AFTER THE SIMA SCANDAL Valentin Ionescu: "I think it's time to get our act together"

• One year after the departure from the BSE, Valentin Ionescu would like Sibex to be a derivatives, commodities and energy exchange

• Ionescu: "We neead to develop the market, without thinking about the offers of the state"

Sibex could become a derivatives, commodities and energy exchange, according to Valentin Ionescu, currently a member of the Board of Directors of SIF Moldova. He is running for a new seat on the new Board of Directors of the Sibiu exchange, which will be elected in the General Shareholder Meeting of November 19th/20th.

One year after he left the position of CEO of the Bucharest Stock Exchange, dismissed by a Board of Directors which would later be replaced by the shareholders, Valentin Ionescu gave us an interview in which he spoke about his plans for Sibex, about the Bucharest Stock Exchange, as well as about the activity of SIF Moldova.

Reporter: What are your expectations for the General Shareholder Meeting of Sibex? And how do you see the future of the Sibiu Exchange?

Valentin Ionescu: What expectations can one have from a General Shareholder Meeting they are running for? Naturally, to successfully join the Board of Directors, and that those that would be on the new Board with you are on the same wavelength with you. The company needs to be rethought.

From my point of view, the company needs to find again its identity as a derivatives exchange, because lately, it had the tendency to become more of a Forex platform. Sibex is a Romanian exchange group, it is licensed to operate in Romania, and therefore, it needs local products, both for foreign investors, as well as for the local ones. Forex platforms are everywhere.

In my opinion, this is the mistake made by former CEO Cristian Sima.

Aside from the fact that it needs to find again its identity as a derivatives exchange, Sibex can also develop the spot market, a project which isn't working as it should.

Here we have several options.

One would be to find new technologies or products, niche companies, which have never been taken into consideration before.

From my point of view, Sibex needs to be flexible, to adapt rapidly to the new opportunities, it needs to be innovative, to be seen as one with the new technology. That would be the plan for the new spot market.

Another scenario would be that, following the elections, the new Board of Directors would perform an analysis and come to the conclusion that it would be more profitable to only keep the derivatives market.

We can go with a basic scenario and other optional alternatives, depending on what the shareholders want.

On the other hand, the European regulations are changing and this is very important (ed. note: next year, the Central Counterparty for derivatives trading will have to get authorized).

Reporter: Especially since we are talking about money.

Valentin Ionescu: Indeed, we are talking about money, and we are going through a period where the shareholders aren't too willing to invest. Thus, the most viable solution is for the Romanian Clearing House (CRC) and the Sibex Depository to merge. At the CRC, there are approximately 2.5 million Euros, or there should be, we will see, at the Sibex Depository there are approximately 5 million Euros, of which Sibex has 80%, in other words, 4 million Euros. Thus, if they were to merge, the amount would be somewhere around 6.5 million Euros, close to the minimum requirement for a central counterparty, which is almost 7.5 million Euros.

I think that a discussion with the BSE group on the clearing and settlement side would also be important.

The Romanian Clearing House (CCB) has a smaller share capital than CRC Sibex, of approximately 1.5 million Euros. Here, the shareholders - the BSE and the others - will need to bring in much more money than at Sibiu.

With CCB, this 7.5 million Euros capital would be exceeded, but in order to be a "qualified CCP", you would need a share capital of approximately 12 million Euros.

We also need to see whether the Central Depository fits into this equation, there would have to be talks with the BSE group.

Reporter: What does "qualified CCP" mean?

Valentin Ionescu: A "Qualified CCP" must be "Basel III compliant". In the Basel III regulation, there are some capital adequacy matters compared to the guarantee fund. A QCCP needs to have its own contribution to the guarantee fund, whose value should exceed "the maximum of the double average exposures or the equivalent of the exposures of the first two clearing members". In conclusion, a QCCP can accept greater exposures.

From my point of view, it is a good thing to have that capital, it is even mandatory to have it, in order to attract other companies to trade through this "qualified CCP".

On the other hand, I think that the other clearing houses in the region are considering this aspect and they are doing their homework.

We need to get a move on, by ourselves, especially since the two groups, BSE and Sibex have basically the same shareholders.

For example, we at SIF Moldova own 5% of Sibex, 5% of the Sibex Depository, 5% at the BSE and 5% of the Central Depository.

As a strategy, we want a strong market.

Considering what has happened lately, (ed. note: the Sima scandal), I think that it is time to get our act together!

The European regulations indicate the fact that we are getting close to the deadline.

The deadline for the CCP has been postponed slightly, for the autumn of 2013, while the initial deadline was May 2013.

This regulation is welcome, but we need to get to work in January at the latest, if not even in December.

At Sibex, there are a lot of things to do. I think that Sibex can also identify with other new products. For the grain segment, the geographic area is ideal - it is in the center of the country.

Sibex can be a barometer for the energy market, through energy market derivatives, especially since Trayport, the platform which Sibex runs, is a platform for energy and agricultural products/commodities.

Reporter: Mr. Grigore Chiş, of SSIF Broker, who is also running for a seat on the Board of Sibex, was saying, at one time, that a solution for Sibex would be to become a commodities market.

Valentin Ionescu: I perfectly agree, but it shouldn't be just a commodity exchange, it should remain a derivatives exchange, and also work as a commodities and energy exchange.

From my point of view, Sibex shouldn't focus on the public offers of the government. The government doesn't stick to any schedule.

We need to be inventive, proactive and to develop this market, without thinking about the offers of the state.

Reporter: How do you plan to reach the customers?

Valentin Ionescu: Our customers are the intermediaries which are trading. Behind them are the real clients.

Reporter: Which have basically disappeared.

Valentin Ionescu: It is true. At Sibex, if we look at the statistics of the last few months, considering also what happened (ed. note: the Sima scandal), the number of members fell, which is a red flag.

Only one new market maker has come in.

It is true that Mr. Sima brought in that Dow Jones contract. It is an interesting product, but he created it in such a manner that he was the only market maker on it, with a very large market share. This has created a major vulnerability, because the volumes have fallen drastically, after the disappearance of that market maker.

That is why I think that, aside from diversified products, an exchange must have several market makers, so that when a product stops working or when a market maker leaves the market, its activity isn't radically affected.

That is precisely what we will try to do: to diversify the products, to attract as many market makers as possible and, through a common policy in association with the brokerages that are still present at Sibex, we will try to reach the customers and not only that, but to also bring back the intermediaries that left.

Reporter: How much do you think it will take before we see a revival of the Sibex market?

Valentin Ionescu: The steps are the following: after the validation by the CNVM, the new board of directors must see what the situation is over there. After this assessment is made or perhaps simultaneously, the Sibex policy needs to be coordinated with the CRC and the Depository, we need to see where there are opportunities for cutting costs, because, at this time, the companies of the group are losing money every month. The work needs to begin, we need to think about new products, a new communication strategy needs to be thought out. The latter will be very important, because Sibex needs to rebuild its image, to attract brokerages and new customers.

In the medium and long term, we want a consolidation of the markets. In the short term, we want a consolidation of the clearing houses, of the depositories.

Within three years, a consolidated market, with a strong CCP, is an achievable goal.

Reporter: There are rumors that there is interest from foreigners in acquiring the BSE...

Valentin Ionescu: The BSE has always been sought after and it still is. Everybody knows that the Vienna Stock Exchange has been eyeing the BSE for many years. The thing that stopped it from entering the BSE at the time it did in the exchanges of Central Europe was the stock market law (ed. note: which limits voting rights to 5%).

It remains to be seen what will happen to law 297, if this percentage will be changed or not.

But, going back to Sibex, we need to reposition ourselves. It wouldn't be indicated to make a merger right now.

Reporter: The new project of the CNVM for the restructuring of the Rasdaq market (by moving companies to other markets, including Sibex) represents an opportunity for the Sibiu exchange.

Valentin Ionescu: If we get this opportunity, we will seize it. There are interesting companies on the Rasdaq. Back when I was at the BSE, I drew up a list which included approximately 150 companies which qualified for the regulated market. Out of those, only 10-15 have made the move over the last two years. It is possible that for the companies on the Rasdaq, it would be more interesting to be traded on Sibex, than on the ATS of Bucharest.

We will have a few advantages, we will try to be flexible in attracting these companies, we will try to move fast.

Those companies won't be our goal, but if this opportunity arises, it is natural that we will seize it.

Reporter: It's been a year since you left the BSE. Looking back, do you have any hard feelings against the BSE?

Valentin Ionescu: No, I have no resentment. The Bucharest Stock Exchange is an institution, and as for individuals, I have nothing to say.

If you want to move forward and grow, and you harbor frustrations and resentments, you'll fail.

I will always be close to the BSE, considering that I was part of the first generation of brokers and, even more than that, I was the CEO of the institution.

Reporter: Do you think that you can provide an objective commentary on the activity of the BSE over the last year? Did they do any things right? Did they make any mistakes?

Valentin Ionescu: Strictly objectively, - I hope my colleagues on the Board, as well as the executives, won't mind my comments, there have been some positive aspects, but also many negative aspects, which have affected the volume of the BSE. Some were caused by the domestic solution, some had foreign causes.

The major criticism is that they moved very slowly in electing the new CEO. If the CEO had been brought in the first six months of the year, they would have had more time, to solve some of the problems, starting this year. The CEO arrived in September. Essentially, this year is lost, in my opinion.

The second option would be to get the members of the Board involved to avoid missing certain goals.

Although, according to the theory, a Board of Directors shouldn't be involved in the activity of the executives, a Board of Directors should not get involved in the activity of the executive, the situation was different here. The BSE didn't have a CEO, just an interim one, who did not want to take lots of risks, and essentially the only project which the BSE worked on seriously was that of the state IPOs.

It is a good thing that they focused on that project, but other projects shouldn't have been forgotten. It was proven in the past that the listings of the state are not under the control of the BSE.

Unfortunately, the secondary offer of "Transelectrica" is the only one that was successful this year.

Reporter: They did have another listing on the ATS, a corporate bonds issue.

Valentin Ionescu: The ATS was an older project. It is very good that a company was listed. Even though it doesn't seem like much, if a few more dozens of companies, this segment will become a breeding ground for the regulated market. In fact this was the purpose of the ATS.

I hope this offer of corporate bonds, the first in several years will open the path for others.

Other than that, the Bucharest Stock Exchange did not meet the expectations on the communication side.

For example, in the case of "Oltchim", there have been some important events, when trading should have been stopped and information should have been disseminated in the market, but this didn't happen.

In the case of the insolvency of Hidroelectrica, the market already knew about the event, trading in the shares of the Proprietatea Fund was not halted right away.

There was also the famous Sima case, where the two exchanges did not react at all. Not even Sibex, which was directly involved, had any active communication. The BSE was not directly involved, but indirectly, this case affects the image of the stock market. Through adequate communication, the BSE could have turned this moment in its favor, considering that all the important television stations, all the important newspapers, were talking about the stock market, about brokers, about the stock market, exclusively in a negative light.

From my point of view, the BSE should have summoned a press conference within the briefest delays. This would have allowed the Bucharest Stock Exchange to get free advertising, without an advertising campaign, on all the TV stations and in all the newspapers, not necessarily in the specialized ones. I think this was a slip-up in communication.

But the new head of the BSE seems resolute in what he is saying, and I hope he will succeed. I for one wish him luck.

Reporter: At SIF Muntenia we have a scandal which has been going on for several months, at SIF1 Banat Crişana there was a "velvet revolution". What should we expect from SIF Moldova?

Valentin Ionescu: Every situation is different. If I were to be speaking strictly about SIF Moldova, in spite of the negative aspects of the stock market, I think that we had one of our best years.

Why do I say that? Because we noticed very correctly, from the beginning of the year, the evolution of the market. Even after the first quarter of this year, there were signs that the state would postpone the offers, that the markets would begin to fall.

It would appear that we were right, in all of our press releases and in our strategy, as proven by the 9-month statement. We were right with the sales and acquisitions which we did, and with the fact that we have seen drops on the financial sectors and we are seeing increases in the energy sector. The company pays a good dividend, we have a predictable policy.

I think we have rebalanced our portfolio very well. We have approximately 80% of our portfolio in listed companies, which makes us different from the other SIFs. This gives us more transparency.