NOMINEE ACCOUNTS AND STOCK BORROWING ON THE BUCHAREST STOCK EXCHANGE The stock exchange takes a step towards normalcy

• Rareş Nilaş, "BT Securities": This measure will be beneficial for large brokerage firms and those owned by banks

• Ovidiu Pop, "Intervam": The approval by the CNVM of nominee accounts is a step forward in aligning the Romanian stock market in line with international practices

The stock market regulator yesterday approved the Regulation on using global accounts, stock borrowing and short selling, almost two years after the management of the Bucharest Stock Exchange first asked for their introduction. The Bucharest Stock Exchange thus finally joins the ranks of the more developed markets, after being one of the few remaining exchanges in Europe where investors traded through individual accounts.

Brokers consider that the introduction of nominee accounts will attract major foreign institutional investors that have long avoided the Romanian stock market, because trading through individual accounts involved too much effort and increased their expenses.

"The approval by the CNVM of the introduction of nominee accounts, is a decisive step in aligning the Romanian stock market to international practices ", says Ovidiu Sergiu Pop, the managing chairman of "Intervam" who is also the chairman of the Central Depository.Nominee accounts will simplify trading on the Bucharest Stock Exchange, by making the market more attractive for investors: "Imagine the following scenario: a fund manager in the UK that manages the portfolios of 100 customers and who usually works with a custodian bank, would have been required to open a hundred contracts with the Romanian brokerage firm and another hundred contracts with the custodian bank, which involved additional expenses, and this is why many investors have avoided Romania so far. With the introduction of nominee accounts, what we are seeing is a step towards the way things ought to be", said Mr. Pop.

At the moment, nominee accounts are only used on the Bucharest Stock Exchange since February 2008, but only for "Erste Bank" shares.

Even though brokers have great hopes for the introduction of nominee accounts and stock borrowing, this move may not be as beneficial as it looks on first sight, as some of them may need to bear costs of tens of thousands of Euros in order to adapt their platforms.

"The introduction of global accounts and of stock loans will be beneficial for brokerage firms, especially for large brokers and those that have the strength of a bank behind them, since they can afford to bear the cost of updating their trading platforms", says Rareş Nilaş, of BT Securities, who added: "Investors will benefit indirectly from this move, because these measures will increase market liquidity. Also, short selling will allow investors to make money even when markets are dropping".

Even though there are some voices saying that introducing short selling could bring with it a decline of the market, Nicolae Gherguş, of Confident Invest, says that short-sellers are usually "educated investors, who will not bet against the market, now that it is on the rise". She said: "Institutional investors and large individual investors are those who will benefit from the introduction of nominee accounts and short selling, not everyone has the money to use these tools. Right now, the market is on a slightly upward trend, I don"t think short sellers would use this tool".

Short selling will only be allowed with prior validation, meaning that in order to short sell stocks they don"t own, investors will first have to borrow them and only then will they be able to make the trade, said Radu Toia, the head of the Authorization-Regulation Department of the CNVM (Romanian Securities Commission - ed. note), quoted by Mediafax.

Short selling without prior validation, will only remain in place for stocks listed on other markets where this is allowed. This is the case for Erste shares, as well as government bonds, Radu Toia added. Only market makers will be allowed to short sell stocks without borrowing them first, provided they are market makers for those stocks and those stocks are listed on foreign markets as well, like in the case of Erste shares.