Cristian Sima: "The Proprietatea Fund, the final sale of privatization vouchers in Romania"

(Interview with Cristian Sima, the head of brokerage firm WBS Romania)

Reporter: The Proprietatea Fund is one the "great hopes" of the Bucharest Stock Exchange, with many brokers hoping that its listing would put the BSE on the radar of foreign investors. What are the plans of the Sibiu exchange when it comes to the shares of the Proprietatea Fund?

Cristian Sima: The Proprietatea Fund is the last sale of privatization vouchers in Romania. The goal of the previous nation wide sales of privatization vouchers were the following: we"ll buy cheap stock from the suckers and then we will sell it dear later down the road. Brokers expect that after the listing of the Proprietatea Fund, foreign investors will bring in two billion Euros, which they will use to buy stock in the Fund. However, the question is, where will this money come from? I don"t see why any foreign investors would come and buy stock in the Fund, given the fact that those who are interested in the Fund have already bought stakes in it and are looking to sell.

We are going to try and launch derivatives using the shares of the Proprietatea Fund as their underlying asset, on the Sibiu exchange. There will be many investors looking to short the shares of the Proprietatea Fund. A few months will have to pass from the listing of the Fund in order for us to get the necessary permits from the Romanian National Securities Commission. We are however, getting closer when it comes to the listing of derivatives based on the stock of the Bucharest Stock Exchange. We have already submitted the necessary documentation with the Romanian National Securities Commission (CNVM).

Reporter: What will your position be on the derivatives based on the stock of the BSE?

Cristian Sima: I"ll tell you once I"ve opened the position.

Reporter: Is the merger between the exchanges of Bucharest and Sibiu a viable project?

Cristian Sima: I am open to a merger between the two exchanges at any time, but the terms need to be fair. People who think the BSE is a goldmine and the Sibiu exchange isn"t worth anything should look at the daily volumes that the two had during the crisis; that"s how they are going to understand that in Sibiu you can win when the market is rising, as well as when it is falling. It"s important to remember that the merger between Bucharest and Sibiu can be done as soon as a core of shareholders of the two exchanges agrees on this matter.

Reporter: Were any changes in the shareholder structure of the Sibiu Exchange after its self-listing? I noticed that in Bucharest, a fund managed by Franklin Templeton bought 2% of the BSE, according to sources.

Cristian Sima: It"s a free market and it is listed on the exchange, I don"t know who"s buying or who"s selling. Besides, the fact that someone in Bucharest knows that a fund managed by Franklin Templeton bought a stake in the BSE means that someone over there keeps snooping into the accounts.

As long as we don"t learn that we need to keep the secrecy of transactions, we won"t have a transparent market. That"s it in a nutshell.

Reporter: Some brokers see the fact that Franklin Templeton entered the shareholder structure of the BSE sends a positive signal for the Bucharest Stock Exchange and is one of the reasons why the shares of the Bucharest Stock Exchange gained over 20% over the past few months. Do you agree?

Cristian Sima (laughs): Remember what happened to the price of BSE stock after I sold my 3% stake in the BSE to Morgan Stanley...

Reporter: In your opinion, what would be the first step to help the BSE evolve?

Cristian Sima: We should bring foreigners and appoint them as general managers of the BSE and of the Sibiu Exchange.

If I had shareholder backing, I"d bring a foreign manager at the Sibiu Exchange.

Reporter: The BSE tried this idea, but it failed...

Cristian Sima: One needs to bring in a manager who knows what he"s doing, but this is very hard to do because no one wants a manager that isn"t controlled by the Board of Directors and the shareholders.

Reporter: The Sibiu Exchange is strong on the derivatives side. Have you thought about using this advantage to attract foreign investors?

Cristian Sima: We have contacted the exchanges of Bulgaria and Albania. We are hoping to develop the exchange of Tirana together with the Albanians. It is true that Albania is a small country and it has its share of difficulties, but we can only teach those that started later than we did.

Reporter: What part does the Sibiu Exchange play in the development of the Albanian market?

Cristian Sima: It is precisely the role of the Chicago Exchange, which is teaching us in Sibiu how to do implement the Dow Jones Derivatives.

Reporter: What new instruments will we be seeing in Sibiu in the coming period?

Cristian Sima: Derivatives based on commodities and European indexes. We may perhaps see some new stocks on the spot market, perhaps a few IPOs, maybe some companies will transfer over to us from the BSE.

Reporter: At the moment, there is talk in the market about a possible transfer of one company from the BSE over to the Sibiu Exchange. On top of that, when it comes to transferring the Shareholder Registry over from the Depository of Bucharest to the one in Sibiu, the representatives of the Depository of Bucharest claim that there are no regulations pertaining to this matter.

Cristian Sima: Things will get easier once the first company succeeds in switching over to the Sibiu exchange and does so via a court ruling.

Reporter: On Wednesday volume on Dow Jones derivatives reached 81.8 million lei in Sibiu. WBS operates as a market maker for this instrument. How did you make the market?

Cristian Sima: The marker maker ensures liquidity, and guarantees that at any moment investors can buy or sell a certain number of contracts with a decent spread. The spread I get in Sibiu is not very good at the moment. I hope I can later get a 3 point spread, whereas it now fluctuates between 4 and 20 points. The problem is automation: the Sibiu exchange has not implemented the market-making platform. When the quote in Chicago drops one point, my trader needs to change the market-maker quote in Sibiu manually. Because of this, I can"t provide a low spread, because I could incur huge losses if my trader doesn"t move fast enough. I hope in one month or so we"ll have the market maker application implemented in Sibiu.

Reporter: Did you ever lose money on arbitrage?

Cristian Sima: I"ve never lost money when doing arbitrage so far. I"ve only won. I can tell you that I"ve arbitraged 30000-50000 contracts every month. Arbitrage means that when the price in Sibiu is lower than the one in Chicago, I"m buying heavily, and when prices tend to rise, I sell heavily and I try to get the quote closer to Chicago"s price. For instance, on Wednesday, in the first three trading hours, I bought and sold two hundred contracts simultaneously.

Reporter: What are the factors behind Wednesday"s record volume on the Sibiu Exchange?

Cristian Sima: Tomorrow (ed. note today) is the "Triple Witching Day" in Chicago. On the third Friday of March, June, September and December options and futures contracts based on indexes, stocks, currencies and commodities. Volatility will be extremely high.

Reporter: Did you receive complaints from your clients that you are not active enough as a market maker?

Cristian Sima: What more can I do compared to what I am doing now? Investors are slowly coming to realize that the Dow Jones Index and the American economy, in spite of all their flaws, are the most honest and transparent financial instruments. Information about them is plentiful and readily available to everyone at the same time. It"s natural that investors would turn to this market. Investors don"t come to the Bucharest Stock Exchange because they are not sure they will find the same transparency here; the transactions with the stock of Rompetrol Rafinare upon its transfer from the Rasdaq to the main regulated market raised many questions, as did some deals with the SIFs etc. These doubts are causing investors to shy away from the Bucharest Stock Exchange as well as from the derivatives of Sibiu which have stocks listed on the BSE as their underlying assets. Volume on derivatives that used to be market leaders, such as those based on SIF5 or SIF2, is dropping, as investors are turning to gold and Dow Jones based contracts.

Reporter: Some time ago, one could make money by speculating on the differences between the prices of the spot market of Bucharest and those of the futures contracts in Sibiu...

Cristian Sima: Investors who lost money on derivatives in Sibiu weren"t convinced that it was their fault they lost money ...rather that someone in Bucharest could have moved the market up and down.

Reporter: Is WBS still acting as market-maker for the Euro/RON exchange rate in Sibiu?

Cristian Sima: In Sibiu, the Euro/RON quotes are completely messed up because it"s impossible to use them for arbitrage anymore. WBS was a market maker for the Euro/RON in via Swiss bank UBS, but since that time when governor Isărescu took the overnight interest rate to 500% at the end of 2008, and accused the banks of speculating, UBS backed off and left me on my own. Since then, I"ve talked to every foreign bank operating in Romania, but none of them was willing to give me the same terms that UBS was giving me. For instance, they would offer me a bid-ask spread of 40 pips.

Reporter: Why didn"t the local banks support you to work as a market maker?

Cristian Sima: Because the operation isn"t big enough and because they have no interest in supporting the development of a new market. The only goal that the banks have is to raise money from their customers and lend it to the government.

Reporter: How many investors are there in Sibiu?

Cristian Sima: The Sibiu Exchange has a marketing plan designed to attract around 10,000 active investors. On the Exchange of Sibiu there already 1,500 active accounts, which make a market which is bigger that that of Bucharest in terms of turnover.

Reporter: Lately, it has been repeatedly said that domestic investors are not ready for complicated products and that they need to be offered investment instruments with a lower risk degree. Do y you think domestic investors are afraid to take risks?

Cristian Sima: On the contrary. Romanians are big Forex gamblers. Forex is one of the most dangerous markets in the world.

Now there is another problem: No one should expect to make on derivatives amounts like the ones made by Soros, who bet 500 million sterling pounds and made 1.3 billion. With a good strategy, my clients make 1% a month in dollars, which is very good. It"s just that some people aren"t happy with that, they want 10% a day. What is difficult is avoiding losses greater than 10% a day.