Patrick. L Young: I imagine that some way or another I will have an involvement in SIBEX in the future

Ziarul BURSA #English Section / 14 noiembrie 2012

Patrick. L Young: I imagine that some way or another I will have an involvement in SIBEX in the future

Patrick Young, the Executive CEO of consulting DV Advisors, thinks that the entire stock market in Romania was affected by the Sima scandal. He said that, he will have an involvement in Sibex in the future, one way or another. Elections at the Sibiu Exchange are scheduled to take place on November 19th/20th, following the scandal caused by the former chairman of Sibex, Cristian Sima. Patrick Young is well known on the local market after he was proposed by Teodor Ancuţa, the former CEO of Sibex, as his successor at the helm of the Sibiu Exchange, last spring. He is also an owner of Sibex stock. Mr. Young is the manager of Liquidnet Europe, the biggest institutional trading network which connects over 700 top asset managers in the world, to trading opportunities from over 40 markets all over the world.

Reporter: How affected do you think that Sibex was after "Sima scandal" in terms of image and operations?

Patrick L Young: Everything within the Romanian capital markets space has been affected by the Sima scandal. SIBEX itself is now broadly discredited which is a tragedy for the exchange as it has great potential and there are many good and honest staff within the business. At the same time, current senior management are clearly tainted by their association with the disgraced Mr. Sima. Operationally SIBEX spends "like a footballer's wife' without any clear concept of what it is doing. Ultimately, there is little or no trust in Romanian capital markets and without that trust the whole market space is doomed to stagnate.  Sound corporate governance builds confidence and creates a virtuous cycle leading to long-term investment which benefits every Romanian. I know several participants recognise this and are trying to move forward but at the same time we are seeing large multinational banks withdrawing their brokerage services from Bucharest because they cannot see a way forward. The withdrawal of these banks clearly demonstrates that the Romanian capital markets are not functioning properly. Right now there is a low level of credibility in Romanian markets - the fact that Mr. Sima often used overseas markets for his dubious loss making activities is not particularly pertinent. Ultimately, and tragically, the Romanian market as a whole and SIBEX specifically is associated with his ethical management failure. But the good news is that the era of "totalitarian one broker rule' has ended at SIBEX but that only means the unvarnished truth is beginning to emerge and I am concerned to see what other damage may emerge from within the finances of SIBEX. Certainly the currently proposed spending levels and the pending losses are a damning indictment of anybody associated with the "management' (and I apply the term here, loosely) of SIBEX during the past year

Reporter: What are the chances of recovery and what measures do you see?

Patrick L Young: There needs to be a wholesale revolution within SIBEX to acknowledge the failings of the past: an absolutely wholesale change in everything to do with the exchange. The market does not trust SIBEX, the brand is worth nothing, although the core infrastructure has enormous potential. I see the chances of recovery as being slim without a totally radical review and restructuring. With LIFFE for instance in 1998-2000, everything about the business was changed to take account of the need for the business to survive and prosper. Likewise, I have worked with many other exchanges where the requirement was for radical surgery immediately. Where action was decisive and holistic, the exchanges not only survived, they thrived! Shareholder value will not be best served by maintaining a narrowly focused Romanian niche futures business in SIBEX. That is part of the enterprise but not the whole business. We need to have the business in regional energy and power markets, perhaps emissions too, not forgetting clearing opportunities in other areas. However, we need to choose our markets carefully, offering a niche service where the big markets cannot efficiently scale down to operate. There is a massive opportunity for exchanges in the world right now, as my recent "Young Markets" conference in Sibiu demonstrated. There is every possibility for SIBEX to be rebuilt to take advantage of that momentum, provided the shareholder will is there to embrace change. Big budget cuts are needed to stop the patient hemorrhaging shareholder cash. Then we need to actually have the organization move to being a proper shareholder value creating, profit oriented company. Currently SIBEX is incoherently structured with vast inefficiency. Take for instance marketing, where money has been spent lavishly with absolutely no benefit to the company. In essence, every vestige of the flawed management approach of the recent past must be torn up and the business reassembled from the ground up

Reporter: Have you had discussions with major shareholders of Sibex to provide your services or to offer advice? If so, how did they go?

Patrick L Young: There are multiple discussions at present concerning the future of SIBEX. I firmly believe the solution is radical surgery with an international perspective going forward. However, it may be that first there needs to be a period for the new board to assess and reflect on the entire extent of the damage and take the first stages (e.g. removing staff who are both tainted and have proven incompetent). There is going to be a lot of pressure on the new Chairman to immediately scythe costs and remove the tainted management - this is the absolute first step required before SIBEX can refine a strategy which I hope will reflect the international opportunity in exchanges. A Chairman who can at least cut SIBEX back to the roots is going to be placing the exchange in a good place to then have a proper domestic and international cross asset strategy to go forward. One thing the new board can do is look up my first strategic review document which I finished in my own time and at my own expense before I left SIBEX last year. I felt it was important that there was a document at the time to demonstrate what would go wrong and where the management failings lay. The findings of the document are still valid in many cases, even though the SIBEX situation has deteriorated badly since then. Anyway, we need to find out just how badly damaged SIBEX has been in the past year and ensure that all the money is in a (currently) modest shareholder I am concerned that the balance sheets may not be entirely transparent

Reporter: So, there is a possibility for you to return to SIBEX in the near future?

Patrick L Young: I have multiple projects in my life and various negotiations with exchanges currently. I am an investor myself and represent many other investors' globally who buy stakes in exchanges, clearing houses and depositaries. Therefore, I keep a keen eye on the likes of SIBEX which right now is a great opportunity albeit at a very high risk. I imagine that some way or another I will have an involvement in SIBEX going forward. Given my own extensive experience from advising in the C-suite of many leading global exchanges as well as dealing with micro exchanges like SIBEX, I believe my insights could be useful to the development of the market. Currently I am not clear how my future involvement with SIBEX will shape up. If I can see a coherent plan then we might even look at further investment but first any investor will need to trust the company data.

Reporter: Please name the first three measures that you would propose to the Board.

Patrick L Young: 1) An independent audit of the businesses finances is essential - to give a first vestige of faith to shareholders and users that the assets of SIBEX are safe and accounted for.

2) Remove the management tainted by association with Mr. Sima. At the same time, rebuild staff morale who have endured a ghastly feudal "management' regime in recent times. In fact, very capable people have left the company because of that.

3) Cut costs drastically throughout the business. For example, the utterly ineffective marketing approach needs to be completely reworked into a coherent, low cost digital strategy.

These are the first stages required to stabilise the patient then SIBEX can look at a Strategic Review (my template from last year is in the SIBEX archives) from which the strategy can be finalised and moved forward.

Reporter: So Can SIBEX survive?

Patrick L Young: Yes, SIBEX can survive and thrive but it needs a lot of work and there needs to be a clear understanding there will be considerable pain on the path to redeeming a business that has been deeply tainted by its abject failure in the past year or so to operate like a coherent business. It will take time but a new, international, successful SIBEX can emerge from the ashes of the current mess.

Reporter: What could SIBEX look like in say five years time?

Patrick L Young: As I will not tire of saying, SIBEX can be worth 50 million or more Euros in the medium term. Even within three years, the business could be worth 2.5-3 Lei per share compared to where it currently languishes at around par value (and sadly this value may even flatter the business right now!).As I type, my advisory business has several mandates where SIBEX could provide a marketplace for new products which have the potential to multiply the size of SIBEX significantly in the medium term. The opportunities are out there even though they may seem remote for many based in Bucharest.

The business I would like to see at SIBEX in 5 years is as a thriving niche SME cash equity business with a bond listing market and a clearing house/depository which operates not just within Romania but cross border, helping clear a myriad of products in smaller markets and with co-operation to one of the major CCPs in the west. The exchange will be a player in the smaller marketplaces of Europe where the large exchanges cannot profitably scale down to. Ultimately a ruthless focus on shareholder value will deliver profits and dividends. I would envisage 100 members, 10,000 clients accounts compared to the few hundred active traders now left with several thriving retail lines of retail and wholesale business. In addition to a much broader range of derivatives trading and clearing, there will be 50-100 cash listings of equity, bond and fund products to serve the needs of investors in the region. I realise that many in the Romanian marketplace find such figures hard to believe but then again that brings us back to the fundamental problem we encounter in Romania - such a magnificent country with so much opportunity but so little trust...

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