Are the FICs the only reason for the Bucharest stock exchange to exist?!

Petre Pavel Szel, the chairman of SAI Muntenia, the company that manages SIF "Muntenia" (SIF4), considers that any attempt of the management of the Bucharest Stock Exchange to increase turnover on the back of the five FICs is just a "waste of time". Mr. Szel is referring to a project that the BSE recently announced it was working on, in cooperation with the CNVM, which would allow the financial investment companies to buy shares in each other.

Mr. Petre Pavel Szel said, in an interview granted to BURSA: "This project which has recently been discussed is no big deal. All the Romanian National Securities Commission (CNVM) would have to do is to repeal one specific regulation that forbids the FICs from buying shares in each other. I think that any interest that the BSE has in the FICs is a waste of time. The idea of increasing turnover on the back of the FICs is out of line. The FICs have done their duty towards the Bucharest Stock Exchange. In November this year, there will be 12 years since the FICS first got listed on the Bucharest Stock Exchange. If, after all this time, the BSE still relies on the FICs for its turnover and trading volume, then that means that there is no point in talking about the Romanian Stock market anymore".

The chairman of SAI Muntenia said he is not against the BSE project, but he said that there are other ways that the BSe can use to increase its daily turnover, without necessarily resorting to the FICs again.

The idea behind the project to allow the financial investment companies to buy shares in each other is nothing new, as it has been bandied about in the first half of 2010 as well, following the lobby that some of the FICs with the Romanian National Securities Commission, at a time when the Commission had offered them the possibility to pay some of their fees in advance.

The discussions in this respect never went past the initial stage, as some of the members of the Romanian National Securities Commission ,weren"t too happy with the idea of the FICs buying stock in each other, as they were afraid that they would have trouble in overseeing them.

Some voices claim that the FICs could even reach a controlling interest in each other, through direct and indirect acquisitions: "The FICs have dozens of companies in their portfolio in which they are majority shareholders or, as the case may be, they have a significant interest. Speaking of cross-holdings, let"s imagine the following scenario: How will the holdings of an FIC in another FIC be calculated if the companies in the portfolio of the former start buying shares in another SIF and also buy shares in the majority FIC ... How will anyone be able to determine whether the 1% threshold was exceeded? There is the risk that one FIC could end up holding a controlling interest in one of the other FICs, through its direct holdings, and through the companies in which it is a shareholder and which also bought shares in the competing FIC. This would discriminate against the other players in the market, whose holdings in the FICs are capped at 1%. After all, it is a matter of regulation, because it is impossible to control these acquisitions to the tiniest detail".

A solution intended to solve the problem of cross holding proposed that the FICs amend their articles of incorporation and accept that the shares they would buy in one another would be converted in preferred stock without voting rights, until their sale.