Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) Capital Markets Modernization Project (P120321) EUROPE AND CENTRAL ASIA | Azerbaijan | Finance & Markets Global Practice | IBRD/IDA | Technical Assistance Loan | FY 2011 | Seq No: 9 | ARCHIVED on 10-Nov-2015 | ISR21241 | Implementing Agencies: Azerbaijan State Committee for Securities Key Dates Key Project Dates Bank Approval Date:17-Mar-2011 Effectiveness Date:07-Nov-2011 Planned Mid Term Review Date:20-Jan-2014 Actual Mid-Term Review Date:03-Feb-2014 Original Closing Date:31-Dec-2015 Revised Closing Date:01-Jul-2016 Project Development Objectives Project Development Objective (from Project Appraisal Document) Increase the use of equity and corporate debt as financing and/or investment instruments through the adoption of an effective capital markets regulatory framework and infrastructure. Has the Project Development Objective been changed since Board Approval of the Project Objective? No PHRPDODEL Components Name Component 1: Streamlining and Automating Market Infrastructure.:(Cost $6.00 M) Component 2: Updating and Strengthening the Legal and Regulatory Framework.:(Cost $1.90 M) Component 3: Stimulating Supply.:(Cost $1.80 M) Component 4: Capacity Building:(Cost $3.90 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  Moderately Satisfactory  Satisfactory Overall Implementation Progress (IP)  Satisfactory  Satisfactory Overall Risk Rating  Low  Low 11/10/2015 Page 1 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) Implementation Status and Key Decisions The State Committee for Securities (SCS) is progressing towards the CMMP’s benchmarks and goals. The single main consultancy assignment for USD 8.4 million was launched in September 2012 and contract implementation is satisfactory. The procurement for Capital Market Information System (CMIS) has been successfully completed and the contract awarded in early 2015. The Listing Advisory Program (LAP) was launched in mid April 2014 and is progressing well. The nationwide education program for financial literacy and SCS capacity builiding is under implementation. The project closing date was extended till July 1, 2016 to allow timely CMIS implementation. New Securities Market Law was enacted by Parliament that enables new regulatory framework and helps achieve project's development objectives. 11/10/2015 Page 2 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  --  Low  Low Macroeconomic  --  Substantial  Substantial Sector Strategies and Policies  --  Low  Low Technical Design of Project or Program  --  Low  Low Institutional Capacity for Implementation and Sustainability  --  Moderate  Low Fiduciary  --  Low  Low Environment and Social  --  Low  Low Stakeholders  --  Low  Low Other  --  --  -- Overall  --  Low  Low Results Project Development Objective Indicators PHINDPDOTBL  Increased issuance of corporate bonds (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.90 14.90 20.70 3.80 Date 15-May-2011 13-Feb-2015 10-Oct-2015 30-Jun-2016 PHINDPDOTBL  Increased number of companies with listed equity (accumulative) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 2.00 1.00 4.00 8.00 Date 15-May-2011 13-Feb-2015 10-Oct-2015 30-Jun-2016 11/10/2015 Page 3 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) PHINDPDOTBL  Improved price transparency (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 100.00 90.00 Date 15-May-2011 13-Feb-2015 10-Oct-2015 30-Jun-2016 Overall Comments 1. PDO #1: “use of corporate bonds” is ahead of schedule at a ratio of 20.7% to non-oil GDP, due to an overall net increase in the amount of corporate bonds outstanding. The static denominator for this ratio is 2010. 2. PDO #2: the “number of listed equity securities” is 4, below a full target of 8-10.The number increased from only 1 in the last reporting period, not due to a number of initial public offering (IPO), but through a redefinition of listing at the BSE. Still, the increase reflects an improvement: although the companies which are newly added to the ‘listing’ category were already admitted to trading, they now commit to full disclosure requirements at the BSE. It is however highly challenging to achieve this PDO through the new securities listing due to negative external environment, small market size (both on the supply and demand side), and low market liquidity. 3. PDO #3: “improved price transparency” is agreed to be at full compliance (100%).The original methodology measures the ratio of non-block transactions over total transactions in the equity market as the proxy of price transparency, assuming that block transactions are not competitive and non-transparent. However, the BSE recently took measures to make the block transactions (or cross-trades) competitive, by requiring any potential cross trade to be exposed to market for a 60-minute period to allow a counter-bid/offer to come. At the same time, the pre-pay requirement for a purchase order was removed so that brokers can put a buy order without posting any payment upfront. Theoretically these measures should make cross-trade more competitive, but so far there has been no evidence of counter-bid/offer. This reality is understandable in an illiquid market, where ‘internalization’ often occurs at the brokers level. Intermediate Results Indicators PHINDIRITBL  Ratio of market participants electronically linked to market infrastructure (trading, clearing and settlements) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 100.00 100.00 100.00 Date 15-May-2011 30-Sep-2014 10-Oct-2015 -- 11/10/2015 Page 4 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) PHINDIRITBL  Enactment of a new Capital Market Act (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No No Yes Yes Date 15-May-2011 30-Sep-2014 10-Oct-2015 -- PHINDIRITBL  Promulgation of capital markets regulation required upon enactment of Law (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No No In process Yes Date 15-May-2011 30-Sep-2014 10-Oct-2015 -- PHINDIRITBL  Number of companies involved in the listing advisory program (debt and equity) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 1.00 16.00 15.00 Date 15-May-2011 30-Sep-2014 10-Oct-2015 -- PHINDIRITBL  Increased of the threshold pass rate of the Financial Certification examination for market participants (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 50.00 75.00 75.00 75.00 Date 15-May-2011 31-Dec-2013 10-Oct-2015 -- 11/10/2015 Page 5 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) PHINDIRITBL  Consumer Awareness of Capital Market Instruments (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 24.00 36.00 56.00 45.00 Date 15-May-2011 31-Dec-2013 31-Dec-2014 -- Overall Comments 1. IRI #1: “electronic access by market participants” has been fully achieved, with a 100% tie-in.The new IT system to be acquired under Component #1 will enforce this feature. 2. IRI #2: “enactment of a new securities law” is achieved through the Parlaiment passge of the new Law on Securities Market in May 2015 and its signature and publication in July 2015. 3. IRI #3: “adoption of required implementing regulations” is in process. Internal SCS regulation establishes the deadline for enactment of the regulations by November 2015, while the Law establishes the deadline at mid-December 2015. Most of the regulations have already been drafted, and many of them already adopted by the SCS and sent to the Government for registration/publication. 4. IRI #4: the “number of companies enrolled in the Listing Advisory Program” improved to 16 and exceeded the target (15). 5. IRI # 5 the “increased threshold of the pass rate for professional certification” has been achieved at 75%. 6. IRI #6: “consumer awareness of capital markets instruments” is not measured in this reporting period, per project plan. The 2015 survey to obtain the result of this indicator will be conducted at the end of the year. Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P120321 IBRD-80240 Effective USD 12.00 12.00 0.00 8.41 3.59 70% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P120321 IBRD-80240 Effective 17-Mar-2011 22-Sep-2011 07-Nov-2011 31-Dec-2015 01-Jul-2016 Cumulative Disbursements 11/10/2015 Page 6 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Capital Markets Modernization Project (P120321) Restructuring History Level 2 Approved on 06-May-2015 Related Project(s) There are no related projects. 11/10/2015 Page 7 of 7 Public Disclosure Copy