Confusion as the listing of the Proprietatea Fund draws near

The hurry in which the most important institutions of the capital market are getting ready for the listing of the Proprietatea Fund is creating confusion among brokers and investors, as some of them still don"t know the conditions for trading the shares of the Fund via nominee accounts. Furthermore, even the management of the Fund was still unsure yesterday whether the listing would actually take place on January 25th, given the very brief time provided by the law for the listing of the Fund, after its management was taken over by Franklin Templeton.

Even though there are about three weeks left until the listing of the Fund, some brokers don"t know if by January 25th, they will have enough time to meet all the requirements they need to fulfill in order to trade the shares of the Proprietatea Fund using nominee accounts, while others think the process is "a piece of cake" and they expect to quickly burn through the required steps and to receive the validation of the Central Depository, without which they may not intermediate transfers via nominee accounts.

A decision communicated yesterday by the Romanian National Securities Commission (CNVM) establishes that brokers that want to intermediate trades with shares of the Proprietatea Fund through nominee accounts must receive the approval of the Bucharest Stock Exchange and of the Central Depository, after first testing trading via nominee accounts and the ability of meeting the reporting requirements.

The decision of the Commission was being awaited in order to clarify a rather contentious provision of the Regulation no. 5/2010 on the duration of the testing that the intermediaries are required to make in order to get the technical approval of the Central Depository. Article 30 of the Regulation provides that brokers must perform monthly tests and evaluations of the implementation of the nominee accounts system, for a period of at least three months, since the date of the coming into effect of the amendments of the Depository" charter.

The interpretation of the article in question has stirred heated debates even inside the Romanian National Securities Commission (CNVM), as some of its commissioners refused to sign the Decision that the Commission issued on Wednesday. They were however in a minority.

Sources from inside the Commission said: "There was indeed a contentious provision. It was unclear on whether the brokers were required to perform testing for three months and then get the technical license or if the testing could be performed on the way. It is now obvious that we do not have three months available for these tests, given that the listing of the Fund will take place in three months. Brokers will need to perform these tests prior to the listing of the Fund to get their certification and those who wish to do so will be able to do it on the way".

The decision of the CNVM not only brings clarification, but it also raises new questions as soon as possible. It is however unclear on who needs to come up with these clarifications, since the Central Depository and the BSE, which is the majority shareholder of the former, have declined to answer the thorny questions so far.

"I do not understand exactly what getting the approval of the Bucharest Stock Exchange involves, because it has no connection with the implementation of the nominee accounts, rather the Central Depository does, but there will probably be clarifications soon", said Rareş Nilaş, the managing director of "BT Securities", who added: "From my point of view, the tests required by Regulation no. 5 would not require more than a day, they basically consist of sending reports on the settlement at the end of a trading day and the reports for the issuers" General Shareholder Meetings".

However, other brokers consider that the situation is fuzzy and that there are aspects which need clarification. "Where exactly does it specify how many tests it takes for the brokers to qualify for receiving the certification of the Depository? Nowhere. Furthermore, article 30 mentions monthly testing and evaluations, meaning for at least 30 days. The listing of the Fund will take place in less than 30 days. It"s a conundrum that needs to be solved", market sources that did not wish to be named said.

The management of the Central Depository has announced that it has made the testing system available for brokers since the end of 2010, but it declined to mention how many brokers of the 65 currently operating on the market have actually begun the necessary testing. Besides, no one knows the number of tests that intermediaries need to perform, nor their duration, given the fact that paragraph 1 of article 30 of the Regulation 5/2010 (which concerns nominee accounts) establishes that intermediaries have the obligation to perform monthly tests and evaluations of the implementation of the nominee accounts system, of stock borrowing etc.