Bank accounting and audit

Legal-regulatory framework of operations with securities in commercial banks.

According to the law "On banks and banking", commercial banks can carry out various activities in the securities market. At the same time, according to Article 17 of the Law "On the functioning of the securities market", the activity of banks in the securities market is regulated by the present Law as well as laws "On the Central Bank of the Republic of Uzbekistan" and "On Banks and Banking" editing.

According to the law "On Banks and Banking Activity", commercial banks are in the securities market:

- issue of securities (promissory notes, stocks, bonds, deposit certificates, etc.);

- purchase, sale, storage of securities and other operations with them;

- Obtaining the right to demand from the supply of goods and services, collection of such claims;

- Carrying out of trust operations, attraction and placement of funds and securities management, etc.;

- stock market participants can carry out operations such as consulting on the bank's activities.

Due to the lack of restrictions on commercial banks for the implementation of these activities, they act as a real participatory-investing institution in the stock market. Operations of banks with securities are carried out with many goals. Therefore, the main objectives of banks' activity on the securities market are:

- attraction of additional cash resources for conducting credit and settlement activities on the basis of issue of securities;

- to make profit due to the interest paid on securities and interest and dividends paid to the Bank from their own investments and the value of the securities;

- to benefit customers from providing securities services;

- attraction of new customers to expansion of the banking sector on the basis of free competition and participation in the capitals of enterprises and organizations;

- attraction and use of resources by the Bank's securities;

- maintaining the necessary reserves of liquidity, ensuring profitability of deposits in the bank's liquid assets;

- insurance of clients' securities from the normal sale and insurance of financial risks through transactions with securities.

Developed countries, for example, from the US experience, know that until recently, the direct functioning of commercial banks in the securities market was limited or banned. At the moment, however, these restrictions have been eliminated, and as a result, the share and significance of commercial banks in the securities market is increasing in the global financial market.

The federal stock markets are also the most widely used sources of borrowed funds in developed countries, especially in US banks. These funds are the deposit balances on the accounts of Federal Reserve Banks. In the event of an unexpected increase in the flow of deposits or a reduction in the amount of loans, commercial banks may generate excess revenues. Therefore, banks with surplus funds can provide these funds to other banks in a short period of time.

Typically, high-liquid first-tier securities are the government securities legally registered by the federal government (US Government Securities), with a commitment to repay the debt in the defined term.

Government securities in the United States are divided into the following types:

1. Treasury bills. Treasury bills are discounted at the lower of their nominal value and the interest is not paid. The depositor benefits from the difference between purchase and sale. Discount is viewed as a straightforward gain or loss rather than as a capital increase.

2. Treasury notes (Treasure notes). They are issued for a term of less than 1 year and up to 10 years (on the basis of interim term deductions). The Treasury usually circulates treasury notes of 2, 4 and 5 years. The offer of 7 and 10 year treasury bills is usually processed in quarterly refinancing operations. Treasury bills pay interest. Treasury bills will start at $ 1,000 and $ 500 million at least $ 1,000 (excluding treasury bills with minimal 4 years).¹⁰

3. Other securities (Miscellaneous issues). They include securities that are not converted into markets. The most common types of securities that are not traded on the market are:

- a series of government bonds issued by the Treasury for government agencies, such as trust funds and banking institutions; U.S. Savings Banks;

- A portfolio of state and local authorities that are empowered by state and local authorities for reinvestment of non-tax debt repayment obligations;

- foreign currency and investment securities, the first one denominated in US dollars, the second one is the currency of the buyer countries, issued in the form of bonds or treasury bills of foreign government and public institutions, short-term promissory notes or promissory notes.

In different countries, the role and importance of commercial banks in the securities market varies. For example, in the United States, the law prohibits commercial banks from operating in the country's securities market and officially affiliates to stock markets. According to the 1933 Glass-Stigal Law, universal commercial banks can not participate in the circulation of shares and stocks of industrial and trading companies. Commercial banks are prohibited from investing in their shares in industrial and trading companies' shares. However, the law permits the universal commercial bank to invest in the cost of the borrower-client to prevent losses due to its insolvency. However, this restriction is financed by commercial banks with a high level of trust management (customer-ordered securities management), which in turn promotes commercial banks ownership of industrial companies.

The current law permits commercial banks to issue government securities, local bonds, arrange debit obligations performed by various national and international organizations, as well as fulfill some mediation functions on the purchase and sale of securities at the expense of clients and on their orders . Legislation of a number of developed countries of the world (Great Britain, Canada, France, Japan, etc.) has recently been forbidden to directly participate in the activities of stock exchanges. However, at present, there are serious changes in the legislation of these countries to create opportunities for commercial banks to participate directly in stock exchanges.

In the case of economically developed Germany, the opposite is true. In this country, commercial banks are allowed to directly participate in the operations on securities at stock markets and to carry out all types of securities transactions. In Germany, all activities carried out by investment institutions in the securities market are carried out by commercial banks. There are no investment institutions dealing with purely brokerage, as in other countries, since commercial banks are the largest investor in the issue of the largest number of bonds. In addition, they operate as stockbrokers for government securities in the stock market. Commercial banks, as well as at their own expense and on behalf of their clients, carry out intermediary operations on the stock market, both at their own expense and in their behalf. Generally, commercial banks form the general structure of stock exchanges in Germany.

With the formation of the stock market in the Republic of Uzbekistan, this stock market has a "European" mixed model, which states that commercial banks and other non-banking organizations (investors) operate equally. In a period of gradual transition to market relations, commercial banks have the opportunity to have the most favorable conditions for functioning in the securities market among other undertakings, and now they have the same opportunities. These are the following:

First of all, traditionally commercial banks have highly qualified specialists with a full understanding of the essence of the securities market.

Secondly, the applicable law on commercial banks regulates the activities of commercial banks as joint-stock companies, ie, issuers of securities, primarily issuing shares. It should be noted that the first large issuers in the country are joint-stock companies, namely those commercial banks;

Thirdly, when comparing with other entities typically, commercial banks have accumulated large amounts of their own funds and attracted resources that, in turn, create the necessary conditions for participation in the country's securities market as a large investor (investor);

Fourthly, the current legislation of the Republic of Uzbekistan is not restricted by commercial banks 'activities in the securities market in any way (eg, according to the Glass Stigol Act in the United States), and at the same time commercial banks have the most relevant information about their clients' financial and economic activities, provides a great deal of benefits to ordinary investors who have limited access to such information.

The dominating position of commercial banks in the securities market is that they can, in contrast to other undertakings, perform simultaneously several functions, as a qualified participant of this market. These tasks include:

- as emitters issuing stocks, corporate bonds, securities deposit certificates, deposit certificates and bank bills;

- providing clients with securities market advice, as a registrar and depositary operations;

- as investors purchasing other economic entities and government securities;

- as an investment institution offering securities and cash management services to its clients for investment in securities.

It should be noted that the activity of banks in our country is carried out in accordance with the international banking legislation and economic norms, which are based on the rules of the International Basel Committee under the supervision of the Bank. In particular, there are certain restrictions on banks' operations with securities, for example, the bank does not have more than 20% of the equity capital of enterprises other than financial institutions: the volume of non-government securities placement in the non-government securities market should not exceed 25% of the first-tier banks regulatory capital. These limitations are aimed at reducing risks in banks' activities, diversification of bank assets, financial and liquidity stabilization, and ultimately protecting the property of bank depositors and creditors.

For securities transactions with banks, the law does not require a special permit from the securities market regulator, so banks perform those operations on the basis of a general license issued by the Central Bank. The laws permit commercial banks to issue securities, such as stocks, bonds, deposit certificates and savings certificates, promissory notes. Banks issue stocks for formation of statutory funds.

Banks issue their debt obligations - bonds, deposit and deposit certificates, promissory notes for attracting borrowed funds. In addition, they may issue securities. Only shares of large industrial enterprises can compete with the bank's securities.

The Bank's securities are also the most profitable asset for investors, who have long-term interests, and for those who are temporarily free. When implementing long-term goals, investing in large and medium-sized commercial banks' shares may have the most effect.

Currently, according to existing rules, deposit certificates and bills of the bank are coordinated by the State Property Committee - stocks, bonds, and securities - by the Central Bank. In addition, the Center for Coordination and Control of the Securities Market in the Republic, the Center for Corporate Securities.

Commercial banks are obliged to comply with the following types of securities purchasing (except for government securities) and for participation in authorized capital of legal entities:

а) the amount of investments of the bank into the charter capital of a particular legal entity, as well as other securities of this legal entity, should not exceed 15 percent of the first level banking regulatory capital;

b) the amount of bank's investments in charter capital and other securities of legal entities should not exceed 50 per cent of the first-level banking regulatory capital;

c) the amount of bank investment included in the securities for trading should not exceed 25% of the first-tier bank regulatory capital.

It is forbidden for a commercial bank to participate in the charter capital of other banks (with the exception of cases involving banks and subsidiaries affiliated with foreign capital) as well as to participate in the charter capital of a legal entity with a share capital of ten or more percent of its charter capital.

A business bank may not own more than 26% of its charter capital directly or indirectly (through affiliates), but excluding the following cases:

a) participation of banks in charter capital of insurance and leasing companies;

b) participation in charter capital of nonbanking credit organizations of banks, as well as legal entities providing part of the financial market infrastructure or providing information and consulting services to banks;

c) participation of the banks in the authorized capital of legal entities (except for the participation of commercial banks in the authorized capital) that operate professionally in the securities market;

d) participation in acquisition of up to 50% of shares of the privatized enterprises in the established order from the primary market;

е) In accordance with the decree of the President of the Republic of Uzbekistan dated November 18, 2008 No. PR-4053 "On measures for further enhancement of financial sustainability of enterprises of real economy" enterprises established on the basis of ownership of industrial enterprises sold to the commercial banks at competitive biddings,¹¹ Resolution of the Government of the Republic of Uzbekistan "On additional measures to support mechanisms of support of economically insolvent enterprises" the Resolution of the President of the Republic of Uzbekistan dated November 19, 2008 № D-4010 "on measures to encourage the establishment of production capacities" ¹² as a result of non-return of loans previously provided by commercial banks Based on the cost of liquidation based on the decisions of economic courts based on the procedure for selling the economically insolvent enterprises with competitive bidding participation of the new enterprises created on the basis of the property of the enterprises admitted to the balance of banks and the management capital of the managing companies established for the management of the bank investment.

It is forbidden to execute repo transactions with commercial banks, issuers and joint-stock companies.

If the amount of funds invested or invested in a commercial bank or the issuer's activities may hurt the interests of depositors, creditors and shareholders of the commercial bank, or if the experience of a commercial bank in investment management is found to be incomplete, then the Central Bank shall be obliged to furnish to any authorized person has the right to set additional restrictions on the amount of investment.

Securities purchased as collateral should be sold by the bank within two months.

The commercial banks' investment policy shall reflect the financial position, the management experience and the criteria and methods for assessing the quality of the legal entities that are securities issuers or participants in the statutory capital of the bank. The investment policy also stipulates the conditions for the transfer of bank assets to securities.

Banks should have adequate knowledge of the issuer for controlling operations with securities.

Information on securities portfolio breakdown by type and types of securities, quality rating, nominal and market value, date of purchase and sale, interest rates, discounts, dividends received (percent), profits gained from purchase and sale transactions should take place.

Banks should carry out internal controls to ensure that balanced allocation of liabilities among various divisions of the Bank, as well as prevention of abuse. These internal controls should include:

a) failure to carry out accounting operations by accepting documents on purchase or sale of securities, non-acceptance of funds, comparability or comparison of accounting records;

b) persons who are responsible for the preparation and execution of accounting transactions are unable to accept or approve documents on the purchase or sale of securities, and not to compare the results of the transaction;

c) verification of all transactions and their comparison with accounting records and primary documents;

d) if the bank performs the brokerage activity, then the bank should open accounts for each customer and record all transactions with securities of the client, indicating the types of securities, date of transactions, price and quantity of purchased / sold securities .

In the case of economically developed Germany, the opposite is true. In this country, commercial banks are allowed to directly participate in the operations on securities at stock markets and to carry out all types of securities transactions. In Germany, all activities carried out by investment institutions in the securities market are carried out by commercial banks. There are no investment institutions dealing with purely brokerage, as in other countries, since commercial banks are the largest investor in the issue of the largest number of bonds. In addition, they operate as stockbrokers for government securities in the stock market. Commercial

If the amount of funds invested or invested in a commercial bank or the issuer's activities may hurt the interests of depositors, creditors and shareholders of the commercial bank, or if the experience of a commercial bank in investment management is found to be incomplete, then the Central Bank shall be obliged to furnish to any authorized person has the right to set additional restrictions on the amount of investment.

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