Articol publicat pe site-ul BURSA On Line, ediția din 31.07.2018
"I would wholeheartedly vote for a Romexit"
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     The management of the Bucharest Stock Exchange (BVB) needs to find out from brokers whether Romania truly needs a derivatives market, says Dan Paul, the president of the Association of Brokers, who was kind enough to grant BURSA an interview.

     He stressed that, through the tariffs practiced by the BSE, small brokerages, which are aimed at retail investors, are placed at a disadvantage, to the detriment of the big ones, who are targeting institutional investors.

     Reporter: In an interview recently granted to the BURSA newspaper, the CEO of the Bucharest Stock Exchange, Mr. Adrian Tănase, said that his goal as the CEO of the BSE for this term is to have 100,000 active investors, meaning ones that would make at least one trade every six months. What is your opinion on this target?

     Dan Paul: It is an ambitious target. Currently, our stock market has about 15,000 active accounts, compared to its peak year 2007, when there were about 75,000 such accounts. The market later faced a severe crisis, which occurred globally and the activity on the BSE was diminished.

     Reporter: Do you think that this number of 100,000 investors can be reached?

     Dan Paul: it's possible, but the Association of Brokers has challenged the policy of the Exchange concerning fees, because it does encourage retail investors.

     The variable fee has been eliminated, which favors brokers who do large trades, for institutional investors, but the fixed one has been raised, which places at a disadvantage brokers that are more focused on retail. But we do feel that, strictly speaking from that point of view, at this time, the exchange does not have a policy to encourage retail.

     We, in the last General Shareholder Meeting of the BSE shareholders have added two new items to the agenda. One concerning the initiation of the steps to create the Central Counterparty (CCP) and another for the canceling of the new commissions plan of the BSE (ed. note: which came into effect in the beginning of the year).

     We have also talked to the Competition Council about this matter, for unfair competition. I want to point out that we do not want the Exchange to be sanctioned, rather we want to raise a warning, to have an equitable market, for all brokers, not one that is distorted, which would be to the benefit of the big ones.

     It is a very good thing that the BSE relies on a beautiful promotional policy, but essentially, its fee schedule will kill off retail brokers.

     "There needs to be a dialogue to avoid the initiation of some approaches that go against the development of the market"

      If a Central Counterparty (CCP) gets built, it is very important that it is established from the beginning, which products will be available for trading, because the entity needs to be profitable, Dan Paul warns.

     Reporter: The CEO of the BSE said that in order to reach its goals, it will also rely on brokerages, as they are the sales force of the exchange. What are, from the point of view of the Association of Brokers, the elements that this cooperation needs to rely on?

     Dan Paul: I am happy to hear that Adrian Tănase wants to get closer to brokers because dialogue is essential in order to have a better cooperation, which in the case of the former CEO (ed. note: Ludwik Sobolewski), hasn't happened.

     Then we are going to have a meeting wherein each party will discuss their needs.

     Aside from the fees, we also need to see whether the market truly needs derivatives.

     We want to build a new construction, a Central Counterparty, which facilitates two things - the guarantee of the transactions for the cash market (ed. note: the spot market), or through the interposition of the CCP between buyers and sellers, and the launch of the derivatives market.

     Why do we want to make this market? To guarantee the transactions, for derivatives, or both? The CEO of the exchange needs to find out from brokers whether we truly need derivatives, because we have previously had that kind of markets in Romania, which are now gone.

     Then, if we build the CCP, we need to establish very clearly what kind of products we will be offering. It is a very important aspect, what kind of products we are starting off with, because this entity needs to be profitable.

     Another topic that is intensely discussed is stock borrowing and short selling. Stock borrowing is good if there are institutional investors that want to do that.

     Why would a retail investor want to borrow stocks? Very rarely would that occur unless they want to go to a company's General Shareholder Meeting and most often, when they want to bet on the market dropping. Do we want the market to rise or fall?

     And the biggest institutional investors on the stock exchange are the private pension managers of the 2nd Pillar, who are not allowed to borrow shares.

     I am not saying that these things aren't necessary, but instead they draw attention to the fact that we need to have a dialogue in order to see exactly the real needs of the exchange and not to initiate approaches that would go against the development of the market.

      "It is almost a miracle that there is a capital market in Romania"

     We are running up against a series of legislative controversies, as there are state employees who do not understand the laws or the capitalist economy. Under these circumstances, it is difficult for people to trust the stock market, the head of the Association of Brokers states.

     Reporter: Why don't people in our country turn to the stock market?

     Dan Paul: I think that people will turn to the stock market once they trust the Romanian economy, our system as a country.

     People invest in the stock market when they're not afraid they might get scammed, and I am not referring here strictly to the situation where someone takes shares or money from my brokerage account.

     But what do we notice in Romania? A minister comes out publicly and says that it is possible the price of natural gas may be capped and the stock prices of two important companies listed on the BSE (ed. note: Romgaz and OMV Petrom) drop. Essentially, this in an interference of politics in the economic sector.

     Then, the president of the Romanian Authority for the Management of the Assets of the State (AAAS), Florian Geantă, sends to various companies notifications asking them to increase their share capital with the value of the plots of land that they didn't get through the privatization.

     It is a law that was issued in 2002 (ed. note: law no. 137/2002), which says that when the ownership is obtained for a plot of land, the share capital needs to be obtained for a plot of land to increase the share capital of the company with the value of the land, and the state will become a shareholder. The president of the AAAS does not know the legislation concerning companies. The deed of ownership is issued to the company, not the shareholder.

     Essentially, I can increase the share capital with a contribution in kind to any company in Romania, including a LLC, if I am the owner of the good. In other words, if I contribute a fax machine to your company, as a contribution in kind, if I have deeds proving I own it. But if the deed of ownership of the fax machine is issued by the company, the fax belongs to the company.

     There is no way I can contribute the land in kind, because it is the company's.

     There is a law issued in 2002, by the Năstase government, and now, in 2018, they all of a sudden want to apply it to everybody.

     There are companies that have been listed on the stock market and which, since then have been delisted and only have one shareholder. There are many cases where the shareholders have delisted the company, became sole shareholders and even turned it into a LLC.

     And now, I am getting an address which mentions the plot of land which the company received with a deed of ownership in, meaning 18 years ago. Later, the 2002 law appeared, but when the plot of land was received, another law was in effect, whereby it was given free of charge.

     Because the law changed in 2002, the president of the AAAS comes in 2018 and tells me: you have to give me some shares in your company and maybe the state will become a majority shareholder once again.

     Essentially, they are sending this kind of addresses to everybody, including to companies that have done so.

     Perhaps nationalization is too harsh a word for this phenomenon. What is certain is that we, in Romania, are running up against some legislative controversies.

     We have public sector employees who don't understand the laws nor the capitalist economy.

     Given that, how can people have any confidence? It is almost a miracle that there is still a capital market, brokers, that the BET index has risen more than 10% etc.

      "If Romania leaves the EU, it will be able to create its own regulatory system"

     The Financial Oversight Authority (ASF) was too rushed in implementing MiFID II, in the opinion of Mr. Paul, and the ASF should have aligned with the existing European trend to postpone the implementation of the directive, to help brokers.

     Reporter: The number of brokers has constantly shrunk lately. What is the reason why so many brokerages have shut down?

     Dan Paul: In my opinion, there are several reasons, including overregulation, the drop in business due to circumstances outside the brokers' control, as well as because they have cannibalized each other. More specifically, they have cut the trading fees so much, that in the end, they couldn't generate enough revenue to sustain themselves to sustain their business. Essentially, there have been brokers who have lowered their commissions to zero, in order to attract customers, which went against the business. Then, after the crisis, there have been new regulations in the European Union, which have worsened things.

     Even though Great Britain has been criticized for Brexit, I am praising it, and if in the case of Romania, a similar phenomenon were to appear, I would wholeheartedly vote for it. Why? Because I would have the power to regulate myself.

     What purpose does the Romanian Parliament serve if we are forced to implement MiFID II, which includes many things that don't fit our market?

     In Germany it was decided that the implementation of MiFID II would be delayed, and overall, the trend in Europe was to postpone the implementation of the directive.

     I think that Romania was too hasty, as we have essentially implemented, through rules, MiFID II since the beginning of January (ed. note this year), except that the law had not yet been voted in the Parliament.

     The Financial Oversight Authority (ASF) should have adapted to the European trend of helping the brokerage firms, and the country, not just check off in a list the items it has carried out to fulfill the will of the commissioners in Brussels.

      "We should return to a standalone entity that is especially dedicated to the oversight of the capital market"

     Currently, the Financial Oversight Authority represents only three institutions placed in the same building, says Dan Paul, who thinks that in the ASF there are many employees appointed based on criteria other than qualifications.

     Reporter: How do you evaluate the activity of the Financial Oversight Authority (ASF), in comparison with the previous form, in which the National Securities Commission existed (CNVM) ?

     Dan Paul: Things used to work much better in the old formula, when the National Securities Commission (CNVM) existed separately, so I think that an institution dedicated to the capital market alone would be much more useful. Even in Europe there is also an entity which oversees the capital markets, ESMA, and another that oversees insurance, EIOPA. The formula that we have now I think was initially supposed to be an intermediate formula. In fact, we currently have three institutions which are placed in the same building and that's it. It is also a totally different philosophy, because there used to be the members, the CNVM commissioners, who were always available, and when the Exchange had a problem, its board had a problem which could meet the CNVM at any time.

     Nowadays, such a meeting is far more difficult to achieve, because the ASF has copied the philosophy of the National Bank of Romania, which has both executive and non-executive structure, but applied it to another activity. But over there it's a different thing, because the NBR is only in charge of one thing. So, by default, some people don't come to work every day, because they are not executives.

     On top of that, I am worried about a person who needs to know very well all those three areas - insurance, capital market, private pensions. They need to vote in sessions when decisions are made about these areas, so, theoretically, they need to understand these sectors very well, because they make very important decisions for helping the markets in question.

     And yet, what do we read in the press? That there are still, too many employees who are the wives, and close relatives of politicians etc. Meaning the same never ending cronyism. Furthermore, we have the commissioners, who with all due respect have higher salaries than the President or the prime-minister, which I think is abnormal. From my point of view, the CNVM was more independent and seemed to be more supportive of the market and I think that we want to have a developed capital market, we should return to a completely independent market institution, dedicated entirely to the oversight and regulation of the capital market alone.

     Recorded by ANDREI IACOMI

     Note: since the beginning of the year, Bursa has a fixed fee of 0.95 lei per order fulfilled applied for the Regular market (spot) managed by the BSE.

     There is also a trading fee for the Regular Market, applied to the value of a served order, of 0.035% on Buy orders, and 0.095% on Sell orders. 
Andrei Iacomi