Currency Hedging, The Crisis Countermeasure

• An interview with Mr. Teodor Ancuta, President - General Manager of Sibex

Bursa: The recent appreciation of the euro against the leu has been the talk of the day for quite a while. We would like to know your opinion on the matter.

Teodor Ancuta: I would like to make a short introduction before answering your question. As you know, the Sibiu Monetary & Commodities Exchange has been offering, for 11 years, short-, medium- and long-term derivatives for various monetary-financial assets and commodities, such as shares, foreign currency, interest rates, gold etc. The Sibiu Exchange is therefore a market where the aforementioned items can be traded, where supply and demand generate quotations for periods ranging between one quarter and one year. Thus, the leu-euro rate, too, is the result of supply and demand.

Bursa: In September 2008, the Sibiu Exchange was offering 6-month forward quotations of 4.2 RON for the euro, due in March 2009, as investors were already estimating a depreciation of the national currency. Will their estimates continue to prove correct?

Teodor Ancuta: The estimates were very close to what actually happened, but we could even say that investors were more optimistic than the cash market, as the official exchange rate has already exceeded 4.3 RON/EUR. For the time being, the euro has been estimated on the Sibiu Exchange at 4.65-4.7 RON for December 2009. It may seem to be a very high exchange rate, but it can definitely be reached, considering that the estimate for March was reached in January. We, too, are surprised that leading specialists have said that the respective quotations are just speculations. They were probably just trying to calm down the public. However, the very high volumes of EUR/RON transactions in the last few months demonstrate that, in addition to speculators, whose presence is a certainty, the market now also includes hedgers, who acted based on pertinent analyses and market studies, which helped them project quotations that turned out to be very accurate. So these quotations are not at all speculations. We regret that the public has to suffer because the national currency is depreciating through inflation and because of the substantial increase in the value of instalments towards forex-denominated loans, but it is not the Exchange that determines the exchange rate of the euro, but the investors trading on the market. These rates actually do reflect reality.

Bursa: Are you pleased with the volume of foreign currency transactions?

Teodor Ancuta: We are glad that we have managed to increase the volume of EUR/RON transactions approximately ten-fold from 2007. The implementation of the market-makers played a decisive role in this achievement, but we still believe that we are far from the true potential of foreign exchange derivatives, be they EUR/RON or USD/RON or EUR/USD or even CHF/RON. It"s not about being always unhappy. I believe that the current context of accelerated devaluation of the national currency makes the futures and options contracts linked to the exchange rate, which are available on Sibex, into very effective tools of protection against the exchange rate risk for both corporate and institutional investors: banks, multinational companies, investment funds, pension funds, exporters, importers and individual investors. The aforementioned institutional investors will have to intensify their activity both on foreign exchange and stock derivatives, because their presence is still very weak. I also believe that banks should become more involved. They should become market makers, while international trading companies should access this market in order to improve their ability to create efficient business plans which can guarantee that the depreciation or appreciation of the leu against the dollar, euro or Swiss franc is not going to cause them any loss. What would have happened if all importers had bought euro at 4.2 lei back in September and all exporters would have sold? Everyone would have been better off, and the business would have been more profitable!

Bursa: You told us last year that you had a strategy which had helped you grow your business. What will you do in 2009?

Teodor Ancuta: The Board of Directors will convene on Friday, 23 January, (i.e. has convened by print time) primarily to define and approve a plan to increase liquidities. Moreover, a workshop with the brokers will take place in Paltinis on 23-25 January. We will discuss all aspects related to the development plan for this year and how we can help each other. The workshop will be attended by the best brokerage firms on the market, such as Broker, Vanguard, Eastern, Estinvest, WBS, BT Securities, Delta Valori Mobiliare, Nova Invest, Carpatica etc.

Bursa: Could you be more specific?

Teodor Ancuta: First of all, we intend to continue the free educational effort to initiate the general public in trading derivatives. The campaign is called Sibex Derivatives Tour. We would like to include the brokerage firms in this effort, too. We have already scheduled training sessions in several cities across the country: Bucharest - 31 January, Cluj Napoca - 12-13 February, Bucharest 19-20 February, Focsani - 26-27 February, Alba Iulia - 5-6 March, Alexandria - 12-13 March, Brasov - 19-20 March, Drobeta Turnu Severin - 26-27 March, Slatina - 2-3 April, Braila - 9-10 April, Sibiu - 23-24 April, Bistrita - 30 April to 1 May, Botosani - 7-8 May, Bacau - 14-15 May, Iasi - 21-22 May, Craiova - 28-29 May, Satu Mare - 4-5 June, Constanta - 11-12 June, Bucharest 18-19 June.

Bursa: What other proposals have you prepared for the development plan?

Teodor Ancuta: We want to expand the market-making activity in order to have at least 5-10 new market makers for different products by the end of the year. This should improve our liquidity, just as in the EUR-RON case. We will also try to attract institutional investors and new securities firms. One of our major objectives is to introduce new derivatives such as the Contract for Difference, derivatives for the Dow Jones and DAX indexes and derivatives for energy and oil. The implementation and promotion of the demo platform Web Trader Demo will be another milestone for us. Investors will be able to make virtual transactions in order to become more familiar with how transactions are actually made. The application will be available 24/7. It is the easiest tool to enter the world of futures without any kind of obligation. We also want to introduce a free customer support line for active investors or potential customers, who will be able to talk to Sibex specialists about whatever problems and questions they may have. Also, we are planning a very fast implementation, maybe even this quarter, of derivatives on CO2 emissions because there have been many cases where we asked one of our former employees to trade them for us on the London Exchange.

Bursa: What can you tell us more about this kind of contract?

Teodor Ancuta: At first, we were quite pessimistic about it, but, since the demand is quite high, we have spoken with our computer specialists and apparently we are able to implement such derivatives on the existing platform. We have approached the Securities Commission with this idea and, as soon as they approve, we will implement it quite rapidly.

Bursa: Are you also considering farming products?

Teodor Ancuta: Yes, we are thinking about quoting farming products, so that Romanian farmers should be able to know the price of wheat one year in advance and prevent grain speculators from robbing them blind. We had a similar project before and now, that Mr. Sarbu is now Minister of Agriculture again, we would like to resume it.

Bursa: What can you tell us about the Warsaw Stock Exchange and the project of the spot market in Sibiu?

Teodor Ancuta: We will continue to work with the Warsaw Stock Exchange and maintain our very good relationship with them. WSE is one of our shareholders. As for the spot project, we want to finish it as soon as possible, including the new Global Vision platform provided by Trayport, the client application, the clearing and the Sibex Depository. As soon as the regulations for spot trading are approved, we will make the platform available to both Romanian and Polish brokers, as we promised. We also hope that our listing will remove the 5% limitations and therefore those who have been slowing us down.