AFTER THE ASF ANNOUNCED THE COMMISSION CUT Sobolewski says that the BSE will cut its trading fee, but does not mention when

The BSE will continue to lower its "own" fees for market participants, including the main trading commission, but it is unknown when that is going to happen, said Ludwik Sobolewski, the CEO of the BSE, after the Financial Oversight Authority (ASF) decided to cut 25% off the fee levied on the acquisition of shares to 0.06%, compared to 0.08% currently, starting with September 16th.

One reader of BURSA thinks that the BSE should follow the example of the ASF and cut its fees, but at the same time wonders whether the budget of the Exchange would allow it to do so. The reader actually makes a calculation which would suggest that cutting the compensation of the CEO of the BSE would allow the BSE to lower the trading fee by 25%. The calculations are based on information which the press got from unnamed sources, because Ludwik Sobolewski did not disclose his contract, even though he was asked to do so even by the shareholders of the BSE.

Investors have repeatedly criticized the level of taxes in the Romanian stock market. A particularly harsh criticism came from the US Embassy in Romania.

In the beginning of the year, Duane Butcher, the Chargé d'affaires of the US embassy in Bucharest, said that the Romanian stock market is one of the most expensive in Central and Eastern Europe, because of the fees charged by the BSE and the ASF.

• Reader: "The regulator of the stock market has understood faster than the BSE that the market is expensive"

In an opinion sent to our editors, one reader writes that the initiative of the ASF to lower the fee levied on stock market trades is praiseworthy and proves that the market regulator has realized before the BSE did that the market is expensive, like most of the players involved in it complain,. He goes on to say: "In this context, the natural reaction of the BSE can only be to follow suit with cutting its trading fees, especially since the trading fees on the BSE are recognized as a serious barrier to its development. In fact, it is the only obstacle of the ones listed by Sobolewski and by Anghel (ed. note: Lucian Anghel, the president of the BSE) which the BSE can influence.

So, will the BSE cut its fees by 25%, following the example of the ASF?

If we look at the latest budget for 2014 and the latest annual operating results for 2013 of BSE published on its website, we see that revenues from trading fees in 2013 and 2104 amount to 21-22 million lei.

Operating results themselves range between 8 and 9 million lei.

If the stock exchange were to cut its trading fee by the same percentage as the ASF, by a simple multiplication by 0.75, we find that the annual trading revenues of the BSE would drop from an annual average of 21.5 million lei, to approximately 16.1 million, a drop which is the equivalent of approximately 1 million Euros, and that is exactly by how much the operating profit of the BSE would drop as well (from the average between the actual and estimated profit of 8.5 million lei to 4 million lei.)

The net profit, comprising financial revenues, would drop from an average of 9.7 million lei, to 5 million lei, meaning that the end profit for shareholders would fall by more than 45%.

The question is whether the BSE can indeed cut its fees, just like the ASF, without affecting the profit of the shareholders.

One answer to that question would be that it's not really possible, because it would have to cut expenses, and where could it cut from?

Because if it did cut expenses, it would have to cut a higher amount than what Sobolewski makes and what would it do if that happens? We can't have his wages cut, can we?!

Especially when he said himself, in the presence of shareholders, that he should actually be paid more, to reward him for the extra work that he puts in during the weekends for the benefit of the BSE?

According to the press, Sobolewski has earned approximately 15,000 Euros a month (we have averaged the numbers being discussed) and a bonus of 150,000 Euros for four months.

An approximate number leads us to the result that for a year, the CEO should collect the sum of annual base salary (15,000 Euros x 12 months) and the bonus collected for four months last year (150,000 x 3), which makes: 630,000 Euros.

In conclusion, the direct expenses alone, meaning the salary and the annual bonuses, of Pole Ludwik Sobolewski would mean 63% of the so-badly needed 25% cut of the trading fee that the market, brokers and investors in Romania pay.

We have not added his indirect expenses, because we have no way of knowing those, but we don't think those are included in his salary anyway, (plane tickets, rent, personal services, expenses with media branding such as "the alpha male of the BSE", and who knows what else), because that practice isn't used anywhere else.

If we add those in too, we would probably find the whole amount that the expenses of the BSE need to be reduced by, in order to make the Romanian market 25% cheaper, with a greater potential for turnover, with more prosperous brokers, because this would perhaps allow them to cut their fees as well, with investments which would be cheaper for customers, as well, as, very importantly, we think, with the preservation, perhaps even the increase, of the dividends collected by the shareholders of the BSE". The reader also writes that he doesn't know whether the earnings of Sobolewski he used for his calculations are gross or net. He says that if working with net numbers, then that means that their impact on the company's expenses is even greater. Sure, the BSE does need a CEO, and he needs to be rewarded. But the lack of transparency of the Bucharest Stock Exchange when it comes to its contractual obligations to Ludwik Sobolewski, even to its own shareholders, shows that those obligations are probably extremely lavish.

• Sobolewski: "Regulations are an important cause of the excessive costs"

The opinion of the BSE when it comes to the taxes charged by the central entities of the market is that they should be lowered, because they are one of the main obstacles to the growth of the domestic stock market, Ludwik Sobolewski told us.

He said: "This was the reason which led to our decision to classify the cost of accessing the market as one of the eight main barriers which prevent its growth. In order to lower the costs, we need to cut commissions, but what is also needed is better regulation. Regulations are an important cause of the excessive costs. The cutting of the fees by the ASF, given its scale and permanent nature, is an important, positive step on our common journey to eliminating those barriers. The BSE will continue to lower the fees it charges to market participants that are its «own» charged to market participants, including the main trading fee. Furthermore, together with the ASF, we will also approach some commissions which are required by market activities of systemic importance, such as market-making and the settlement between brokers and custodians. We can not disclose details at this moment, because the decisions of the BSE concerning fees and commissions have a direct impact on the revenues of the company and on its budget, and any initiative to change them be made through a public announcement".