CRITICISM AGAINST THE LEGISLATIVE DRAFT BACKED BY THE BSE Ceocea is less prideful than Sobolewski

• SIF2 proposes a 33% holding limit in stock exchanges, and allowing shareholders to set the holding limit in the SIFs

The stock market community has been keeping silent even though two months ago, a draft for amending the legislation has been forwarded to the prime-minister, originating, at least officially, from Ludwik Sobolewski, Florin Pogonaru and Steven van Groningen, united as leaders into an association calling itself "For the Development of Romania".

The project was preceded by a material launched by the Bucharest Stock Exchange concerning the so-called "8 barriers" that hinder the expansion of stock market trading, of which whispered voices said it was a compilation of the difficulties that foreign investors are facing, which left out those faced by domestic investors.

Still, a public criticism of this document has not been formulated.

With an amazing celerity, which would seem to lend credence to Ludwik Sobolewski's claims that he also works in the week-ends, a draft list of amendments to the law 297 concerning the stock market and law 311990 of companies, in order to eliminate "the 8 barriers". The project is massive and shows a volume of work that does not get accomplished in one weekend, rather it involves the contribution of a group of specialists, which as a matter of fact is known on the stock market.

Normally, a legislative change initiative is justified when what lies behind it is a strategy for the development of the market, but everybody from the stock market knows it, and for that matter the authors of the list of "barriers" have said it, that that document does not represent a development strategy, but merely specific observations that would improve the trading environment.

In spite of this inadvertence, nobody has dared to conduct a thorough review of the draft to review the legislative changes, until now.

Costel Ceocea, the CEO of SIF2 Moldova, rips right through this apathy. In the article below, Costel Ceocea criticizes the proposed draft law.

SIF Moldova supports the keeping of the current procedures for participating and voting in the General Shareholder Meetings, and it disagrees with the proposals of the Capital Markets Working Group (as part of the coalition for Romania's Development) from the document titled "Great Barriers Shift", according to a address sent by SIF2 to the Financial Oversight Authority (ASF).

The group of specialists that has handled the identification of the eight barriers that are preventing the development of the stock market had proposed allowing shareholders to participate and vote in the General Shareholder Meetings through representation, using powers of attorney.

According to the proposal for amending the law of companies presented by the Working Group, there would be several types of powers of attorney. For instance, "a general power of attorney" could be given to allow the exercising of some or all of the rights which the shareholder would have in the general shareholder meeting, and it could be of a limited or unlimited duration and apply to one or more companies.

The working group uses as a justification for its proposals the fact that issuing a power of attorney for each general shareholder meeting involves additional time and money and it also restricts the shareholders' ability to react to last minute changes occurring in the General Shareholder Meetings, which violates Directive 2007/36/EC.

SIF Moldova says however, that the text of the European Directive is used out of context, against its intended meaning: Directive 2007/36/CE uses the expression < voting by proxy > and explicitly states: < the representative should therefore be required to comply with any instructions received from the shareholder, and the member states should be able to implement adequate measures in order to guarantee the fact that the representative does not pursue any interests others than those of the shareholder >.

SIF Moldova claims that the special power of attorney should be granted for each general shareholder meeting and must comprise the voting options for each item on the agenda.

SIF2 also stipulates that electronic voting eliminates any costs: "Participation through a proxy is not the only means available to the shareholders who can't attend directly, as voting by correspondence (in writing or electronically) is a lot simpler and does not involve the participation of any proxy".

• The holding limits, the quorums for the general shareholder meetings at the SIFs and "deal" transactions - the hot topics of SIF Moldova

The address sent by SIF Moldova to the ASF contains 15 items pertaining to the legislation which concerns the SIFs.

SIF2 proposes raising the allowed holding limit in market operators, gradually (10%, 20%, 33%), over a period of 3 years. SIF2 says that no European country sets limits on investors stakes in exchanges.

When the amendments to Emergency Ordinance no. 32 concerning mutual funds and investment management companies were discussed in the Parliament, Mircea Ursache, the vice-president of the ASF in charge of the capital market, backed the idea of increasing the allowed holding limit in market operators - the Bucharest Stock Exchange and Sibex - to 20%.

The representatives of SIF2 are also proposing the elimination of all the provisions concerning the incompatibilities that apply to board members and executives in capital market institutions (market/system operators and central depositories).

The shareholders of the Bucharest Stock Exchange have recently nominated among the candidates for the management of the Central Depositories four individuals that would be currently incompatible with such positions - Ludwik Sobolewski, the CEO of the Bucharest Stock Exchange, and board members Stere Farmache, Robert Pană and Adrian Lupşan. Holding multiple positions is prohibited through a decision of the CNVM, currently merged into the Financial Oversight Authority. The ASF has a draft regulation that could eliminate those restrictions in the works.

Through the amendments proposed for Emergency Government Ordinance 32, SIF Moldova would also prefer to have the articles of incorporation of the SIFs be adjusted to allow the same rights that companies have under the law of companies 31/1990, concerning the quorum requirements of the General Shareholder Meetings (namely to allow the extraordinary general shareholder meetings to be held with a quorum of 25% , on the first convening, and 20% on the second). Four of the five SIFs are not allowed to do that, because their articles of incorporation stipulate different requirements in that regard.

At the end of last year, Mircea Ursache told us that the quorum requirements included in the articles of incorporation of the SIFs are unnatural and counterproductive.

At the end of last year, SIF Banat Crişana expressed a stance similar to that of SIF Moldova. Its management requested the lowering of the quorum requirement for the Extraordinary General Shareholder Meeting, but the request was denied by the ASF, since it had no legal grounds.

In October last year, Dragoş Bîlteanu, the CEO of SIF Banat Crişana, told us that what the SIFs need first of all is an updating of the secondary legislation of the CNVM/ASF, followed by an update of the capital market legislation, so that these companies would no longer be discriminated compared to other investment companies and/or closed funds in Romania or Europe.

SIF Moldova also wants the amendment of the regulations of the BSE concerning "deal" transactions, to allow the buyers and sellers to negotiate directly, without the involvement of brokers. SIF2 also proposes the elimination of the daily price fluctuation limit, on the "deal" tier: "The elimination of the maximum allowed daily fluctuation limit is necessary, otherwise there is the constant threat of accusations of market manipulation being made against the parties of the pre-contract that have decided to fulfill their contractual obligations.

In the beginning of the year, lawyer Cristian Duţescu, the president of the Organization of Capital Market Professionals, told us that he had already asked last year, a modification of the Code of the Exchange, which would allow the elimination of the restriction applicable to "deal" transactions which prohibits the negotiation between sellers and buyers. At the time he gave us the following statement: "This provision is nonsensical. The regulation must adapt itself to real-life needs. You can't expect, in a negotiated transaction, the buyer and the seller not to talk to each other and only their brokers to do so".

• SIF2 wants clarifications concerning the concertation of shareholders

SIF Moldova considers that clarifications are necessary concerning shareholder concertation. The representatives of the company say that according to European legislation, obligations derived from concerted action exist in the case of the acquisition of control over an issuer which is traded on a regulated market, and internal legislation has extended the applicability of the restrictions to the holding limits per individual shareholders.

Another topic proposed by SIF Moldova is the merger of the markets managed by the BSE, OPCOM, Sibex to create a single operator, powerful and specialized operator, that would manage all the spot and derivatives markets.

Last year there was talk in the market about the possibility of a merger between the BSE and the OPCOM, the manager of the Romanian energy exchange, which is fully owned by Transelectrica.