Not even a storm in a tea cup

The Bucharest Stock Exchange lies at the bottom of the chart of European exchanges, together with the Exchange of Cyprus and that of Ljubliana, meaning that the terrible struggles over the positions on the boards of the various institutions of the Bucharest Stock Exchange (BVB) are inexplicable, since the size of the market doesn"t justify it. Every time the elections for the leadership of the BSE, of the Central Depository, or of the Association of the Brokers draw near, a flurry of deals, betrayals and plotting begins. You"d think the reign of the galaxy would be at stake.

But the BSE holds the 14th spot of the top 20 European Exchanges (in a chart which excludes the London Stock Exchange - see the hierarch included with the article), while, right above us, the insignificant Irish Stock Exchange is still ten times bigger than the BSE.

Given the caliber of the Exchange, some of the gestures of the people in the business seem strange. Such as using the resignation from the board of the Exchange as a means to allegedly force the election of a specific candidate as the CEO of the Exchange, or the struggle of all the brokerage firms to become members of the Central Depository.

Even stranger is the public and official retraction of the resignation and its subsequent cover-up, which is arguably illegal. Just as accepting the candidacies for the position of CEO of the Central Depository after the expiration of the deadline, under the pretense that "the General Meeting of Shareholders is sovereign" is arguably illegal. Can the decisions of the General Meeting of Shareholders override the provisions of the law?!.

So what"s with all this strife?!

Looking at the hierarchy of the Bucharest Stock Exchange one can see that what is happening here is just a storm in a teacup.

The passions over this are disproportionate.

In order to see the difference between Daniel Ţepes ("the largest individual shareholder of the Bucharest Stock Exchange"), and the smallest shareholder of the BSE, one needs to look through the microscope and use a pair of tongs.

What is behind these passions?

• Some love it, some have it

People aren"t always rational, nor do they judge things in the same way.

Some people would give their life for things that others don"t care much about.

Germans have a saying: "Some love it, some have it".

Could this be the case here?

Could Daniel Ţepeş love the Bucharest Stock Exchange so much that he stirs up such a ruckus, going as far to bend the truth and perhaps even the law, just to see the "right man" become the manager of the BSE?

No.

Daniel Ţepeş can"t be that interested in the good of the BSE.

It would be ludicrous to claim we know what he thinks, but we can look at the information which is publicly available: HTI Valori Mobiliare (his brokerage firm) ranks 41st out of 68 brokerage firns, in terms of turnover on the BSE, since the beginning of the year. With a total of 42 million lei in turnover (around ten million Euros), he doesn"t account for more than 0.29% of the total turnover of the Bucharest Stock Exchange.

Isn"t there something amiss here?

On one hand, showing extreme interest in the management of the Bucharest Stock Exchange, and on the other hand, not using it as a market that much...

You don"t love it, but you want to have it.

• A bird in the hand is worth two in the bush

The shareholders of the BSE aren"t necessarily interested in the development of the Bucharest Stock Exchange.

There may be interests of a different nature involved, such as the goal of most brokerage firms: to sell their stock in the BSE for a good price, after they got it for free.

A source of revenue that would end their agony.

Normally, you would think they would be interested in doing something to help the market grow - a market that does well would have better ratings, and its stock would be worth more.

But developing the Exchange requires knowledge, time and effort without any guaranteed results.

"A bird in the hand is worth two in the bush" is a slogan that demonstrates the lack of vision.

Why spend effort and money on trying to improve the uncertain future of the Exchange, when I could merge the Bucharest and the Sibiu Exchange and sell the new stock (at a higher price per unit then if I sold the two stocks separately)?

The latter is easier to do and only involves negotiations (deals, betrayals, plotting - which is exactly what is happening in the broker community).

And until the merger happens, we can milk whatever profit we can of the market, because in the end we"ll dump its stock anyway.

Why bother with its future?

Really, look at where it ranks in Europe!

• The accounts

I remember that, about six years ago, Siminel Andrei (who was a member on the Committee of the Bucharest Stock Exchange, the equivalent of the current Council of the BSE) requested that access to the data in the Registry of the Exchange be secured, stating that it was normal for every attempt to access of the Registry to leave a trace and with a valid reason.

Yes, it is normal.

The monitoring department of the Bucharest Stock Exchange can view the accounts of all the brokerage firms.

One can see the portfolios and the cash available, and the transfers of stock from the Depository to the house account.

This means one can anticipate the bid and its depth.

This kind of information is confidential.

For any market participant, this information represents money.

If one can see the accounts, it"s like playing poker while viewing your opponent"s cards, which would allow one to know when to hold and when to fold.

On developed exchanges, after having gone through all the formalities, people who access this kind of information are automatically recorded on camera.

The issue of the protection of this information was once again put on the table in a recent meeting of the Board of the Exchange, by the same Siminel Andrei, back on the board after four years.

That"s how I found out that the protection of this information never occurred in these six years.

Amazing!

• Where can one get the inside track on what brokerage firms are doing?

In theory, there are four places where one can access the accounts of the brokerage firms and see their moves.

One is the monitoring department of the BSE.

The second is the "back-up" server of the BSE, located somewhere in Pipera. (In the beginning, in 1997, the logistic of the "Rasdaq" was hosted in a building owned by George Constantin Păunescu, who at the time I suspected - and said so in an article - of having access to that secret information - meaning it"s a question that is 13 years old. However, the current server of the BSE is located in a data center, is password protected and seems to be protected against unauthorized access.

The third place would be the monitoring department of the Romanian National Securities Commission.

The fourth access point would be the Central Depository, which by the nature of its activities, has full knowledge of the movements of the stocks that are traded and of the state of investors" portfolios, and which supplies information which complements the one provided by the Bucharest Stock Exchange.

All of the above means that the only way to get the full picture of the market and of investors" holdings is by combining the account data (from the Stock Exchange) with the holdings data (visible at the Central Depository).

Anyone who gets the two sets of data can play poker and never lose.

• Mere supposition

Without proof, all of the above is merely conjecture. The statement that the fierce battles over the elections and the various top positions are only waged over the access to the restricted information, is simply a statement that can"t be proven, based only on circumstantial evidence.

That"s not what I am saying.

I am only saying it is possible.

I only note that the former manager of the BSE, Stere Farmache, who is currently on his second term as chairman of the BSE, did not do anything to restrict access to the aforementioned confidential information, even though he had plenty of time to do so, if not in the fifteen years that he led the exchange, at least during the time when he served as both its CEO and president of the BSE.

I can see that the IT department of the BSE could have written an application to restrict access to the aforementioned information in just one day.

I can see that Stere Farmache wanted to be on the management of the Depository as well.

I can see that Stere Farmache did not do anything to eliminate the need for investors to put their trust in the fact that neither he nor anyone else is snooping into the accounts of investors.

We give him our trust, because we consider him an honorable person, but he can"t ask us to trust him that he is not sneaking a peek into accounts, when he had years to eliminate the need for this "trust", by making it impossible to access that information without permission.

He did nothing to prevent that.

Personally I remember six years ago, I had a talk with Mr. Stere Farmache on this subject.

At the time, he agreed that Siminel Andrei was right and that the access to that information needed to be protected.

I can see that I had faith in him and I haven"t been concerned myself with the matter anymore.

I can see that Farmache can"t provide any proof that he isn"t snooping into the account data (and he should have been able to do so).

I can see that Ţepeş and Farmache have got each other"s back.

I can see that Ţepeş issued a false statement to the press.

I can see that Farmache signed a communiqué of the BSE which tried to pass off the lies of Daniel Ţepeş as truth.

So how can one be expected to trust him?!

It makes one wonder what is hidden below the surface, if this is what the tip of the iceberg looks like?

There are some terrible storms in our tea cup.

Perhaps that is why our Stock Exchange is nothing more than a washbowl.