Tensions around the Central Counterparty project; BRM complains about the lack of transparency on the part of BVB and demands explanations

The Romanian Commodity Exchange (BRM) harshly criticized the management of the Bucharest Stock Exchange (BVB), accusing it of a lack of efficiency and transparency in managing the Central Counterparty project - an essential entity for the relaunch of the derivatives market in our country - which should have been functional for at least three to four years, as evidenced by BVB reports.

The criticisms were launched in the context in which the management of CCP.RO Bucharest - the company established for the development of the Central Counterparty in our country and whose majority shareholder is BVB - missed, in December last year, the authorization of the CCP according to the European regulation EMIR 2, so that the process was resumed, under a new regulation. In addition, BVB recently depreciated its investment in CCP.RO, which significantly affected its financial situation.

For its part, the BVB board - which, in the meantime, did not extend the mandate of the general manager Adrian Tănase, the architect of the Central Counterparty project - claims that the relevant elements regarding the authorization of the CCP have been communicated to the shareholders over time. It considers that the position of BRM, which requested much more details about the situation of the Central Counterparty, involves the disclosure of confidential information, with a potential negative impact on the project. It also rejects the hypothesis according to which the financial situation of BVB does not allow the optimal functioning of the company.

• BRM claims that it requested to become a shareholder of CCP.RO Bucharest since the launch of the project, but the executive management of BVB rejected its request

The Romanian Commodity Exchange, which in October last year came to hold 5% of the shares of the Bucharest Stock Exchange, requested in February this year the convening of a meeting of BVB shareholders, with two items on the agenda, essentially the following:

- presentation of a report on the situation of CCP.RO Bucharest and explanation of the decisions taken by BVB representatives within the company, as leader and guarantor of the project;

- convening a meeting of CCP.RO shareholders, during which the following would be put to the vote: adoption of a transparent procedure regarding the selection of the service provider for the Central Counterparty platform; modification of the business plan approved in the fall of last year to establish realistic deadlines for launching clearing services; as well as amending the articles of association of CCP.RO, so that the entity's shareholders are informed at least quarterly about the status and amounts of money spent for the authorization of the Central Counterparty.

The value of the share capital of CCP.RO Bucharest had reached 118.2 million lei at the end of last year, following several increases, of which BVB's holding represented 54.9%, according to the latest annual report of our capital market operator. Other important shareholders of CCP.RO include OPCOM, with approximately 17%, PPC and Electrica. The last capital increase took place in the fall of 2024, after, in the spring, Euronext Clearing - the provider of the technological solution - withdrew from the contract with CCP.RO, recommending another provider to continue the project, but under different conditions and at higher costs.

According to the Romanian Commodity Exchange, the main elements that must be included in the report requested from the BVB board are: a) the total investments made by BVB in the CCP project; b) the prospects for fulfilling the business plan approved by BVB shareholders in September last year; c) the manner in which the selection of the technology service provider that terminated the contract with CCP.RO was made; d) establishing responsibilities for the failure of the CCP authorization; e) the main clauses of the contract concluded by CCP.RO Bucharest with the current technology service provider; f) the estimated additional costs for the authorization of the Central Counterparty; g) the estimate of the moment when the clearing services can realistically be launched.

According to the document, BRM requested, since the beginning of the project to establish the Central Counterparty in our country, to become a shareholder of CCP.RO, but was refused by the BVB executive management, possibly due to the opposition of OPCOM, BVB's strategic partner in the project. Also, at the request of the Brokers Association, BRM offered its support throughout the project, but it was ignored. All this happened despite the fact that BRM was the institution that had initiated the external collaboration for the project - an initiative that was later diverted in favor of the current shareholding structure of CCP.RO Bucharest.

"Given that the involvement of the Romanian Commodity Exchange was not accepted by BVB and its strategic partner in the project, BRM quickly developed and operationalized its own central counterparty services for post-trading on the markets it manages," the request states.

BRM accuses that the refusal to collaborate "goes beyond the framework of a simple hostile, non-compliant attitude towards the alleged competitor of one of the CCP.RO shareholders (OPCOM), transforming into a wrong strategy, which contributes to deepening the deep crisis in which the project is currently in."

BRM also claims that, "BVB losses caused by expenses arising from new contributions to the share capital of CCP.RO, depreciation of old contributions, decrease in the value of the shares themselves, are aspects likely to cause at least uncertainty for any BVB shareholder".

Regarding the need to start a transparent procedure for selecting the service provider for the Central Counterparty platform, BRM claims that this aims to avoid concluding a contractual relationship before obtaining authorization and, especially, before the clearing system becomes effectively functional.

• BVB failed in its attempt to revoke the CCP.RO Board, due to the failure to reach the minimum quorum of 80%

The management of the Bucharest Stock Exchange announced, in its annual report for 2024, the depreciation of its 64.9 million lei investment in CCP.RO Bucharest by 13.1 million lei, "as a result of the deterioration of several determining factors of the estimated use value of the BVB subsidiary".

Following the depreciation of the investment in CCP.RO, our capital market operator reports a net profit of only 1.2 million lei for last year, 95% below that of 2023, so the board does not propose the allocation of dividends. In addition, the financial statements for the first quarter of this year will reflect an increase in the investment's depreciation by up to 3.8 million lei, according to a report yesterday by the capital market operator.

The annual report also mentions that BVB failed in its attempt to revoke the Board of Directors of CCP.RO, led by Adrian Tănase, during a meeting held in March of this year, due to the lack of the minimum quorum of 80%, stipulated in the company's Articles of Association for the adoption of such a decision.

• BVB: The preparation and communication of the report requested by the BRM may violate the confidential nature of some information and activities related to the Central Counterparty project

The items requested by the Romanian Commodity Exchange were included on the agenda of the Bucharest Stock Exchange's balance sheet meeting on April 29, when Lion Capital's proposal that the president of the capital market operator be elected by the Board, not by the shareholders, will also be discussed.

Regarding the report requested by the BRM regarding the situation of the Central Counterparty project, the BVB board recommended that shareholders vote "Against", citing, among others: possible "violations of the confidential nature" of some information and activities related to the Central Counterparty project; the generation of possible economic advantages, including illegitimate ones, for competitors or shareholders of CCP.RO or the need for a substantial consumption of resources and a long time frame.

In the note addressed to shareholders, the BVB Council claims that, in its opinion, the relevant elements of the Central Counterparty authorization process have been brought to the attention of BVB shareholders through the reports related to the general meetings and other current reports and communications issued by the capital market operator.

The board also recommends that BVB shareholders vote "Against" the convening of CCP.RO shareholders in order to approve the selection of the service provider for the Central Counterparty platform or to inform at least quarterly about the status of the entity's authorization.

Regarding the selection of the provider, the BVB Council claims that CCP.RO has already contracted technological services, according to the information presented in the business plan from September last year, and organizing a new selection procedure implies the cancellation of the activities already initiated related to the authorization process, including the cancellation of the designation of the CCP.RO system as a protected system in terms of settlement purpose, by the NBR. In addition, such an approach would result in additional costs, extend the period of time until the CCP becomes operational, etc.

Regarding the quarterly information of BVB shareholders regarding the status of the CCP, the board of the capital market operator claims that: "given the strategic importance of the Central Counterparty project, the sensitive nature of the technical and functional decisions, in its opinion, these (note: the information) are not subject to increased transparency, including considering the need to protect professional secrecy and avoid generating advantages for competitors who could be encouraged to adopt unfair competition practices."

• BRM: Requests regarding the CCP situation refer to contractual and business aspects, not to confidential technical or commercial aspects

The BVB Council's responses led the BRM management to accuse our capital market operator of a lack of transparency regarding the Central Counterparty project. In addition, the BRM claims that the financial position of the BVB has become precarious, including from the perspective of the minimum capital required for authorized operation.

The Romanian Commodity Exchange requested that the agenda of the BVB shareholders' meeting of April 29 be supplemented with two items, namely:

- revising the BVB management's responses to the items initially requested, so as to ensure a clear and complete picture of the CCP.RO situation;

- approving an austerity plan for the next three years to restore the company's financial reserves. BRM points out that the BVB did not provide explanations for issues such as: the reasons that led to the delays in the operationalization of the CCP; justification of the consumption of company resources; selection method of the technical solution provider; responsibility for the state of the project's failure.

The BRM management characterizes the explanations of the BVB management as "the typical shield-response to justify the lack of transparency, although the requests for essential information for investors regarding the situation of the Central Counterparty referred to contractual and business aspects, which are natural for shareholders to know, and not to confidential technical or commercial aspects".

The BRM states that it has no intention of requesting access to confidential information of a technical nature, since it does not plan to found an authorized and autonomous central counterparty of the type in question. "Moreover, BRM was ready to offer its own central counterparty IT application for energy products, already functional and in production for several years without incidents, to resolve the impasse in which the CCP authorization is located, without fear of its secrets being revealed," the Romanian Commodity Exchange document states.

The Romanian Commodity Exchange also refers to the financial situation of BVB which, in its opinion, taking into account the current context, may raise major concerns for the shareholders of our capital market operator.

"The company's financial assets that can be immediately capitalized (cash, bank deposits and government securities) represent a total of only 29.2 million lei, a value that we consider completely insufficient for a company of the size of BVB, which manages a capital market of approximately 250 billion lei. Also, these amounts include the legal reserve of 12.2 million lei which is intangible, thus reducing the company's cash availability to approximately 13 million lei. This situation may be considered insufficient by the ASF within the requirements necessary for requesting capital adequacy and compliance with the rules and regulations imposed on a capital market operator," the BRM request states.

The Romanian Commodity Exchange also draws attention to the fact that about 40% of BVB assets, namely 52 million lei, represent the investment in CCP.RO which, in the immediate period (two years) at least, will not be profitable, probably requiring a new participation in a capital increase.

"An investment in a project declared major is proving to be excessively expensive; its completion, on which - as has been repeatedly publicly stated - the very development and evolution of the stock exchange depends, is long delayed and even questioned. On the other hand, the financial situation of the institution itself, which integrates a significant shareholder into its dynamics, may raise, in turn, major questions", claims the BRM management in the request.

Under these conditions, the Romanian Commodity Exchange demands the adoption of firm austerity measures at BVB for a period of three years, which should include:

- reducing the compensation of the company's management by 30% to 50%;

- eliminating any bonuses for management personnel; appropriate management of all company expenses, aiming to reduce marketing and promotion expenses and adapt them to the real interests of the company.

In turn, the BVB Council responded that it maintains the recommendation to vote "Against" the preparation of the report requested by BRM, as well as the presentation of the situation of the company CCP.RO previously published, additional information to be made available to shareholders starting with April 24. Also, the board of our market operator recommends that shareholders vote "Against" the austerity plan proposed by BRM, considering that the Revenue and Expenditure Budget proposed for this year meets the needs and requirements of the operation of BVB and the optimal development of its activities.

The shareholders of the Bucharest Stock Exchange include former SIFs, Pillar II pension funds, investment funds, the Romanian Commodity Exchange, brokerage companies and individuals.