Frictions between the BSE and Sibex, prior to the General Shareholder Meeting set to discuss the merger

The Bucharest Stock Exchange and the Bucharest Clearing House (CCB) recently announced that 90% of the interest earned by the CCB on the cash collateral will be redistributed to its members.

In doing this, the management of the Bucharest Stock Exchange hopes to attract brokers to the derivatives market of the BSE and to increase the liquidity of term securities.

Valentin Ionescu, the managing director of the BSE said: "Through this measure passed by the Bucharest Clearing House, we are moving forward towards our goal to increase the liquidity of the derivatives market and we are looking to significantly improve the conditions for derivatives trading on the Bucharest Stock Exchange.

This approach is a first for Romania and we hope that we will elicit a positive response from brokers, by getting them to become increasingly involved in the trading of derivatives on the BSE".

The aforementioned statement is interesting. It"s possible that the managing director of the BSE wants to draw attention to the fact (by calling it a "first") that Sibex does not redistribute the interest earned to the members of its clearing house.

"This was a competitive maneuver", said Nicolae Gherguş, a member of the Board of Directors of the Bucharest Clearing House, who added that the amounts which would be redistributed to brokers are very small for now. Mr. Gherguş added:

"The decision of the Bucharest Clearing House was one for the long term, and it was more a matter of principle. The amounts which we will distribute will increase in time, in line with the collateral deposited by the participants".

At the same time, the statement by Gherguş reveals the explanation behind the generosity of the BSE: the amounts distributed by the BSE are small (because the derivatives market of the BSE is at an incipient stage - its main source of revenue is the spot market), whereas the Exchange of Sibiu relies on the collateral deposits to fund its operations and can"t afford to take a similar action.

The move of the Bucharest Clearing House did not leave the Sibiu Exchange indifferent, as the former perceived this action as a gesture of rivalry.

Teodor Ancuţa, the chairman of the Sibiu Exchange, told us the following, without hesitation: "The action of the BSE and of the Bucharest Clearing House proves their failure in managing the derivatives market and their desperate efforts to attract brokerage firms to their futures market by any means.

We don"t think that the Sibex and the Romanian Clearing House will be affected in any way by this measure or the volume on the Sibiu futures market. We are convinced that the brokerages that trade derivatives in Sibiu and are members of the Romanian Clearing House can"t be convinced to move to a market which isn"t functional, because such a stratagem can"t represent a real incentive for brokers, as the amounts that the members of the Bucharest Settlement House submitted as collateral are very low, as proven by the small number of positions opened in the derivatives market of Bucharest and implicitly the low liquidity of that market. Furthermore, the interest for such small amounts will be insignificant, especially since the interest rates for demand deposits are very low".

Mr. Ancuţa also says that the Derivatives exchange of Sibiu will not adopt a similar measure because it would create a need for a banking software that would be required to point out the time, the method and the amounts of the interest collected on the collateral deposits that would have to be redistributed. Instead, the Sibiu exchange plans to offer discounted fees to intermediaries that trade large volumes.

Nevertheless, the management of Sibex warns that the exchange will adopt a similar strategy to that of the BSE, by offering issuers listed on the latter better terms to get them to switch to the Sibex spot market.

Sibex can afford to do so, since it doesn"t rely on the spot market for its revenues. The recent actions illustrating the competition between the two exchanges reveal that the project for their mergers seems to have lost the wind in its sails.

The current actions and statements seem to indicate that not everybody wants the merger and that there are forces at the top of the two institutions that oppose it.

The shareholders of the Bucharest Stock Exchange and of the Sibiu Exchange have been summoned to decide on the principle of the merger between the two exchanges, at the end of April, in a deal in which the BSE would be the acquirer and Sibex would be the acquiree.

It remains to be seen whether the decision of the Bucharest Clearing House will represent a setback for the merger of the two exchanges, or, on the contrary, it will push them further.