdependencies with the AIPS mean such risks could spill over to the interbank payment system.

*Source: _cr1672 - 19.      Legal uncertainty remains for the settlement of government and central bank securities*

### 32.      Liquid net assets do not appear to be sufficient or readily available to cover potential

### _cr1672 - 32.      Liquid net assets do not appear to be sufficient or readily available to cover potential

### General business risk — NSD liquid net assets and recovery capacity
- Finding: Liquid net assets do not appear to be sufficient or readily available to cover potential general business losses in the NSD.
- Finding: The NSD periodically evaluates its financial position to prevent or avoid eventual business risks, but the holding of liquid assets is temporary due to the lack of a legal obligation.
- Finding: Resources from the Participants’ Risk Fund exclude the depository’s funds and are used only for participants’ debt amortization regarding their obligations arising at trades settlements.
- PFMI requirement (Principle 15, General Business Risk): The NSD should hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialize.
- PFMI expectation for recovery: Liquid net assets should at all times be sufficient to ensure a recovery of critical operations and services.
- Explicit recommendation: The NSD should maintain a viable recovery plan and should hold sufficient liquid net assets funded by equity (such as common stock, disclosed reserves, or other retained earnings) to implement this plan.
- Minimum standard stated: At a minimum, the NSD should hold liquid net assets funded by equity equal to at least six months of current operating expenses.

### Operational risk — BES continuity, server location, and NSD recovery capability
- BES (NBM Market Operations Department) arrangements and findings:
  - The NBM’s Market Operations Department oversees the BES business continuity plan with procedures to mitigate risks to critical events and to ensure resumption and recovery of critical functions in defined time intervals so transactions are processed on the settlement date.
  - The NBM’s Business Continuity Management Regulation has established the maximum possible downtime for critical processes at 2 hours.
  - The estimated recovery time objective for BES is less than 30 minutes.
  - Compliance testing: This compliance is tested annually and is mandatory for the most active participants on the BES.
  - As at November 2013, single points of failure have not been identified.
  - The rules on evidence and management of incidents establish a defined framework for continuity capacity management, monitoring and avoiding incidents, and timely recovery measures.
  - Infrastructure risk: The main and secondary servers are located in different buildings within the same compounds of the central bank, but are approximately 30 meters apart.
  - Planned mitigation: The NBM currently has plans to relocate to a new secondary server (approximately 10 to 40 kilometers from the main site) and should address such risks expeditiously.
  - Assessment: BES operational security was assessed as partly observed against the RSSS.

- NSD operational arrangements and findings:
  - Finding: The NSD appears to lack clear recovery time objectives.
  - Finding: There has so far been no incident of operational failure to the NSD, but there is a lack of incident reports by the NSD or NCFM to corroborate this observation.
  - Controls and testing: The NSD has internal control procedures and security measures for its automated systems, periodic stress tests are performed, and the depository system can be launched on a mirror-server to update property rights records and settlement transactions; this server is tested periodically.
  - Secondary site: The NSD has a secondary site located 10 kilometers from the main site. The secondary site is tested every month without participants.
  - Recordkeeping: Data regarding operations, except electronic evidence, is covered by making paper copies; information is also kept electronically in a box leased in the commercial banks, which is periodically updated.
  - Legal requirement: Under the CM Law, the NSD is required to develop and, if necessary, implement an emergency plan for data recovery and periodic testing of backup systems.
  - Deficiency: The NSD’s Measures to Reduce Risks in Clearing and Settlement Operations do not specify recovery time objectives.
  - Deficiency: A recovery plan in exceptional cases or force majeure is currently missing.
  - Assessment: NSD operational security was assessed as generally compliant against the RSSS.

### Operational standards, schedules, participation, and risk management (BES specifics)
- Institutional and regulatory framework:
  - Relevant documents and dates:
    - Plan for ensuring continuity of operations of the BES approved by the NBM First Deputy Governor on March 30, 2012.
    - Regulation on Risk Management for the BES approved in August 2013 and came into effect since January 1, 2014.
    - Regulation on the BES (Decision no.250 of October, 25, 2013).
    - Instruction on the Organization of the Securities Settlement System Oversight approved on February 9, 2012.
- Participants and thresholds:
  - There were 17 participants at end February 2014.
  - BES administrator may open personal accounts at Tier 1 for entities that hold a settlement account with any bank and own a portfolio of government securities in an amount of at least MDL 25 million on an average per quarter.
- Types of transactions and links:
  - BES keeps the register of beneficial ownership of government and central bank securities at participant level; clearing and settlement are with cash settlement in the AIPS.
  - BES is linked to the AIPS.
- Operating hours:
  - Daily operations are from 8:15 a.m. to 5:00 p.m.
  - Free of Payment (FOP) transactions: 9:00 a.m. to 4:15 p.m.
  - Delivery versus Payment (DVP) transactions: 9:00 a.m. to 3:00 p.m.
- Risk management expectations:
  - The NBM develops and adopts regulations specifying risk management mechanisms for BES activities and can assess effectiveness of policies, procedures, and risk mechanisms adopted by participants.
  - BES participants are expected to have governance frameworks with clear organizational structure, defined responsibilities, and policies to identify, manage, monitor, and report risks.

*Source: IMF staff assessment text in the provided content unit.*

### 0.0005 percent of the average monthly balances of government securities and NBM certificates

### _cr1672 - 0.0005 percent of the average monthly balances of government securities and NBM certificates

### Fees and Charges for BES and Transfers
- BES charge: 0.0005 percent of the average monthly balances of government securities and NBM certificates at par value held in BES participant's own accounts and holder’s personal accounts.
- Transfer form processing fee: MDL 1 is charged for each transfer form accepted by BES for the processing of securities transactions.
- Processing fee application:
  - Applied to both parties involved in the operation.
  - Exception: for portfolio transfers the fee applies only to the participant who becomes the holder of the securities.
  - In “bank to customer” operations, the fee is applied to the participant who initiated the transfer of securities in BES.

### National Securities Depository (NSD) — Institutional and Operational Features
- Institutional framework:
  - The NSD holds the license for the activity of central depository, issued by the NCFM according to the Law on Securities Market.
  - It operates according to its rules approved by the NCFM.
- Participation:
  - Brokers and dealers as professional participants on the securities market have the right to become NSD participants.
  - The NSD performs depository, clearing and settlement activities, providing these services to the MSE for all the trading activities performed.
- Types of transactions:
  - The NSD’s depository, clearing and settlement arrangements represent the continuity of MSE’s trading system.
  - NSD’s arrangements are integrated with MSE’s system to offer automated data exchange between them.
- Operation of the system:
  - Daily operations: from 8:30 a.m. to 5:00 p.m.
  - Settlement period: as an AIPS participant, follows a flexible schedule (no specific settlement hours).
  - The NSD does not settle transactions after 5:00 p.m.
- Risk management:
  - Guided by Measures to Reduce Risks in Clearing and Settlement Operations of 2010.
  - Implements security policies ensuring control of internal and external access to systems and data.
  - Manages a risk fund of its participants established to reduce settlement risk within stock exchange trading performed by NSD’s participants.
- Links with other systems:
  - The NSD is linked with the AIPS.
- Pricing policy:
  - Fee schedule approved by the NCFM in 2010.
  - Fees grouped into three categories: (i) clearing and settlement services; (ii) registry services provided to issuers; and (iii) registry services provided to shareholders and their representatives.
  - Clearing and settlement charges and examples:
    - Account opening fees: MDL 180 for opening a clearing account.
    - Corporate and derivative securities: 0.005 percent of the issue value, but not less than MDL 50.
    - Repurchase transactions: 0.06 percent of the transaction value (each party paying 0.03 percent, respectively).
    - Commission for sale-purchase transactions: 0.1 percent of the transaction volume (each party paying 0.05 percent, respectively).
    - Sale-purchase transactions with derivative securities: MDL 1 and 0.02 percent of the transaction value, but not more than MDL 20 (0.01 percent for each party but not more than MDL 10).

### Appendix V — Value of Transactions and Deposits in Book Entry System (Millions of MDL)
- Primary market operations (government securities):
  - 2013: 16,038.7
  - 2012: 15,928.5
  - 2011: 16,015.4
  - 2010: 15,594.9
- Primary market operations (National Bank certificates):
  - 2013: 96,980.7
  - 2012: 98,011.5
  - 2011: 84,993.1
  - 2010: 166,951.1
- Ministry of Finance redemption of government securities:
  - 2013: 15,487.0
  - 2012: 15,735.8
  - 2011: 15,351.1
  - 2010: 15,376.9
- NBM redemption of National Bank certificates:
  - 2013: 98,120.1
  - 2012: 97,181.4
  - 2011: 85,736.2
  - 2010: 166,380.4
- Open market operations:
  - 2013: 0.6
  - 2012: 45.7
  - 2011: 0.0
  - 2010: 0.0
- Selling-buying operations:
  - 2013: 49.4
  - 2012: 183.2
  - 2011: 186.3
  - 2010: 104.6
- Pledge operations:
  - 2013: 5,680.2
  - 2012: 1,213.3
  - 2011: 1,335.4
  - 2010: 2,459.9
- Value of settled securities—total:
  - 2013: 232,356.7
  - 2012: 228,299.4
  - 2011: 203,617.5
  - 2010: 366,867.8
- Of which government securities:
  - 2013: 35,754.9
  - 2012: 32,421.2
  - 2011: 32,728.2
  - 2010: 33,513.4
- Of which central bank securities:
  - 2013: 196,601.8
  - 2012: 195,878.1
  - 2011: 170,889.3
  - 2010: 333,354.4

### Appendix VI — Stock Exchange and Secondary Market Turnover
- Stock Exchange Market (2012 and 2013)
  - Total number of transactions at Moldova Stock Exchange (units):
    - 2012: 1,877
    - 2013: 1,680
  - The volume of transactions at Moldova Stock Exchange (millions of MDL):
    - 2012: 623
    - 2013: 347
  - Number of transactions of companies included in listing level I (units):
    - 2012: 194
    - 2013: 1258
  - Volume of transactions of companies included in listing level I (millions of MDL):
    - 2012: 274
    - 2013: 822
  - Number of transactions of companies included in listing level II (units):
    - 2012: 3
    - 2013: 241
  - Volume of transactions of companies included in listing level II (millions of MDL):
    - 2012: 1,36
    - 2013: 668
  - Number of transactions of companies included in non-listing (units):
    - 2012: 1,258
    - 2013: 1,015
  - Volume of transactions of companies included in non-listing (millions of MDL):
    - 2012: 347
    - 2013: 152
- OTC Market (2012 and 2013)
  - Total number of transactions (units):
    - 2012: 2,521
    - 2013: 2,846
  - The volume of transactions (millions of MDL):
    - 2012: 628
    - 2013: 889
  - Types of transactions—volume, millions of MDL:
    - Sale/purchase: 33 (2012)
    - Transactions under the court decision: 83 (2012)
    - Securities contribution to the share capital: 221 (2012)
    - Inheritance: 6 (2012)
    - Donations: 17 (2012)
    - Securities succession: 119 (2012)
- Total Secondary Market
  - Total number of transactions (units):
    - 2012: 4,398
    - 2013: 4,104
  - The volume of transactions (millions of MDL):
    - 2012: 1,251
    - 2013: 1,711

*Source: _cr1672 - 0.0005 percent of the average monthly balances of government securities and NBM certificates — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1672.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1672.pdf_