English
Investors will be able to bet on the general evolution of the Bucharest Stock Exchange, through a simple trade, after the Romanian National Securities Commission (CNVM) has established the framework for the creation and operation of ETFs (ed. note: exchange traded funds - mutual funds which invest in tradable securities), through a decision published yesterday on its website.
An ETF is an open investment fund listed on the stock exchange which tracks the performance of a recognized stock index.
Ovidiu Dumitrescu, analyst at "Tradeville", considers that the initiative of the CNVM to support the development of the range of instruments available on the Romanian capital market is praiseworthy. "ETF instruments have a series of characteristics which make them easy to use by small investors, as well as by institutionals", he said yesterday, and he went on to say: "After the introduction of ETFs based on the BSE index, small investors will be able to invest, through a simple trade, by betting on the general evolution of the market, whereas asset managers will find it easier to implement "core - satellite" strategies.
The broker says he is optimistic on the results of this project: "We are convinced that, as domestic investors will begin to appreciate the benefits of ETFs, the CNVM will allow an even wider range of assets which can be replicated", Ovidiu Dumitrescu said.
Through this decision, the CVNM defines several terms which will be used in the process to create the set up and operation framework of these institutions, establishes the responsibilities of the entities involved, describes the procedures for the subscription and buyback of shares, as well as the contents of fund documents.
In its project stage, brokerage firm "Tradeville" and the Romanian Commercial Bank made several suggestions to the Romanian National Securities Commission concerning the decision.
The representatives of "Tradeville" have criticized the measure made by the Romanian National Securities Commission which sets a maximum limit of 50,000 fund shares for blocks of shares, and requested a maximum limit of 200,000 shares, but the proposal was not accepted.
Concerning this aspect, Ovidiu Dumitrescu said: "According to information that we have available, in the international practice the number of fund shares per creation unit most frequently ranges between 25,000 and 200,000. A small number will make it easier for the authorized participants to conduct arbitrage operations (which minimize replication errors), and a large number stimulates liquidity due to the lower price of a standard trading block". He considers that the maximum limit set by the Romanian National Securities Commission fits this interval, so it is not a major impediment to the operation of the ETF.
"Tradeville" also rejected the decision to limit the capital owned by an authorized participant to a maximum of 730,000 Euros, deeming it unproductive at the time.
Ovidiu Dumitrescu said yesterday: "Considering the obligations taken on by market makers, the decision is normal. Still, in our opinion, it would have been useful to have not just brokerage firms, but also institutional investors and even individuals with enough financial clout to trade blocks of shares be included among authorized market participants". The broker considers that allowing easier access to an ETF to a higher number of authorized participants tends to make the market more efficient for the fund in question, by stimulating arbitrage.
One of the proposals initiated by "Tradeville" and accepted by the CNVM was for the Indicative Net Asset Value to be calculated and updated continuously, at least once every 60 seconds, based on the entire trading day.
Ovidiu Dumitrescu considers that this measure is perfectly normal. "In the United States, for instance, the INAV is usually updated every 15 seconds", he said, and he concluded: "Given the local trading volumes, the 60 second interval seems like a good choice, at least in the beginning".
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