THE BUCHAREST STOCK EXCHANGE: We have capital, what do we do with it?

Should the money stay in the company or should it be paid off in the form of dividends? This is the question that market players ask themselves during this time of year, as this is the season of General Shareholder Meetings and dividend announcements. When it comes to reducing share capital and distributing the money in the form of bigger dividends, investor interest increases even more. And when it goes as far as halving the share capital of the Bucharest Stock Exchange, the interest really peaks. For now, the Board of Directors has rejected the inclusion of this item on the agenda of the General Shareholder Meeting of the BSE. Still, the money is there, and the issue remains on the table.

• Returning to the headquarters it had between the two world wars

The handiest solution for the BSE would be to renovate the old Palace of the Exchange located on the Doamnei street (across the street from the NBR) and relocate there. According to the statement of the governor of the NBR Mugur Isărescu made in July 2010, the National Library will relocate to the new building on the Unirii boulevard, and the Bucharest Stock Exchange would return to the old headquarters of the Doamnei Street, across the street from the NBR. The location in question would be connected to an office building which would be built nearby. According to an estimate by Sorin Dimitriu, the chairman of the Chamber of Commerce and Industry of Bucharest (which currently owns the building) renovating it would cost about 10-12 million Euros.

Considering an exchange rate of 4.15 lei/Euro, half of the share capital of the BSE represents about 9.25 million Euros. Comparing the figures, this amount could be used to cover most of the estimated cost of renovating the building.

• Stere Farmache, the chairman of the Board of Directors of the BSE

"We are talking about a request of some shareholders which needs to be reviewed. We will decide what to do with the money after that". On the issue of a new headquarters, he said that "the Bucharest Stock Exchange deserves to have a good looking headquarters. In the medium and long term, I think being positioned in the financial center of Bucharest would be a good thing".

• Lucian Isac, a member on the board of the BSE

"Moving to a headquarters seems like a good idea, but I think that it would be even better if the ancillary institutions like the Clearing House and the Central Depository. Thus, all the important institutions in this sector would be located in the same spot. The BSE needs a headquarters of its own, mostly because it currently pays rent. If we were to sum up the rents paid over time, and compare them to the amounts needed to buy and renovate a new headquarters, we would find that we would have saved money had we had a headquarters of our own. Regardless of whether the shareholders decide to halve the share capital or not, they are the ones who have the last word, they are the ones who make the direct decisions on what happens to the BSE".

• Florin Dolea, Pioneer Asset Management

"If the money gets invested, their use should be decided upon after very carefully reviewing the projects in question. The relocation of the headquarters only makes sense if it involves returning to an older headquarters and regaining the old prestige. Otherwise, if it were to involve higher costs and no benefits it would not be an alternative worth considering".

• PROMOTING THE STOCK EXCHANGE Lucian Isac, member on the Board of the BSE

"The money can also be used for programs intended to promote the capital market. Facilitating access of the population to the capital market is one of my older projects. If we look at the size of the population (22 million), there is a lot of untapped potential, of which very few invest on the stock market. I am convinced that the Romanian stock market needs advertising. Even if the money in question would or wouldn"t be available, still, a project like that needs to be carried out because we need more investors".

• Florin Dolea, Pioneer Asset Management

"Educational programs are important in the medium and long term, but they can be accomplished using additional funds. When it comes to financial education, we can attract additional resources, such as European grants. Of course, that would be a solution which needs to be reviewed and have its impact assessed. In the end, I do not think that such a project would require huge investments.

The proposal of the shareholders came amid a lack of projects intended to increase the profitability of the Exchange. Since the management of the Exchange did not present any consistent projects so far and it capitalized the earnings it made during the previous years, some of the shareholders thought about getting their hands on that money. The BSE could improve the efficiency of its operations and reduce its commissions. This is what it needs to focus on, and what it needs to invest in. Continuing with the steps to cut commissions is an essential factor which could tip its balance compared to the other exchanges in the region. Keeping costs down is a good thing. I don"t think the idea is to increase the profits and then distribute them by paying out dividends. It would be more useful to aim at making bigger profits not by raising commissions, but by focusing on its line of business - trading - instead".

• THE BSE SHOULD BE MADE STRONGER, NOT WEAKER Varujan Vosganian, former Finance Minister

"A few years ago, when I proposed the Law no. 208/2005, I insisted that brokers would get shares in the BSE for free. It seemed fair. Those shares were basically received for nothing. But I don"t think it"s fair that, after getting something free of charge, they are trying to halve what they received, instead of making it stronger", he said.

The law that Varujan Vosganian is mentioning helped -at the time - reform the legal framework that the BSE was operating in. Until 2005, the Association of the Bucharest Stock Exchange existed, in which every brokerage firm which was a member had one vote in the general shareholder meetings. In 2005, the Association in question was replaced by Bursa de Valori Bucuresti SA, which was incorporated as a joint stock company.