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Responses of the market institutions to the request by BURSA for their taking a stand on the manipulation at SIF Banat Crişana

MORI SAVIR (Translated by Cosmin Ghidoveanu)
English Section /

Responses of the market institutions to the request by BURSA for their taking a stand on the manipulation at SIF Banat Crişana

BURSA journalists have asked the market institutions to publicize their positions in the case of manipulation of SIF Banat Crişana, revealed in a series of articles we published over the last 11 days, so that they have addressed two questions to the Financial Oversight Authority (ASF), the Association of Fund Managers (AAF), the Bucharest Stock Exchange (BVB), the Association of Brokers (AB) and to the five SIFs, even though the topic directly concerns other institutions of the state, as well as investors themselves.

The two questions are the following:

"1. In your opinion, who is responsible for the fact that the NAV of SIF Banat-Crişana has been reported to be higher by 1 billion lei compared to the fair value, over the course of two successive months?

2. What is the position of your institution on the manipulation that BURSA has been talking about, which is rippling across the entire stock market?"

The Financial Oversight Authority (ASF)

The Financial Oversight Authority (ASF) has informed us that it has begun an investigation in the case, via a short reply, which we present below:

"Given your request, we inform you that the Financial Oversight Authority has initiated an investigation to clarify all the aspects of this situation. The conclusions will be communicated after the conclusion of this action, insofar as this information can be made public."

The Bucharest Stock Exchange

We reproduce below the responses received from the Bucharest Stock Exchange to our questions.

Question no. 1.: In your opinion, who is responsible for the fact that the NAV of SIF Banat-Crişana has been reported to be higher by 1 billion lei compared to the fair value, over the course of two successive months?

The response of the BSE: The methodology for calculating the NAV of the investment funds is not within the qualifications and roles of the BSE, and so we are unable to answer your question.

Question no. 2.: What is the position of your institution on the manipulation that BURSA has been talking about, which is rippling across the entire stock market?

The response of the BSE: The BSE acts to ensure compliance with the Codes of the Exchange, as well as other pertaining regulations, and the market monitoring activity takes place according to the existing regulatory framework, based on the attributions, responsibilities and limits of qualifications of the BSE.

Concerning the shares of SIF Imobiliare PLC (symbol: SIFI) which have represented the object of the articles published in your paper, these papers have a trading history marked by very low liquidity, which is something specific to many stocks traded on SMT. Given the extremely low liquidity of this stock, similarly to that of many stocks listed on the SMT, the BSE cannot draw a conclusion concerning the factors that determined this evolution of the price, and the comparison with a certain fair value of the stock is not within the remits of the BSE.

Given the low liquidity of the shares traded on SMT managed by BVB, we mention that BVB still considered taking steps, according to the area of competence, so as to contribute to the improvement of the trading framework applicable to those shares. Such an approach was represented by the updating of the SMT Code, so as to allow the application of the variation limits for the respective shares during a trading session and which was implemented from October 2019. Given the low liquidity of the shares traded on the SMT, which is managed by the BSE, we mention that the BSE has considered to take some steps, within the sphere of its remits, so as to contribute to the improvement of the trading framework applicable to the shares in question. Such an approach has been represented by the updating of the SMT Code, so as to allow the application of the fluctuation limits for the shares in question during a trading session, and which has been implemented since October 2019.

The Association of Fund Managers

The Association of Fund Managers (AAF) has responded as follows.

Qeustion no. 1.: In your opinion, who is responsible for the fact that the NAV of SIF Banat-Crişana has been reported to be higher by 1 billion lei compared to the fair value, over the course of two successive months?

Response of the AAF: The value of the NAV and the fair value are two different concepts.

The NAV is the result of adding up the updated values of all the assets that the fund has invested in, from current accounts and deposits to financial instruments that are traded or untraded, out of which are subtracted the liabilities (expenses) of the fund; the principle of fair value appears in the context of the application of the methodology for the appraisal of financial instruments and for the calculation of the NAV and concerns instruments (components) out of the portfolio of a fund;

Based on the public reports, the AAF member that you are referring has complied with the methodology for the calculation of the NAV. The calculation of the NAV has been conducted according to the regulations of the NAV in effect - which has also been certified by the depository of the fund each time since the report of the NAV has been published.

The regulations of the ASF no. 7/2020 concerning the authorization and operation of the alternative investment funds stipulates the following:

Art. 45. - (1) Securities in the portfolio of the F.I.A.I.R., except for the greenhouse gas emission certificates, are valued according to the provisions of art. 113-122 of the Regulation of the A.S.F. no. 9/2014 corroborated with art. 17 paragraph (7) of the Regulation of the ASF no. 10/2015.

Art. 113 [of the ASF regulation no. 9/2014]

The financial securities admitted for trading and traded in the last 30 days (working days) on a regulated market or as part of other trading systems than the regulated markets from a member state, including as part of a Romanian trading system, as well as those admitted on the official quota of an exchange or an alternative trading system from a third-party country are valued as follows:

a) shares and securities stipulated in art. 3 paragraph (1) section 26 letter c) of the Government Emergency Ordinance no. 32/2012:

1. at the closing price of the market section considered as a principal market, pertaining to the day which the calculation is made on, as part of the shares admitted for trading on the regulated market in question in the member state/on the exchange from the non-member state; or

2. at the reference price pertaining to the day which the calculation is performed for, in the case of shares traded as part of other trading systems than the regulated markets, including as part of other alternative trading systems, provided by the operator of the respective trading system for each of the segments of the system in question;

[...]

Art. 115 - (1) Securities not admitted for trading on a regulated market or as part of other trading systems than the regulated markets, including the alternative trading systems in Romania, from a third party member state or a third party state will be evaluated as follows:

a) stocks will be valued according to one of the following methods:

1. the book value per share, based on the last validated financial statement of the company in question. In the case of credit institutions, the book value per will be calculated based on the value of the equity comprised in the monthly reports sent to the NBR; or

2. the value determined through the application of evaluation methods compliant with the international evaluation standards (which use the principle of fair value), approved by the Board of Directors /the management of the Investment Management Company/the self-managing investment company;

b) the financial instruments with a fixed revenue will be evaluated according to the provisions of art. 113 letter b) point 2 and/or 3;

c) money market instruments will be evaluated according to the provisions of letter b);

d) derivative financial instruments will be evaluated using techniques consecrated on the financial markets (for instance, the comparison to the current value of a similar financial instrument, cashflow analysis models and for the evaluation of options, etc.), so that the principle of fair value is followed;

e) participation deeds issued by the Collective Investment Entities (Organisme de Plasament Colectiv - O.P.C.) will be evaluated according to the latest calculated and published NAVPS.

(2) The financial instruments admitted for trading on a regulated market, as part of an alternative system or as part of other systems than the regulated markets, in a member state, including an alternative trading system from Romania, as well as those allowed for trading on the official platform of an exchange or an alternative trading system from a third-party state, but which haven't been traded in the last 30 days (working days), will be evaluated as follows, starting on the 31st day of not being traded, as follows:

(i) shares and securities stipulated in art. 3 paragraph (1) section 26 letter c) of the Government Emergency Ordinance no. 32/2012, derivatives and participation titles issued by Collective Placement Entities, similarly to the evaluation stipulated in paragraph (1);

[...]

Question no. 2.: What is the position of your institution on the manipulation that BURSA has been talking about, which is rippling across the entire stock market?

The response of the AAF: We cannot comment on such a hypothesis because we feel that it is fair to only refer to certain situations, proved by the entities entitled to uncover them.

SIF Oltenia

We hereinafter reproduce the answers of SIF Oltenia.

Question 1.: In your opinion, who is responsible for the fact that the NAV of SIF Banat-Crişana has been reported to be higher by 1 billion lei compared to the fair value, over the course of two successive months?

The answer by SIF Oltenia: According to the legislation in effect, the calculation of the Total Assets, Net Total Assets and NAVPS are the obligation of the management of the reporting company. The depository of the assets of the SIF in question has the obligation to certify the value of the ANT and of the NAVPS.

We think that the primary and secondary legislation set accurate roles in this sector for the upper management of the company, of the Depository and of the ASF.

The upper management of the company at the time of finding a distorted, oversized valuation, of a component in its patrimony had the obligation to inform the market, the Depository, the ASF, on the real size of the indicators in question to avoid any disinformation and manipulation of the shareholders and potential investors while also taking the necessary measures to eliminate these dysfunctions.

The phenomenon in itself has been going on for about 7 years, since 2013, without the management of the company taking any steps to eliminating this dysfunction, which essentially could have been easily solved by delisting the company, which at any rate did not meet the requirements to be listed, when it comes to its free float. The financial effort to delist SIFI Plc was insignificant, the value of 6-13 shares of SIFI Plc, at any rate lower than the amounts paid by SIF Banat Crişana in the form of the monthly quota paid to the ASF for the value of the Net Total Assets in the months where the calculation of the Net Assets was done based on the value the SIFI stock was traded on the market.

SIF Banat Crişana has willingly and in a premeditated manner information that were inaccurate concerning the Total Assets, Net Total Assets and the NAVPS, which influenced the trading price of the stock of SIF Banat Crişana in the market.

The disinformation is all the more serious, as it is generated by the sporadic trading of one share, in most cases, out of the 4499961 shares of SIFI Plc, at prices lacking any reason or economic or financial justification. (face value = 1 Euro, book value 1 share on December 31st, 12, 2019 = 45.4 lei, trading value per share = 286 lei; 400 lei) and continues over a period of approximately 7 years.

On principle, any transaction which has no economic justification registered on the stock market has the potential to send false signals and needs to be investigated by the competent institutions. Transactions concerning this issuer have led to a massive distortion of the NAVPS.

The ASF is at fault because, even though it has been notified that untrue, false information, without economic basis is being disseminated in the market, instead of imposing measures that would lead to the stopping and elimination of the disinformation, has without justification postponed the taking of any measures to uncover the truth and the sending of real information.

The AAF and the BSE, even though they have no legal remits in setting the indices reported by the listed companies, as information providers, they did not notify about and take action to eliminate the disinformation of actors in the market making available inaccurate information, with impact on setting the share of the price of SIF Banat Crişana in the market during this period.

Question no. 2.: What is the position of your institution on the manipulation that BURSA has been talking about, which is rippling across the entire stock market?

The response of SIF Oltenia: We are analyzing the impact which the disinformation action has had on the price of the share of SIF Banat Crişana and as a result the potential influence on the price of the share of SIF 1 on the value of the NAV and NAVPS reported by SIF Oltenia for potential lawsuits.

The Association of Brokers

The Association of Brokers (AB) has not provided any answer, Dan Paul, the president of the Association of Brokers has assured us that they will formulate the answers and will send them to us.

SIF Moldova

Claudiu Doroş, head of SIF Moldova, told us that he doesn't want to comment on the activity of other SIFs.

SIF Banat Crişana

The officials of SIF Banat-Crişana have not yet provided answers to the questions by BURSA.

SIF Muntenia

The questions have been addressed to CEO Nicuşor Buică, but we have not received any response.

SIF Transilvania

Crinel Valer Andănuţ, the chairman of the Supervisory Board of SIF Transilvania, told us that he doesn't want to comment on any situation that does not concern his company.

The Department for the Investigation of Organized Crime and Terrorism (DIICOT)

From the Press Division of the Department for the Department for the Investigation of Organized Crime and Terrorism (DIICOT) we have been assured that the inquiry by BURSA will be included in the folder of chief-prosecutor Giorgiana Hosu.

Rumors are circulating that the investigation started by the ASF is led by Claudia Cătălina Sava, the head of the Oversight and Control Department for the stock market of the ASF, in other words precisely the person that should have noticed the manipulation at SIF Banat Crişana and didn't.

If the rumor is proven true, then the investigation of the ASF will turn into a charade, where the investigator is investigating themselves.

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