Interview with Mr. Hayk Yeganyan | Armenia Securities Exchange

Tuesday, 21 July 2020


FEAS holds an interview with the Chief Executive Officer of Armenia Securities Exchange Mr. Hayk Yeganyan. Ms. Armenuhy Hovakimyan, FEAS Deputy Secretary General spoke with Mr. Yeganyan about AMX’s main projects, financial literacy in Armenia, how COVID-19 affects the market and more.  


Armenuhy: Hello, this is FEAS News and I am Armenuhy Hovakimyan, Deputy Secretary General of the Federation of Euro-Asian Stock Exchanges. Working from home and visiting this time my home country and the host country of FEAS – Armenia. My guest today is a Chief Executive Officer of Armenia Securities Exchange, Hayk Yeganyan. Hayk hello. Nice having you today with us.

Hayk: Hey Armenuhy. Thanks for inviting me. It is a great pleasure to e-meet you, I assume just a few hundred meters away, but still we are here using the technology.

Armenuhy: Thank you! I would like to start not with a Covid topic, because this is the most trending topic and everyone is asking about it. Let’s start with Armenia Securities Exchange strategy. What strategic initiatives you are working at now and what has changed related to this crisis?

Hayk: In general we do a strategic plan for two-three years. Last time the general one we did at the end of 2017 and the beginning of 2018. It is coming to an accomplishment now. So, right now we are working on a strategy paper 2020-2023. We have few major strategic initiatives which we would like to implement in these coming three years. 

The most important one is the entire change and upgrade of the trading software and technology. Because as you know we are still partially using the old system. We have done some shopping around for a year and a half to identify what is there globally in the market. And finally we have selected а very interesting software which is the first in time to be used as a software for an exchange as a matching engine. It is the trading technology called QUIK. Which was developed in Russia 25 years ago and has been covering almost 85% of the Russian market for the broker-client leg. This was a broker-client technology which is providing DMA access to the exchanges and other liquidity pools of marketplaces. But once we analysed this software, we understood that it can actually become a matching engine itself as well with all its clearing, position management, pre-trade, trade and post-trade administrative tools. 

So, we suggested the team consider making their software as an exchange software. Which was quite a shock for them as well, but the guest agreed to do a trial with us and we have successfully already implemented the auction module. We already run the government bonds auctions in this new software. Which is quite good. Hopefully we will entirely replace all the marketplaces to the new software by the end of September. 

Actually, Covid has helped us a lot, because, as you may assume that it is the case we (almost 75% of staff) work from home. It ‘s much easier for the staff to focus on their niche projects and tasks when they are alone, as there is no one else from the colleagues asking them to help on different matters and issues. They are not being distracted. 

So, we have allocated part of the team for tests of the new software. I would say that we have been progressing with the testing environment much quicker than we used to do last year when we were implementing the government bonds’ auctions part. 

The main advantage of this new technology will be its capability of enabling the brokers themselves to use our service as an exchange to provide the sponsored market access. Using our technology they will be providing direct access, though it will be sponsored access under their account, an omnibus account to their end-clients. We will enable the retail and the corporate level to those who want to see the exchange, market liquidity. They will immediately see and place orders accordingly under their brokers sponsored accounts. 

This should be a major milestone especially for Armenian marketplace, because as you know, we are still using the old methods for placing orders through fax (though fax is outdated already), email, phone calls, but you never see in a live version what is going on in the exchange.

So, this will help a lot to develop a marketplace, especially the secondary market liquidity.

The other major initiative we have is implementing marketplaces. As you know, we have a very strict regulated marketplace and we have a free marketplace (free trade regime), but we want to enable companies in Armenia to do IPO placements directly through the retail-oriented website. Sell directly to the retailer through our platform. Basically we are creating the user-friendly retail oriented platform: website and the application which would allow for the issuers to create an online issuers’ account in the Depository, issue the papers and place the allocation offer on the website. For the other side, it will allow any investor in the online regime to open a depo account in the Central Depository of Armenia, select any security available for placement and place buy order. The subscription order. We will have an integration with the payment service providers to take the money from the client and deliver it to the end-client and vice-versa: deliver the securities to the client. We will also handle the coupon payment if it is a bond or dividend payment through the depository. Also, we can make sure that there are no transactional or business-related operational risks left. 

So, this will become a very big challenge for unregulated or quasi-regulated crowdfunding platforms, globally even. Because we will be one of the rare depositories and exchanges which will provide the crowdfunding platform ensuring that the companies are existing, they will not default on transactions delivering the securities and making sure that there are no other transactional legal expenses or costs or challenges related to the investors. This is our second major initiative.   

And the third major initiative that we want to do now is to implement an online platform for fund registration which will be called FundNet. Our regulator has allowed the exchange to provide the service to global fund managers and not only fund managers but others who wish to set up a contractual investment fund (non-public investment funds for less than 49 people). Has allowed us to provide the service of an online registration facility. So, we are now building up a website which allows you or anyone else who wants to set up a fund just with a simple account creation and the document submission after the successful pass of the due diligence and review by ourselves to be submitted the package to the regulator, to receive the registration certificate and have an Armenian investment fund. Which is a tax-free great investment holding vehicle for especially different regional investors?

We will be one of the rare depositories and exchanges which will provide the crowdfunding platform ensuring that the companies are existing, they will not default on transactions delivering the securities and making sure that there are no other transactional legal expenses or costs or challenges related to the investors.

So, this is in general all for the next three years. For next five years, we envisage also, in partnership with the European or global CCP institution, to build up a CCP infrastructure in Armenia, to write and create a well regulated CCP regulation and law in Armenia. Provide CCP services from Armenia to different countries where there is no CCP. But this is a 5-year strategic plan.

Armenuhy: Impressive, in one word. You are having now the huge technological thing and not only the passive user of the technology but you are also working and actively changing already existing technology that the provider is giving to you and you are changing and tailoring it for Armenian market. This is great! I know how the technological projects are important with these three main projects you have mentioned. I have a feeling that the market is going closer to the investors, to the issuers.

Thus, the market is getting closer to the public. In connection with this, I’d like to ask: what is the AMX role in promoting financial market, financial literacy in Armenia? Are there significant achievements to mention?

Hayk: As you know, you are a part of our society. Unfortunately, financial literacy is not on a high level in Armenia. This is due to our inheritance of the past planned economy, the inheritance of our history. We have been in capitalism only 29 years. Having well involved, improved capital markets requires many years of hard work and a high level of financial literacy.

We have a huge generation within our society that are not properly threatened as per free-market economy standards.

In general, we do see that this is our major gap within the society and we do understand that we need to literate the society somehow. For this reason, we closely cooperate with the Central Bank of Armenia where they have a special project for financial literacy.

We do target on an individual level. We do target to literate successful entrepreneurs in Armenia, who are owners of large or medium-sized corporations. So, we want to literate them that there are other sources of financing other than a bank loan, with a collateral which limits the value of potential financial sources. This is our target number one. 

Our target number two is the potential high network individuals whom we try to educate about the alternatives for saving money other than deposits. Sometimes, especially in the Covid period, you can make lots of money within two-three months, or even shorter time.   

For the second literacy project, we aim to cooperate with local investment companies. Not only local ones but have huge plans of attracting foreign investment companies and brokers into Armenia. We are trying to convince them to come to Armenia, to set up offices and develop the brokerage and investment advisory service. Because at the end of the day those are the companies who are making the most of the profits from brokerage trading. We take very small margins. Whilst they themselves are the main stakeholders of the profitability of the industry.

The third area of financial literacy is our internship program. We actively hire students especially from Armenian State University of Economics where they have a capital market department. We selectively higher those students who have an aspiration of a) thinking big as per provided services through infrastructure creation and b) those who are great in problem-solving and have an aspiration of creating something good for Armenia and for Armenian market. We target them and bring them to our internship courses and usually we higher them further on within a month or two or next year.

Armenuhy: Good luck with your inclusion thing, because it is known that literacy and education investments are coming back in some period. So this is a long-run investment and good luck with your part in financial education. Let’s come back to the market. Will you please mention what are the most active instruments traded in AMX and have they changed during the last months?

Hayk: Our most active instruments, as usual, are the government bonds and the second one comes the corporate bonds. We can position ourselves as a fixed income house. Fixed income marketplace. The first is usually government bonds and they haven’t changed. The government bonds’ trade has even increased. May be due to a higher saving rate and falling interest rates of bank deposits.

We are trying to convince foreign investors to come to Armenia, to set up offices and develop the brokerage and investment advisory services.

Corporate bonds market has also increased a lot. We see a huge rise in repo transactions not only by government bonds, but also corporate bonds. Which is a great signal for the market, saying that the banks started to take the counterparties risk. They have started to analyse and measure that risk. Also the issuer’s risk.  They started to provide REPOs based on other issuers’ collaterals. Which is a great signal for the market saying that the banks are not working only with their own issued bonds, but they have already built up research teams and risk management teams?

Armenuhy: And the last question. In your personal opinion, what life will look like after this Covid crisis? What are the major challenges that humanity faces? What do you think will be changed?

Hayk: I think, first of all, we will change our lifestyle to a much healthier one. We will not take a plane for two-hour meeting four hours flight away. Instead, we will use technology that we are using right now. Less travel will keep us much healthier and the healthier we are, the higher productivity we have. 

I always try to find positive things in any situation and in my opinion, the pandemic will have a positive impact. 

Although, I agree that some industries will suffer. Especially the airline industry, tourism, hospitality. But you never know, maybe it is for the good. Maybe it is good to re-adapt to a new reality. The countries who adapt faster, are more flexible in terms of purpose and have a higher literacy rate as per population. I think they will win, because those countries are more adaptive with new challenges. Then they can shift their workforce from one sector to another sector within a year or two through intensive training programs. 

For example, the hospitality industry employees can learn the development or requirement of the IT industry within a year or two. That depends from country to country.

So, this is a good opportunity to test within two-three years how adaptive its society is.

Armenuhy: Thank you for your positive thoughts and good luck with all your initiatives, the technology ones. We hope that next time we meet you will tell us about the launch of all technological projects.

Stay safe, stay healthy and thank you for your time and this interview.

Hayk: Thank you Armenuhy, too, for the opportunity. It has been a great pleasure and hope to see you soon.