Gangs of the stock market

• Six brokerage firms asking for cumulative votes on the General Shareholder Meeting of the BSE

Six brokerage firms intend to request the use of cumulative vote method at the General Shareholder Meeting of the Bucharest Stock Exchange (BSE) summoned for September 10th/11th, when the short list of favorites of the Exchange for the presidency of the Central Depository will be established.

The initiative is of major interest for several reasons.

A) First of all, the request of the cumulative vote is an obvious sign that some of the 68 brokerage firms which hold shares in the BSE feel they are a minority and lack influence in the General Meeting of Shareholders and on its Board of Directors.

Since this is the stated purpose of the cumulative vote procedure: to protect minority shareholders.

The fact would be strange enough if we were to only think of the fact that none of the 341 shareholders of the BSE holds more than 4.5336% of the shares of the BSE (besides, the maximum limit allowed is 5%) so there is no majority shareholder.

How exactly do the six brokerage firms that are requesting a cumulative vote feel they are in a minority?

Under normal circumstances, this is a matter that should be investigated by the CNVM; are there shareholders of the BSE that are acting in a concerted manner?

The question seems naïve - everybody is talking about the "Ţepeş cartel" - Daniel Ţepeş, the owner of brokerage firm HTI Valori Mobiliare, which has rallied other houses around it, which together hold around 40% of the BSE, and which represents the main force in the Board of the Exchange and in the General Assembly of Shareholders.

The reputation of this "cartel" and the current request of the cumulative vote are enough for the CNVM to start an investigation on its own.

Will it do it?

I don"t think so.

B) A number of eighteen candidates flocked to appear on the list that will be voted by the General Shareholder Assembly, demonstrating the sizeable interest (almost one third of the brokerage firms which hold shares in the BSE wish to participate in the management of the Central Depository).

It"s as if everyone had an idea on how to help the market grow.

In fact, there are no plans, it"s just the interest in the high wage that comes with the job.

The capital market is stuck in the basement of its own crisis, without any tie to the crisis of the country it is in.

Survival is so problematic, that one or two thousand Euros are welcome for participating in a few two-hour meetings a few times a month.

That"s basically all that is at stake.

Sad, isn"t it?

It"s all about the money and not much else.

C) Curiously, the elections the Central Depository are actually held during the General Assembly of the BSE, instead of during its own General Shareholder Assembly.

The BSE holds 66% of the depository, meaning the vote of its representative has absolute power on the BSE during the Meeting.

The presence of the other shareholders which hold 34% in the General Shareholder Assembly of the depository, is simply ornamental, even though they are shareholders of the exchange.

That is why, the true elections for the management of the depository, will take place on September 10th/11th at the BSE, when the representative of the Exchange in the Meeting of the Shareholders of the depository will be given the mandate of backing the nine people of the board of the depository who will be elected on that day.

As it stands, the request to allow the use of the cumulative vote doesn"t seem to have any chance of being accepted.

First of all, because it goes against the provisions of the law, which only allows the use of the cumulative vote only in the case of the election of the Board of Directors of companies listed on the exchange, which the depository is not.

Second, because no matter how much the lawyers of the six brokerage firms might try to twist it around, all the laws and norms concerning the use of the cumulative vote only provide the case where it concerns the election of the Board of Directors of a own company (which must also be listed on an organized market), without any mention of any case where its use might be requested in the case of other decisions of the General Shareholder Assembly.

Otherwise, this would give birth to the dictatorship of the minority shareholders.

Which is why the principle of "what isn"t prohibited by law is allowed" doesn"t apply.

And last, the request for cumulative vote will be rejected, because it is subject to the approval by the General Assembly of Shareholders, by ordinary vote, a vote which is controlled by the very group the request is targeting - the so-called "Ţepeş cartel" - which is a "catch-22 situation".

The only chance the request has of going through, and it"s a very slim one, would be for Ţepeş and his people to say "fine, people, since you want it so bad!, we"ll let you have your cumulative vote!, what are you going to get anyway, one seat on the board of directors of the depository out of nine?!".

You"ll note that I have ruled out a CNVM investigation that would allow for this matter to be settled.

Everybody"s bowls of rice at the CNVM are OK, what they lack is fortitude and brains ...

Post Scriptum

Why would the elections for the Central Depository be important?

They aren"t.

It"s all about a new excuse for haggling in the capital market community - a market that has no past, no present and unfortunately one that also apparently has no future -, with a derisory stake of a few thousand Euros, completely uninteresting to the general public.

So why did I write this article then?!

Just as a purely intellectual effort?

Let me explain: for five years, (1990-1995), I wanted the creation of a stock market, thinking it could change our life and the face of the country and I dedicated the BURSA newspaper to this cause; for five more years, I fought against the foolish strategy of the Romanian National Securities Commission for growing the capital market, only to find out in surprise that in fact three of the five honest market commissioners of that time were actually potential candidates for prison (which is where they ended up eventually - something that"s never happened in any other capital market of the world); for three years I hoped that the air would clean up and the market would start to grow, after implementing its first strategies which I had requested insistently, as well as trying to suggest some ideas of my own; over the last seven years nothing remarkable happened - I have predicted the burial of the Rasdaq (the merger with the BSE was nothing but a kind of classy funeral) and the stagnation of the domestic mutual fund industry. The failed merger with the Sibiu Exchange (ah!, let"s not forget about the derivatives, though!) could not be considered an event.

It"s twenty years of pointlessness and helplessness.

After these two decades of effort and belief in vain, I am faced with the gangs of the stock market.

Way to go!

The main concern of the broker community is not to see the market grow so they can get rich, they just want to get rich without any concern for the state of the market.

That"s why they are squabbling over various chairs.

That"s why the merger with the Sibiu Exchange failed.

That"s why the market is crawling in the basement.

That"s why I wrote this article.

Just so I can say:

Way to go!