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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2010NATIONAL DEPOSITORY CENTER OF AZERBAIJANAFFILIATE MEMBERNational Depository Center has gonethrough significant functional, structuraland operational reforms during the 2009.Bakhtiyar AzizovChief Executive OfficerNational Depository Center has gone throughsignificant functional, structural and operationalreforms during the 2009. Despite the globaleconomic and financial downturn, NDC not onlyfinished the year with an operating profit, but alsoput a great emphasis on material and technicaladvancement of the organization.The value of the assets kept in custody by theNational Depository Centre neared AZN 3.3 bln.At present, NDC serves approximately 1300issuers, circa 100 000 investors and 10 brokerorganizations.In order to ensure proper and transparentregistration of the transactions in accordance withinternationally accepted principles the NDCstarted implementing the International FinancialReporting Standards, including internationalfinancial reporting, accounting and auditingstandards. Under the market’s institutionalstrengthening strategy, the process oftransforming the NDC into the centralizeddepository for the corporate and public securitiesis being closely consulted and guided by anumber of international experts and institutions,and we constantly work on new projects withthem.Joint projects with the Islamic Development Bank,Turkey’s IMKB Takasbank central depository, EU’sTACIS Project, World Bank etc are just anotherillustrative evidence of the above mentioned.Measures to advance our technology platformundertaken in 2009, as a constituentelement of our business processes optimizationstrategy in registry keeping, depository servicesor any other services rendered, were utterlyefficacious for protecting investors rights as wellas increasing the protection level of kept incustody assets.One of the ambitious tasks that the NDC sets foritself in 2010 is to start implementing electronicsettlement and clearing services of reciprocalobligations between market participants involvedinto securities trading. This will surely increase notonly transactional responsiveness, but alsotransparency and security of operations.We believe we can expect an intensive andseminal 2010 ahead and infrastructuraladvancements will be principal mission and thehighest aim for us.Brief HistoryThe concept of National Depository Systemwas first introduced in the “State Program ofprivatization of the state ownership in AzerbaijanRepublic 1995-1998”. In accordance with the StateProgram the Depository System was formed forregulated holding of de-/materialized securities,leading of shareholders registers, registration ofowners of securities as well as transactions withthem and also for rendering all other depositoryservices. In order to advance the DepositorySystem and its regulatory framework, thepresidential degrees "On the National DepositorySystem" and "On the Rules on leading of theshareholder's registry of the joint-stock companiescreated during the privatization of the state firmsand specialized check investment funds" wereadopted in 1997. The creation of the NationalDepository Center was stipulated by the provisionsof "On the National Depository System" regulations.On the 18 September, 1997 The NationalDepository Center was created. The NationalProperty Committee acted as a holder of 100%shares of the National Depository Center. Theshares of NDC were then handed over to the StateCommittee for Securities after its creation in 1999.As a result NDC was newly founded by the StateCommittee for Securities on the 8 September1999 and passed the national registration on 17September 1999. The National Depository Centerhas a license on depository and registrationalactivities granted by the State Committee forSecurities of the Republic of Azerbaijan.Since December 22, 2004, the NDC joined theAssociation of Eurasian Central SecuritiesDepositaries (AECSD) as a full member. OnNovember 17, 2006 the NDC came into globalpartnership agreement with the Association ofNational Numbering Agencies (ANNA) and wasappointed as a National Numbering Agency. NDCis also member of International Securities ServicesAssociation (ISSA).According to the regulations “On the NationalDepository System" the National Depository Centeris the state organization, which plays the main rolein the National Depository System, engaging thedepository activity and carrying records of otherdepositories that are included in depository systemof the country.Future OutlookOn the early stages of the stock marketdevelopment the National Depository Centrecarried out the function of keeping registry ofshareholders and depositing shares of joint-stockcompanies formed as a result of the stateprivatization program. However, nowadays thecurrent condition of the stock market demandsinfrastructural and systematic advancement of theDepository. Having examined the challengescoming from the today’s stock market andanalyzed internal capabilities, the NDC has workedout a strategic vision and prepared the itemizedaction plan for the depository system conversion.The strategic vision of the NDC aims to achieve thefollowing objectives:•To stimulate institutional development of the NDCby implementing the globally accepted CorporateGovernance standards;• To launch large-scale clearing operations in orderto ensure the synchronized securities and fundsentitlements settlement;In order to reach its strategic objectives, the NDCplans to implement the following projects andarrangements:• To improve the organizational structure of theDepository and to accommodate it to the strategicvision and action plan;• To implement the highest corporate governancestandards;• To refine internal audit and controlling channels;• To arrange systematic Risk Analysis andManagement approach;• To re-regulate internal document managementprocedures;• To create feasible electronic transmission linkswith the Baku Stock Exchange;• To join SWIFT network;• To implement paperless documentation turnoverwith the professional participants of the Market;• To create effective electronic Customers InquiriesManagement network.* Please refer to page 58 for the Azerbaijani country report.CONTACT INFORMATIONContact Name Rasim Mammadov E-mail rasim.mammadov@mdm.az Website www.mdm.azAddress 19, Bul-Bul Avenue, Baku AZ1000 AzerbaijanPAGE 171