A FRIENDLY POLEMIC Terminus post quem

Just when, disappointed again, I had published my conclusions on the "friendly polemic" concerning possible strategy for a turnaround of the capital market, readers that don't agree with my opinions joined the fight, in larger numbers and at an argumentation level which I would theoretically call "civilized".

Which has really made me happy, and made me ask the Editorial Office to publish the debate which occurred in the comments posted on the BURSA website in today's printed issue and to create this new episode, in which I answer those comments, called "Terminus post quem" - a Latin expression meaning "limit after which ...", meaning, the origin of what follows.

The debate in the comments section was more coherent than it was on other occasions, and late in the evening, at 20:46, shifted into a different note, through the intervention of the man calling himself "The Prazilian" (the poster may have opted for this nickname, under the impression left by the Romanian humorous phrase "so long and don't forget your leek", (ed: note:praz=leek in Romanian), which I had used after speaking about the expected confiscation of the savings in the banking system prepared by the European Union, as a last resort measure, which makes me suspect that the "Prazilian" is a banker, but I am not trying to figure out his or her identity).

At 23:09, an anonymous poster had the remarkable idea that we are not tapping the potential of our regulated market - the BSE -, and said that we should focus on improving it, and the "Prazilian" returned at 1:00 and at la 1:14, even though the day had ended and the articles of the new issue had replaced the ones from the previous day.

They were left unanswered.

I will now respond first to the "anonymous" poster and then to the "Prazilian".

This order serves my purpose - the response to the "anonymous" poster includes rebuttals to the statements of the "Prazilian".

• THE ANOMYMOUS POSTER AT 23:09

The Bucharest Stock Exchange (BSE) is no longer a baby. In fact, (if we take into account the date of its formal inauguration - July 1995) has reached the age of 18 - it is now an adult.

Of course, the president of the BSE Lucian Anghel does not know this detail, so he hasn't held any celebration for the Bucharest Stock Exchange.

He didn't even say - "Well we are celebrating the date of November 20th, when, the first authentic trading session occurred in 1995, rather than the political circus of July 21st 1995".

Since he doesn't know anything, he has nothing to celebrate.

The fact symbolizes both what you claim - that we don't exploit our existing regulated market - as well as its explanation - the fact that the managers promoted to lead the BSE have always been cowards, incompetent, lacking personality and pep, guided by their own interests, dependent on the "puppeteers" maneuvering them from behind the lit stage, with even the puppeteers themselves disappointed in the out-of-control reactions of their puppets.

This is the result of the manner in which the fierce struggles for the leadership of the market take place - no program for its development ever gets debated - struggles which are apparently completely unjustified, when considering the insignificance of the Exchange (but the scale of these confrontations and their frequency are signs of a hard to prove corruption, which brings considerable benefits to the faction that takes over the helm - it may be a struggle to gain control of the direct, privileged access to the information existing in the system of the Bucharest Stock Exchange and the Depository, and perhaps for other purposes as well).

But both of these things, the incompetence and the gregariousness, are, in themselves, the signs of a deeper flaw of the market: the touchiness of the brokers says something that they would never willingly admit - that the way it is designed, the Romanian stock market is a failure.

I guess they feel that honest and zealous work, following the path set in the beginning, yields no result.

They probably feel, in a non-explicit manner, that the effort to "tap the existing organized market", like the anonymous poster put it, has no chance of yielding any results.

The BSE is no longer a child, it has reached adulthood.

Over the course of 18 years, it has improved, it has increased the surface of its offices, it has outsourced, it has improved its mechanisms, it has evolved, it has attracted important companies among its listed issuers, it has sought to diversify its products and operations, has made additions to its regulations, has sought to improve the professional level its staff, and of the market participants, has sought to educate and to maintain transparency, has tried to promote its principles that govern the established stock markets.

The BSE is no longer like it was in 1995, or like it was in 2000, or like it was in 2005 or even in 2010.

It has evolved.

What has that led to?

Nothing.

Ruin.

A lot of effort for nothing.

The Bucharest Stock Exchange is not in a "virtuous circle", the circumstances it has to work with don't allow it any chances (and when speaking about "conditions" I am not referring to the hostility of the state, but rather to the architecture of the market, which does not represent an interface with the large scale public).

It can't, by itself, dislocate the savings of the population and draw them into the market and that is why it is self-destructing.

That is why the market community is accusing the state of not giving it the necessary support - an accusation which is both true and incorrect.

It is true because the way it was designed, the market of the Bucharest Stock Exchange is dependent on the support of the state.

It is incorrect because essentially, the stock markets express the independence of business from the centralism of the state, the spearhead of democracy in the economy.

Carrying sand between two hills is work.

But pointlessness is demoralizing.

And that is when corruption, incompetence, scheming, lack of solidarity, the lack of collective will and the inability to act in coordination becomes the norm.

As do the absence of a strategy for growth, the impossibility of devising a general solution, the unwillingness to debate, the narrow-mindedness, disqualification.

That is why we are incapable of promoting our organized market.

That is the answer to the "anonymous" poster.

• THE "PRAZILIAN" OF 1 O'CLOCK

A good chunk of the response I gave the "anonymous" poster is also addressed to you, as a meta-theory.

But there are some specific points in your message, which I will endeavor to reply to.

The first fact that I noticed in your message is that you don't consider the idea of wide-scale participation of the population, by its own will, due to its interest in the market, instead you focus your hope on the "major investors".

Of course, the public is involved in the market through the pension funds, but as you know, these funds are set up by decree, rather than through the interest and own will of their members.

And even if the pension funds were "encouraged" to invest on the BSE (the word you used - but I don't see how else they would be "encouraged", other than by yet another decree as well, like in the case of Poland), the popularity of the stock market can't grow and it can't find any economic justification to exist.

It is true that, to a degree, the BSE would see an increase in its liquidity, but the result would be unnatural, similar to the watered down enthusiasm now seen after the listing of the Proprietatea Fund, which is just another in a string of burst bubbles after the listing of the banks, of municipal bonds, of the SIFs, of some very big oil or pharmaceutical companies.

Please ask the investment funds which invested heavily on the Rasdaq, in 1997, and how they were forced by the market reality (the ones that are still here, anyways) to completely shift their initial philosophy, turning from portfolio investors into strategic investors.

Can you see pension funds doing something like this?!

Does their vocation allow them to do that?!

On the other hand, the first condition for getting "major investors" to come to the BSE is not transparency, nor corporate governance, nor the honoring of the rights of minority shareholders, nor the translation in English of the "disclosures" (as Morgan Stanley recently noted, when it downgraded us); yes, they are extremely important, they are essential conditions, but the first would be for the BSE to show up on their screens.

And it isn't going to be on their screens, when the average daily turnover of the BSE is 10 million Euros.

Out there, in this world, there are "major investors" that, when going off to buy their groceries, have about 10 million Euros in their pockets, these are called HNWI (High Net Worth Individuals) of medium strength; those in the upper echelon, have over 30 million dollars as their daily pocket money, at any time, any day, for their own personal whims (not for business).

Trust me, the BSE isn't on their screens, regardless of how big those screens may be!

It would take up precious space.

They don't have time for nonsense.

Why would a whale care for a teapot?

What the "Prazilian" supports is precisely the current strategy of the BSE: bolt on the stock market to the Romanian economy, force liquidity to flow through it and this will attract major investors, meaning that things will heat up, which may perhaps entice the locals to join in the fun.

It's not bad.

But it hasn't worked.

That is why brokers are looking for handouts from the state.

This strategy hasn't worked, and instead of ending up with a useful stock market, with a structure that is useful to the economy, we've ended up with a beggar - "Give me some!"

It is awkward, embarrassing and counterproductive.

And this strategy didn't even work during normal times.

Therefore, in the context of the international financial crisis, you must completely forget about this strategy!

Remove from it your mind!

If we still want a stock market, then we need to build a natural foundation for it.

The end of the alternative strategy, through the informal market, is identical to that of the "Prazilian" - the partnership between the domestic and foreign investors, in the regulated, organized, overseen and improved market.

But the foundation would be different, and it would be natural, based on the historical process by which all the currently developed stock markets have been created.

Three more items, mentioned by the "Prazilian":

1)"Covered bonds" don't even stand a chance on their native markets, collateral guarantees have proven a veritable sham and they have contributed to the worsening of the international crisis;

2) The residual shares from the SIFs: about eight to seven years ago, I have provided to one of the five SIFs (which had, in a manner of speaking, the role of leader and would have been able to rally the others behind it), a strategy for partially (but to a great extent) dealing with the problem, using the instrument called Global Depository Receipt (GDR); the residuals vary, for each shareholder, from one SIF to the next, in fact, even within the same SIF, but there is a "corridor", which can create a "standard package"/shareholder ("that many shares" from SIF 1, "that many shares" from SIF 2....etc.), which would become a GDR; the outcome is obvious - the total number of GDRs could have created a so-called SIF6 (I had calculated, at the time, that it would be worth a considerable amount on our market), with tradeable shares, functional. The plan was buried;

3) The "Prazilian" says: "But all the steps I mentioned require the willingness of all the relevant players". Well, therein lies the rub - we are not known for our will and discipline and I think that a strategy which relies on them is flawed. What I am proposing is a strategy based on temptation and the exercising of natural greed (nothing wrong with that), allowing the improvement of the market to occur naturally, sped-up through know-how: the regulation needs to be adopted at the right time, to boost trading volume, not hinder it, like now.

Thanks to all the readers who have put up with my theories without calling me names.

Thanks to Doru Nicolaescu, for starting the polemic and to Virgil Anastasiu for still being close to the market.

Thanks to the "Prazilian" and "the anonymous".

Thanks everyone who participated in the debate by commenting - I have to note the fact that the dialogue was far more interactive than it was 13 or 18 years ago.

I think that the title is appropriate - "Terminus post quem" - because, regardless of what comes next, this exchange of ideas has occurred, and no one can act like it never happened.

Which means that, regardless of what you are going to do, on the stock market, at least you are all aware of the fact that you've had the chance of becoming aware of the consequences.