LUDWIK SOBOLEWSKI ADMONISHES THE CENTRAL DEPOSITORY "Effort and results, not pretty words"

Reporter: Are you on schedule with the tasks you have taken on through your contracts (some of them being a 50% liquidity increase and the listing of five new companies, in the first year)?

Ludwik Sobolewski: Yes, like all the objectives that I had for 2013, I have achieved them. If we are talking about what my contract comprises, I actually think I have achieved a little more than what had been set. Some of the goals are for 2014, and the others are for the September 2013 - September 2014 period.

Reporter: What objectives were reached?

Ludwik Sobolewski: I will answer like this: at the end of 2013 it was important for shareholders and for the Board of Directors that the organization be configured in a different manner.

I was hired to do some things that have never been done before, which concerned the internal structure of the organization, the employees. This was one of the main goals for the second half of 2013.

I have completed this task, the major changes have been done. However, my opinion is that improving the manner in which an organization works is a never-ending task.

We entered 2014 with new assignments of new projects and this team was significantly changed compared to August - September 2013. It was a thorny issue. Now it is team building. It is about attitudes. About satisfaction and joy people can have when they work and when they achieve, and also when they fail, temporarily, to achieve.

Reporter: How many employees does the BSE have now?

Ludwik Sobolewski: Around 40, but the numbers are not essential in that. It is essential what attitudes, mentalities and competences we have on board.

Another objective concerned the net profit, which has also been reached. This was just one of the components of my activity so far. The other one was to create a set of projects that would improve the market. I have divided them in two: one is increasing our ability to change things. We extended the trading hours, changed the rules for market makers, are advanced with some projects regarding the trading and postrading infrastructure, and many other project are ongoing. Another chapter is represented by projects where we need significant help or a very clear intervention from the government or the regulators. In that regard, we have uncovered , together with many other stakeholders of the Romanian capital market, eight barriers preventing the development of the market. I am very pleased that this notion of "barriers", especially as opposed to eloquent "strategies" has been adopted by other people as well, who are commenting on the situation in the market. One of the first things on my mind when I came to Romania was that, first of all, we need to realize what the situation is like. Not to discuss general notions, but to be brutally honest - we are one of the smallest markets and we need to find out what needs to be done to grow, to move to a different category in terms of size.

Reporter: At the conference in New York, the investors were concerned over the ability of the ASF to act quickly in that regard.

Ludwik Sobolewski: I have a different way of looking at things that await us and at what must be done. I don't consider that the Bucharest Stock Exchange or the people who set up this task force (ed. note: for removing barriers) are on one side, while the ASF and other public institutions are on the other.

My career has been commented, some time ago, in Romania, in the BURSA newspaper itself, as follows: "Sobolewski's results were the merit of the government who helped him". I smiled when I read that. Because having that ability to cooperate with the government is one of the key abilities for someone who wants to be the CEO of an emerging market stock exchange.

In an emerging economy, stock exchanges are normally seen as less important. Other things are considered important, such as, for instance, in Poland, the miners, the retirees, farmers, there a bunch of other things that are considered more important to politicians and the voters than the stock market.

Cooperation with the Government is one of the biggest achievements which the CEO of a stock exchange could have: that he succeeded in making the politicians get involved. The same thing is needed here: I have already met some people, who were interested in what could be done. Including from the top of the ASF - Mr. Mircea Ursache, Mr. Daniel Dăianu.

Of course, the pace at which the change occurs is sometimes different from the speed at which statements or plans are made. But that is what everybody's life is alike.

The identification of the eight barriers has represented a catalyst because people who were showing interest before are now even more prepared for action. Not just in the market, but in the public administration as well.

The ASF did not formally participate in the elaboration of the document concerning the eight barriers, because of the reason that they are regulators, and therefore they need to keep a certain distance. I understand and respect that.

I hope that we will get better cooperation with them. And they will increasingly rely on the views ad instincts of the experts from the market.

For example, I have to say that the proposal of the ASF to lower the fees for a period of six months, which as I hear is under consideration, will probably not produce any tangible effect. Businesspeople think different than sometimes the people in the public administration do, for whom this proposal may represent a major change.

Businesspeople can like the idea of reducing fees, but they will not adjust their reasoning and acts based on it, because they can't respond through any move vis a vis their clients if the time frame is just six months. It is easy to understand that because brokers, who are serious and professional - the ones who want to keep their business as sustainable and responsible and in long term - they are making plans for periods longer than six months. Besides, there is an unwritten rule in capital market that says that if you lower your fees for a client you can't restore them to their previous level. Therefore, the market must see a strategic thinking and long term objectives. I want to say that even if the intentions are good, the devil lies in the details.

Reporter: The ASF did not mention which fees it wanted to reduce. For certain fees, last year, promotions were made, and the return to the previous fees has affected the market, for example the commissions for market-making and turnaround.

Ludwik Sobolewski: The level of the fees must be carefully considered, but maintaining them because they have been maintained for years has no value. It is very easy to set fees that would eliminate some types of transactions or market techniques, as for instance the market-making (which unfortunately just happened). It can be very harmful for the entire market. Even if it isn't an important commission, it can generate major issues, through horizontal effects.

Another example relates to the fees for the turnaround trades - following stock exchanges transactions. It is one of the causes behind the situation which we've been having for some time, with low trading volume, which fell abruptly a couple of weeks ago.

Reporter: Shouldn't the investors have known the fact that the ASF has applied a promotion last year and it was considering restoring the fees to their previous levels?

Ludwik Sobolewski: Unfortunately, Romania isn't a market that everybody constantly analyzes and discusses, to put it mildly. Second of all, people have a tendency to create habits, to get used to certain situations. I think that in general, people - investors and intermediaries - expect both main and those structurally important taxes to decrease. And we do not need any philosophy, whether speculative or empirical: the administrative cost of participation in the market for investors are many times too high. I would not like these words to be interpreted as directed against anyone. I would understand any level of fees provided that they do not make impossible or extremely difficult raising of competitiveness of the market, which is extremely low. We must at last start earning commissions on high volumes, and not in excessive fees. Excessive fees in financial sectors are typical for poor and underdeveloped markets.

Reporter: You were saying that you have achieved your objective concerning the net profit. Do you have any other comments concerning the 2013 earnings of the BSE? What will the dividend policy be?

Ludwik Sobolewski: The dividend policy will be honored like it used to be until now. After keeping the 5% mandatory reserve, we will propose the distribution of the entire net profit to shareholders. There are also other challenges. We want to start having derivatives market, which is very difficult, but could be an additional source of revenues for the Exchange. The same for corporate bonds and, hopefully, treasury bonds. We have to get a bit more from data dissemination, which will come with the development of the main pillars of our business model. Definitely, it should be more diversified than it is now.

Reporter: Before your appointment as a CEO of the BSE, some of the shareholders of the BSE have proposed the appointment of a dual management structure. Do you think it should be implemented?

Ludwik Sobolewski: I would answer that on a more general level, the governance of the BSE's group is also a problem. Yes, there have been some issues when it comes to the governance of the entire group, including the Central Depository, and they should be resolved.

There are then more important issues that should be resolved first, and then we can tackle the "luxury ones". When you have a house which needs a major refurbishment, you first get it in order and only then you build a winter garden. For me, being concerned with the dual management system is like asking whether or not you should build that winter garden.

There are more urgent problems, such as for instance the allocation of competences between General Shareholder Meetings and let's say, the management in the broad sense, comprised of the Board of Directors and the CEO. The articles of incorporation of the BSE look like it were written by people who were afraid of everything and wanted to control everything. It is not good for business, especially at the stage that we are in, when there is a need for reforms, decisions, changes and, above all, when there is a need for someone to take responsibility. I could even say that the present allocation of tasks and responsibilities, poses a threat to shareholders' value, which for sure was never their intention.

I also see something that needs to be further improved - the control and the alignment of the strategy and real deeds and acts of the Central Depository with that of the capital market and that of the Bucharest Stock Exchange. I admit a lot has been done in that domain and I was even several times very pleasantly surprised, but it is not enough.

These are to me, the most important issues, not the dual system.

They should be resolved because there is a growing interest from existing and potential shareholders of the BSE. I've participated in road-shows and I have met not just people that are interested in investing on the Romanian stock market, but also people who want to invest in the shares of the BSE. These people want to have a very effective organization, that can create value for shareholders in a durable way.

Reporter: Are these people representatives of other exchanges?

Ludwik Sobolewski: No comment. There is great interest and I would say that this a source of satisfaction and also a reason for reflection. The stock exchange is an institution of strategic and systemic importance. In general, I like the idea of a listed stock exchange, but its ownership should also be the object of some political and strategy-driven considerations. For example, I disagree with the 5% holding cap, it is too restrictive. But I am not thrilled, either, if this cap is raised too high or lifted at all, with no smart instruments attached, preserving the interest of the economy.

Reporter: But as far as I know, the state was also interested in being a shareholder of the BSE.

Ludwik Sobolewski: I don't know about it. I think that everything can work very well even if the state doesn't have a stake in the BSE, because the state can have a very high influence on the market and the stock exchange in any circumstances. The role of the state is to regulate. The state has many such instruments to improve the effectiveness of the market and also, to achieve the objectives which are typical to it, such as for instance the privatization of the assets of the state.

We clearly need to exit the 5-10 million Euros per day range in liquidity, and to climb far higher, to bring in new companies and investors.

In this context, the dual management system or the involvement of the state, even the holding limit, are not that important.

The threshold however, is important because it will have a major influence on the shareholder structure. What I need, as a CEO, is not only better articles of incorporation, with the re-allocation of competences, but also first class institutional investors. My dream would have been to have prestigious institutions, with good corporate governance, as well as retail investors, because the Bucharest Stock Exchange should also be important for people.

Reporter: Are you still working on a Central Counterparty? The ASF has proposed that it be created with the help of the NBR and of Transfond.

Ludwik Sobolewski: And this is, I would say, an encouraging declaration. We are advanced with the project. I would rather not give details right now.

We are talking about a re-launch of the derivatives market, for which we need a central counterparty. The counterparty plays a certain role, because it improves the reputation of the market.

If the market is well formed and has no major issues, but it lacks a Central Counterparty, then that thing is perceived as being something that should be changed for that market to be complete. We have so many other issues, that the lack of the CCP is a topic that is discussed only in Romania. The people I talked to aren't interested in the fact that we don't have a Central Counterparty. They would want us to have elementary things, to be solved and regulated correctly, and the market to be cheaper. The Eight Barriers cover all these areas of fundamental and urgent change.

Il will tell you, by what the investors are concerned, as an example: they keep asking me, whether there could be something BVB could do for issuers to make information available to them - in an orderly manner, well structured and written, and in English. This is something that for people and institutions investing money is essential, is like walking, like breathing, like sleeping, like these basic needs, which aren't met correctly however.

We are then going to have the Central Counterparty, for derivatives. I can tell you that by mid-March, we will likely have a press release on that matter. There is a consortium of financial institutions that is working on that major turnaround. Within this agenda we have that "super issue" of investors and capital requirements.

Coming back to the involvement of the public bodies: we've had a very good meeting last week (ed. note: two weeks ago) with the specialists and top officials of the ASF, the NBR and the Ministry of Finance.

It seems that we have this chance of building a Central Counterparty as a private initiative, but these institutions are invited, whole heartedly, if they want to participate in this entity, which will be built on the basis of the Bucharest Clearing House. Of course we have talked about the scope of the activities of the CCP. In our intention it would handle not only the risk management of derivatives, but it could also cover OTC derivatives issued by banks, as well as treasury bonds' inter-banking market.

I would like to take this opportunity and say that I am, as well as my people from the Exchange, under a very positive impression how much the ASF helped us so far and showed the understanding for the uneasy situation in which we are.

I hope that ASF will also speed up approving the regulations concerning the cash market. We need it also, in order to introduce a new phase in trading (transactions executed at fixed price) or to eliminate the odd-lot market, which worsens the picture of the market and hampers the liquidity. Plus something which is fresh, but urgently important: a set of regulatory changes assuring the separation of the trading and post-trading system of accounts.

I am mentioning all these changes, because they are important for the investors, for the intermediaries and for privatization processes.

Reporter: Who will bring the capital for the central counterparty?

Ludwik Sobolewski: Like I've said before, this is one of the issues within the project. We have some potential investors, but it hasn't been decided yet.

Reporter: Are you thinking of any projects concerning Sibex? Are you still considering a merger?

Ludwik Sobolewski: I would gladly consider any proposal on that Sibex question. I have to admit, that while facing quite few issues I have no concept how to solve them, Sibex is one of them. We have this situation which is structurally not optimal, namely we have two exchanges in Romania. I don't think that Sibex is a competitive threat for the BSE. In addition, I don't see a clear future for Sibex, as a business concept. I can tell you that when I decided, as the CEO of the Warsaw Stock Exchange to buy a stake in Sibex, I had two reasons. First of all, I wanted to be closer to the Romanian market, guessing that it might have a potential. The second reason was the perspective of a merger between Sibex and the BSE.

I would like to say that I am watching what they do, for a specific reason: because they have decided to have this agreement with the Greeks (ed. note: for the Central Counterparty).

It leads me to another remark.

It is also advisable to pay attention to the international context as well, which mustn't be ignored, in order to avoid some risks, as well as to identify some new opportunities for us. One of these events is what can happen concerning the possible alliance between the Warsaw and Vienna Exchange. This is something that I am watching closely, not for sentimental reasons, but because I am trying to realize what consequences it might entail for the BSE.

Then, for a time, there was some talks about creating a sort of platform for several south-eastern markets, such as Croatia, Macedonia, Bulgaria and I received a proposal to join this initiative. I have turned it down, because I do not think that it is in our strategic interest to position the Romanian market within this category of structures. I am sorry if that could sound as not sufficiently "politically correct", reaffirming that I rejected that project for very pragmatic but also strategy-driven reasons.

A third international context is the Istanbul Exchange, which is a major player in that region. I respect them a lot and their pace of development has made me think that there might be a chance of creating cooperation between us and them.

A fourth context is the one which also has to do with the Istanbul Exchange, due to the strategic partnership which it has with the NASDAQ OMX. And I almost concluded in the past a big deal with our colleagues from NASDAQ OMX, yet finally choosing NYSE, but it was one of the toughest business decisions in my life, and the dilemma was really enormous.

A fifth context, of lesser importance, is Sibex and this connection of theirs with the Greeks.

In a somewhat unexpected manner, these international contexts have started becoming more visible and, I think, more relevant to us. This is something that we will also need to pay attention to, in 2014.

Reporter: Are you planning to relocate the Bucharest Stock Exchange?

Ludwik Sobolewski: It would be a very good thing if we were to find ourselves back in the historical location one day. I've been there, inside. We want to build a good business environment, symbolized by these two snakes that form the caduceus symbol, carved on the wall of our first premises. But for now we are where we are.

Reporter: Marketing expenses have increased in Q4 2013. How would you evaluate the results of these campaigns?

Ludwik Sobolewski: We don't do evaluations. We do what we think is necessary and reasonable. There is no methodology to assess the results of general marketing for exchanges. We will actually increase the expenses with marketing and education, because they are necessary for building a culture, for educating investors. Actually, for educating people, because they are not investors, and that is precisely the problem. The stock exchange must carry out this educational role. It is not a direct and simplistic marketing, whereby we are selling our products. It is rather directed towards a permanent effect, of making people interested, engaged. Of course, it will be adjusted to our financial capabilities, which are currently very small. But we manage this issue as well. We will for instance launch, by end of March, a mobile application, for smartphones, in order for the capital market and BVB's data be much more handy and available.

Reporter: The Central Depository had a plan to completely change its software, whereby it wanted to separate the infrastructure of the Central Depository from that of the Bucharest Stock Exchange. What is the current stage of this process?

Ludwik Sobolewski: This is one of the projects of the Depository. There are many others. We have talked about the barriers and about the manner in which we want to cooperate with the public administration. But it is fair to say, and I want to say it expressly, that there is lots to do in our yard. My policy on that is that I will not be satisfied of half-measures or of the overuse of pretty words. Only results and efforts do matter. I am convinced that we need to improve the cooperation culture and in general the corporate culture, across the entire group, in order to achieve better results.

People must bear responsibility and be accountable. Our, BVB's responsibility, is to tightly work with the DC, not allowing for any alienation of this institution, and that, for four reasons. One is that the Central Depository is that important for the development of the market. The second is that the BSE is a majority shareholder of the Central Depository, the third is that we supply almost 100% of the business of the Central Depository and the fourth that BVB as a listed company is accountable versus our investors for the performance of the whole group. Both institutions are in the course of building a consensus, that the cooperation must be assorted with leadership.

Reporter: If you do not get the results you except from the Depository, are you considering making changes at the top of the institution, as a majority shareholder?

Ludwik Sobolewski: Let me answer this question in this way: I believe people are always the most important.

Reporter: Everybody is waiting for you to publish your contract, given the fact that wages were public on the Warsaw Stock Exchange.

Ludwik Sobolewski: Really everybody? It was public in case of the WSE because there was a general rule obliging it to be published by all listed companies on the regulated market. The same rule should be adopted in Romania. Some data, as to my contract, will be published in the annual report.