SIX MONTHS AFTER THE PROPOSAL AND THREE MONTHS AFTER THE CNVM ISSUED THE FINES The amendments of the Code of the BSE concerning structured products have been approved

The Bucharest Stock Exchange is adjusting the rules concerning the trading of structured products, after the National Securities Commission (CNVM), approved the modification of the Code of the Exchange last Tuesday.

The Bucharest Stock Exchange sent to the Commission the first proposals concerning the change of the Code for structured products, in November 2011, after some investors complained that BCR did not honor its obligations to become a liquidity provider for structured products, issued by "Erste Bank".

The replacement of the management of the BSE, initiated in November 2011 and completed in the beginning of this year, seems to have delayed the process for adjusting the rules concerning the trading of structured products.

Meanwhile, a lawsuit also began against BCR and "Erste Bank", accused of irregularities in their operations on the stock market, and against the Bucharest Stock Exchange, accused of doing an inadequate job when it comes to overseeing the activity of the bank, as liquidity provider for the structured products issued by "Erste".

In March, the capital market watchdog fined Valerian Ionescu, the head of the Department for Trading and the Sale of Financial Instruments of Department of the Romanian Commercial Bank, and Valentin Ionescu, the former general manager of the BSE, after reviewing the trades involving structured products issued by "Erste Bank", for which the Romanian Commercial Bank (BCR) acts as a market maker.

In spite of it, the new rules are only coming into effect now.

On March 1st, Gabriela Anghelache, the chairwoman of the CNVM, told us that she had sent to the Bucharest Stock Exchange several observations on those initial proposals, but it had not yet received any answer.

She told us the following in March: "Ourselves as well as the Stock Exchange, we need to monitor very closely the trades involving these instruments, because in that business, it is the liquidity providers which play the most important part. Only together with the Stock Eexchange can they assure a normal movement of the price of these instruments and provide the information needed for the market. I do not think that there have been any other incidents since August, when these suspicious trades began, and we deeply wish for such incidents not to happen anymore, because if they do, this will cause a loss in the credibility of a new instrument".

Last summer, during trading sessions which displayed increased liquidity for structured products, the liquidity providers were frequently reporting technical problems.

According to the amendments of the Code of the Exchange, when a liquidity provider experiences technical difficulties, (dysfunctionalities of the electronic quotes system it uses etc.) and is unable to provide quotations it will be required to promptly notify the BSE about such a situation, logging the date and the time when that situation was encountered, as well as the cause of that situation, and its obligations are suspended. This notification will also include the following information: 1. the persons to contact of the liquidity provider (phone number, e-mail); 2. Whether the Participants can ask the liquidity provider to provide them with offers to buy/sell the structured products in question, in order to conclude trades, as the liquidity provider has access to the system of the BSE.

In order to request for buying/selling offers from the market maker, market participants can also talk to them using the options available in the system of the BSE, namely: 1. the messaging module of the BSE system; 2. the use of the deal market options available for the trading of structured products.

During the time where the designated Liquidity Provider is unable to provide quotes, due to the technical difficulties it is experiencing, but has the ability to send/answer to the offers to buy/sell of the Participants, they will have the obligation to have at least one stockbroker connected to the system of the BSE. In special circumstances where the Liquidity Provider is unable to provide quotations and to send/answer to the offers to buy/sell pertaining to the participants, he will inform the BSE about the situation, as well as about the reasons behind it.

In the aforementioned situations, the liquidity provider can request, according to the presented justification, that the trading in the structured products concerned to be suspended.