English
The Central Depository was forced to use 500,000 Euros, half of the Guarantee Fund it manages, after brokerage firm "Harinvest" did not have the money needed to settle some trades involving structured products issued by Erste Group.
According to procedures in this kind of situations, the broker has initiated forced sales ("sell-out") from the portfolio.
According to the Central Depository, the Guarantee Fund has been rebuilt, as the money was recouped.
The Officials of the Depository told us: "Considering the fact that a participant in the system of the Central Depository did not avail the money needed to complete the settlement, the Central Depository has used a portion of the guarantee fund, which was subsequently repaid in full by the participant in question.
Before, as well as after the use of the guarantee fund, the Central Depository has applied other risk management measures, for example the special or imposed procedure. All the applied measures represent normal procedures stipulated in the Code of the Central Depository".
But the situation which was created was not at all to the liking of Ludwik Sobolewski, the CEO of the Bucharest Stock Exchange, who is announcing drastic measures against the brokerage who failed to honor the settlement.
He told us: "Sometimes it happens that a market participant does not fulfill their settlement obligations. This time it happened on the < cash > side. The market participant did not have enough money for settlement. Since I understand very well the clearing and settlement and speaking as a representative of the majority shareholder of the Central Depository, I can tell you that the latter has taken all the necessary measures, in a professional manner.
Still, that brokerage has created some problems. Once we have a market participant who fails the cash settlement, we will take decisive action to eliminate the threat from the system. I am sorry, but the stock market has a commandment: you need to have the money to pay for the shares. Be they yours or borrowed, you must have the money".
In summer, Adriana Tănăsoiu, the general manager of the Central Depository, was saying that up until the time of that statement, the resources of the Guarantee Fund had only been used once, in 2009, for a very low amount, within the limit of the contribution of the participant in question to the system.
The Financial Oversight Authority is overseeing the situation created by "Harinvest", according to Cătălina Sava, the hed of the Oversight Department of the stock market from the ASF.
It would seem that instead of conducting just a simple analysis, the ASF has begun an investigation at "Harinvest", according to some market sources.
Contacted by "BURSA", the representatives of "Harinvest" told us that they did not have an official position on the subject.
Market sources told us that on the "sell-out" trades initiated yesterday, no buyers were found for the less liquid shares.
Last week 113,000 BSE shares at 24 lei/share were sold through a "sell-out", whereas on the market their price was fluctuating between 25.92 and 26.85 lei.
• "Harinvest", a performer in the brokering of structured products
However, other sources told us that even though forced sales were supposed to be exceptions, "Harinvest" resorted to these operations for several months in a row. According to some rumors, BCR was a counterparty for "Harinvest" in some of the forced sales of certificates issued by Erste Group.
The representatives of BCR did not confirm, nor deny these rumors. Their answer was: "We can not comment".
"Harinvest" has brokered trades of 298.45 million lei, until the end of October, holding the 12th position in the chart of the brokerage firms, with a market share of 1.68%.
However, the structured products trades which it brokered represent 86% of the volume recorded by the brokerage firm.
"Harinvest" has a market share of 26.60% of the trades involving structured products made this year, being ranked second in the brokerage firm ranking on that segment, after BCR.
This year, "Harinvest" had good results on the certificate trading every month, constantly ranking in the top two spots in the brokerage chart.
There is talk in the market that this year, "Harinvest" rose heavily, on the back of a client it had on the structured products segment.
• The average rate of the failed settlements in Europe, in the T+3 delay, was approximately 1.1%
The officials of the Central Depository also told us that according to an analysis made by the Association of Central Depositories of Europe in 2012, the percentage of the successful settlement of trades was 99.12% in Austria, 97% in Italy, and the average percentage of failed settlements in Europe was approximately 1.1%, and less than 0.5% on the day following the settlement date (the percentages concern the number of trades).
Cristian Agalopol, the president of the Central Depository told us: "Since partial or failed settlements are common events on the developed and emerging markets, we should not look at them as operations outside the stock market or as exceptional situations. The central and European depositories have stipulated, in their procedures for the markets on which they operate, risk management mechanisms, to ensure that the settlement process takes place with a controlled risk. All of these mechanisms are also described in detail in the Code of the Central Depository, approved by the ASF and the NBR - institutions which as a matter of fact have been notified about this situation. What's more, the < buy in > (ed. note: special acquisition) and < sell out > (ed. note: forced sale) are presented in detail in the Code of the Depository and we are in constant communication with the Bucharest Stock Exchange when these situations appear. In general, the guarantee fund is part of the mechanisms for risk management (in countries where the guarantee fund exists and is managed by the depositories) and the depositories, as managers by law of these funds, have to ensure that the use of these funds is in line with the approved market procedures, and if the cash in these guarantee funds is used for the settlement of the trades made by participants that are encountering difficulties, the amounts used will be repaid in full by the participants in question. At the present time, the guarantee fund managed by the Central Depository is whole.
As such situations are frequent on most markets, including the ones we like to compare ourselves to, they should be looked at as such and not be given more attention than necessary".
According to the Code of the Central Depository, if a participant in the clearing-settlement system does not have sufficient funds in the settlement account to cover the initial liability on the date of the initial purchasing trade, it can ask the trading system to execute special sell-out trades, in order to achieve funds for settlement, while at the same time notifying the Central Depository about the initiation of these operations.
The settlement of the special sell-out trades will take place before or on the date of the settlement of the initial buy trades, according to the Code.
The Guarantee Fund gets set up for the purpose of ensuring the financial resources needed for the good functioning of the mechanism for the settlement of the trades concluded in the trading systems and logged in the system of the Central Depository.
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The shareholders of Harinvest are Valentin Cismaru, with a stake of 23.04%, Veronel Lungu (30.86%), Dumitru Craciunescu (23.04%), Ion Antonescu (23.04%).
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