The chairman of the National Securities Commission (CNVM) does not see any bankruptcies of brokerage firms occurring, but doesn"t see any mergers happening eitherWe have a stock market that is run by individual pride

TRADUS DE ANDREI NĂSTASE ŞI COSMIN GHIDOVEANU
Ziarul BURSA #English Section / 23 februarie 2009

We have a stock market that is run by individual pride

Gabriela Anghelache, chairman of the Romanian equity market regulator, was kind enough to provide us with a few answers on the status of the Rasdaq market and on the issues some listed companies are facing. At a time where everyone is talking about the "Broker" Cluj scandal and the continuous drop in share prices, the head of the CNVM said she does not see any brokerage firms going bankrupt, but doesn"t see any mergers happening because of pride.

Interview with Gabriela Anghelache, chairman of the National Securities Commission

Reporter: The status of the Rasdaq market is a controversial issue which has sparked heated discussions lately. What"s your take on this?

Gabriela Anghelache: When it comes to the status of the Rasdaq market, things are pretty clear cut, meaning that the Rasdaq market was created in 1996 as an organized and regulated market, as stipulated in the decision for its creation. Between 1996 and the date of our accession to the EU, things have evolved a bit. The European regulations now make the distinction between markets that comply with the European definition of a regulated market, and markets which have their own set of rules, but are approved by the national market regulator, in this case the National Securities Commission. This means that a regulated market is what we used to call a stock exchange, meaning a market where issuers need to meet certain requirements to be listed. The requirements are imposed by the European legislation which have been adopted by the national regulations, meaning by the domestic laws of each member state, as well as by the rules of every market. The Rasdaq market has evolved, and went from a negotiation-based market, as it was upon its creation in 1996, and following its merger by absorption with the Bucharest Stock Exchange, into a trading platform, and it lost its main feature of being a negotiation-based market, and it adapted to the rules that determine stock prices that a stock exchange has.

The Bucharest Stock Exchange was required by law and by the implementation of the afferent regulations, since the accession to the EU and especially after the MiFID directive came into effect, from the issuers" point of view, the Bucharest Stock Market was supposed to meet the full requirements of a regulated market. Securities that do not meet the norms for being allowed to trade on a regulated market can be traded on an alternative trading system.

There was lots of talk and opposing viewpoints between the CNVM and market officials, from the Bucharest Stock Exchange, from the Association of Brokers, concerning the creation of the alternative trading system. They claimed that moving issuers whose stock had been traded on Rasdaq to the main regulated market could be done without the issuers" permission.

Unfortunately, between various pending litigations the issue of the creation of an alternative trading system by the CNVM is still unresolved. These litigations have run a part of their course, but they haven"t been finalized yet. The market regulator has considered that until the creation and especially the launch of the alternative trading system, companies whose shares were registered on the former RASDAQ market have to meet requirements that are almost identical to the ones of the main regulated market.

Personally, I take this opportunity to express my availability for a constructive dialog, so that a an agreement can be reached more quickly on the status of the RASDAQ market.

Reporter: What can you tell us on the fact that in the case of a company listed on Rasdaq, namely Corint Târgovişte, the court ruled that the public takeover offering is not required, as the Rasdaq market is not regulated, even though the shareholder looking to delist the company owns more than 33% of its stock which means he would usually have to make a public takeover offer?

Gabriela Anghelache: On this matter, sometimes we encounter special situations. In the case of Corint Târgovişte, the ruling of the court was the opposite of the CNVM"s stance on the beginning of the mandatory public takeover offer. The court ruled that the company in question, does not have to comply with the regulations of the main regulated market on mandatory takeover offers, as is shares are traded on an alternative traded system.

We were not a party in this lawsuit, but now, hearing about this ruling, we have considered it was our duty to intervene on our own on behalf of the petitioner. The courts should understand that the regulations of the CNVM must be applied in a uniform manner for any company traded on the market.

Reporter: Again on the subject of public takeover offers, what would be a possible solution on the issue of Comvex Constanţa?

Gabriela Anghelache: The public offer in Comvex is blocked because there are ongoing lawsuits. We have suspended trading for two weeks, not to block that process for a long time, but rather to allow any involved party that feels it has been wronged, to go to court. At this time, we don"t know what the courts will rule.

CNVM has received a lot of complaints in this case, from Solidmet, from natural person stockholders, and from Comvex itself. I can"t give you right now a definitive answer on this case, because it is a specific case, and thus all angles must be considered. We have only issued one suspension order, which has expired. In other words, from our point of view, the public offer is not suspended, but on the other hand we have the claims of the other parties who feel that it was strictly Solidmet"s responsibility to make a public takeover offer, not Mittal"s.

Bursa: The Capital Market Investors Association recently said that the regulatory authority had an ambiguous stand on the application of the legal provisions on public takeover offers. How would you comment on that?

Gabriela Anghelache: That is not true. We have never taken an ambiguous stand. This wording is probably due to the fact that the Capital Market Investors Association - through various letters and during direct conversations with the president of the Association - brought up the fact that there were certain cases in which CNVM should make a firm decision and force indirect shareholders into a public offering. The request refers to two or three cases, of which KazMunaiGaz caught the most significant media attention. We tried to see what the European practice was. We asked authorities from other Member Countries for information on how they had dealt with such situations. The Investors Association provided some examples of companies whose indirect shareholders had organized public offerings. The problem is that, in the cases presented as examples, it had not been the regulatory authority who had forced the indirect shareholders, but the indirect shareholders who had taken the initiative. The question is whether we are able to defend our decision in court. If we force the indirect shareholders into a public offering and they believe it is not their obligation to organize it, they could take the matter to court, win and that would confuse the market even more. What would happen to the price of the respective shares if we forced a specific indirect shareholder to launch a public offering? If a litigation starts and the court rules the opposite of what the market regulator decided, again, what happens with the price? Who wins, who loses and who is responsible for the loss? This is the reason why some say that we stalled the matter. This is not about stalling or differential treatment depending on the position of one issuer or another. We are simply trying to avoid unfavourable effects on the market.

Bursa: Do you believe that the financial crisis will continue?

Gabriela Anghelache: Unfortunately, we have no reason to believe we are close to the end of the crisis. International forecasts, too, are bleak, in the sense that the crisis will continue at least throughout 2009. Emergent countries will predictably be the most affected, especially in June and July.

Bursa: Are you worried about the economic context in Romania?

Gabriela Anghelache: I am very worried. If businesses downsize, if the unemployment rate grows, then revenues will decrease, there will be no more savings and, if there are no savings, investments are out of question. Especially investments on the capital market. As far as education and mentality are concerned, we are behind the countries with long-lasting market economies. This is the reason why individuals and small investors - not major investors - prefer to put their savings, if any, in the bank rather than make investments on the capital market.

Bursa: SIF Transilvania has recently asked shareholders to consider modifying the 1% threshold. What would be the effects of such change?

Gabriela Anghelache: For the time being, there is a law. Good or bad, we must apply it. The law says that the limit for holdings in a SIF is 1%, including concerted holdings. Of course, the general shareholder meeting is the sovereign authority in a company, so they can make any decision as long as it does not violate the applicable law. I don"t know what the General Meeting of SIF Transilvania will decide, but we must apply the law. The effects on the market would be quite beneficial, especially in the form of increased liquidity. Law 297 still contains the provision about the buy-back of own shares in order to reduce residual packages and the number of very small shareholders. As for the buy-back, no important steps have been taken, although the Commercial Companies Law allows the organization of such operation within certain limits. Consequently, the number of very small shareholders has remained almost unchanged. Additionally, if the holdings become more concentrated, decisions thereby should be oriented towards maintaining and growing the assets of the respective companies.

Bursa: Are you worried that you might find further problems with the brokerage firms? Will you add further supervision measures to the existing ones?

Gabriela Anghelache: I don"t know what we could do more, besides performing the analyses for shorter periods of time, as we requested, based on weekly intermediate reports. The brokers were not too happy about it, because it required more work. From my point of view, what has happened lately, starting with the Mobinvest case, is a hard lesson that we all should have in mind. Our audit plan is much more substantial in this period and we will also take internal measures to reorganize the dedicated directorates especially in order to allocate more staff to supervision and audit. I also believe that the brokers and the Brokers Association should perform a more pertinent analysis. It is especially the Association that should take specific measures. The Association is a community of the brokers and should express an opinion towards the end of any occurrence that may disturb the market, thus contributing to enhancing investor confidence.

Bursa: Do you anticipate an brokerage firm bankruptcy in the near future?

Gabriela Anghelache: I wouldn"t expect any bankruptcy yet. As the supervision capital is decreasing, we reduce the scope of the license and monitor each brokerage firm. I do not think there is an actual risk of bankruptcy for the time being, but we have been facing cases where certain brokerage firms take the initiative to request a reduction of the scope of their license for a certain period of time. Analyses that were also perform outside of Romania indicate that the number of brokerage firms in Romania is too large for the size of our market. I was expecting, even last year, to see some mergers, but that did not happen. In my opinion, our market is based on egos.

Bursa: Are you planning any measures to support the brokerage firms?

Gabriela Anghelache: We have recently taken a number of measures to reduce the fees charged by CNVM. In October 2008, we also took a set of similar measures and said we would decided whether to maintain them or not based on a future analysis of their effects. We have adopted and published measures that not only considered lower fees, but also the suspension of certain fees until the end of 2009. This is beneficial to the brokers and I would be happy to see that it is beneficial to the investors, too, because the aim of our measures is to also decrease the cost incurred by investors.

Bursa: Would you support a campaign to attract investors to the Romanian capital market?

Gabriela Anghelache: Of course I would, but we need to be very careful about the kind of arguments we present under the current circumstances. We are very interested in attracting investors, educating them and offering them a wide range of information to support their investment decision. For this purpose, CNVM organized throughout 2008 a number of conferences in Bucharest and across the country addressing both experienced investors and those interested in taking the first steps towards investing on the capital market. Moreover, CNVM issued an Investor"s Guide, which is distributed for free to any interested party. We could start a similar action in the near future, but we definitely need support from other institutions of the market, as well as from the media.

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