THE GENERAL SHAREHOLDER MEETING OF THE BSE, SCHEDULED FOR WEDNESDAY In favor and against the two-tier management at the BSE

The management system of the BSE- single-tier or two-tier - is less important, and what matters more is for the Exchange to have a strategy, based on the steps that are made public, which the market can track, and which can lead to its promotion to the emerging market status, some market voices think.

Nevertheless, the shareholders of the BSE are being summoned, on October 28th, to decide on the amendment of the Articles of Incorporation, which would result in the company being led by a Supervisory Board, made up of seven members, and a Directorate, made up of three members.

Prior to the General Shareholder Meeting, few are those willing to publicly express their opinion on the issue of the meeting in question.

The representatives of the European Bank for Reconstruction and Development (EBRD), which holds 5% of the BSE, told us that they did not want to discuss the issue.

On the other hand, Greg Konieczny, the manager of the Proprietatea Fund, told us: "We think that for the BSE, the implementation of a two-tier management system would represent a step forward, since it would facilitate the decision making process and would allow better separation of responsibilities and increased efficiency, on various governance levels".

Representatives of the SIFs have also spoken in favor of the two-tier management system.

SIF Moldova has been one of the first shareholders which, since the previous elections for the current Board of Directors of BSE (when the "goals" for the Management Contract concluded upon the appointment of the CEO of the BSE), has requested the two-tier management of the BSE. Costel Ceocea, the president of SIF2 Moldova, has recently told us that he supports this proposal: "The recent postponement of the upgrading of our market to the emerging market status worries us. Shareholders must have a firm and explicit attitude".

Mihai Fercală, the executive chairman of SIF3 Transilvania recently took a similar stance: "The Exchange must be the one to set an example. The two-tier management is a much better fit with the principles of corporate governance that single-tier management. I subscribe to this idea".

SIF Transilvania holds 7.17% of the BSE, according to the report at the end of the 1st semester, while SIF Moldova holds 5%. SIF5 Oltenia also holds 5%, while SIF4 Muntenia holds 4.32%, according to the reports made public on June 30.

It is to be expected that the SIFs will have a common position at the General Shareholders Meeting of the BSE.

• Gherguş: "The two-tier management system works for large organizations"

Nicolae Gherguş, the president of Confident Invest, thinks that such a strategic decision (the move to the two-tier management system) should be validated and perhaps proposed by a new Board of Directors, which is set to be elected soon.

"We are at the end of four years during which the BSE - «the engine» of the Romanian capital market - has experimented with every useless thing there is out there", said Mr. Gherguş, who added: "Major trades have been incentivized through discounts, instead of rewarding the entry of new investors or the increase in the portfolios or turnovers of retail investors, the elimination of the «8 barriers» has been made into a national goal and the entire lobbying strength of the capital market has focused on that, which nevertheless did not result in finding any anxious foreign investors or any draft for entering the list of emerging markets of the MSCI behind them, all the meetings, conferences, fairs and seminars that they have experimented with for 15 years without any result, instead of creating programs for training and information of high-school students or of diversifying the offer of the BSE by bringing in at least one ETF dealer, as the BSE is one of the few exchanges in Europe where this investment segment has no significant representation".

Mr. Gherguş thinks that the two-tier management system is good for large-scale organizations: "Sure, a bank with 2-3,000 employees must be structured following such a system, with divisions or levels of operation that are well defined and relatively independent.

But an organization with 60 employees, of which half are operative, and the other are just polishing the public image of the management, needs instead a multi-annual concrete and efficient strategy, to increase the internal liquidity and to stimulate the Romanian retail investment sector.

In the future European context, along with the unhindered circulation of capital and of the financial instruments which will be made possible by Target2Securities, the only feature of a national stock exchange that is guaranteed to be attractive will remain domestic liquidity, the one generated by the transactions of domestic investors. I think that one of the smartest decisions made during the current term of the Board of Directors was that of reconfiguring the BSE website, by eliminating the report concerning the number of active investors in the market, which used to be featured on the old website and which portrayed a harsh reality.

In conclusion, among this managerial promiscuity, I do not see the need for an extended group of directors to dream of the easy-money commissions from the IPOs of the state or from the armies of foreign investors that would overwhelm the trading system and the servers of the BSE, and I think that the two executives required by the legislation are sufficient, except perhaps in the case where institutional investors want some additional, highly visible and well paid sinecures. After all, neither the SIFs nor the banks are doing much better, let's admit it".

Last week, Dan Paul, the president of the Association of Brokers, supported the idea of the BSE being led by a Board of Directors, to the detriment of the two-tier management system.

Dan Paul said, at the "Future of the Romanian Capital Market" conference, organized by BURSA: "Theoretically, the two-tier management tries to achieve a very thorough separation, through the two structures, between the representatives of the shareholders and the actual management, in other words the directorial committee. I don't know if that thing is only on paper. In fact, it is only happening at the BSE itself. The executive management is not a part of the Board of Directors, even if it could be. These structures are separate at the Bucharest Stock Exchange, but the wish of the shareholders who asked for this in a general shareholder meeting was for a different model to be adopted. This model has already been adopted by several Romanian companies, including by SIF Transilvania, where we have seen how it has made its daily operations more difficult by causing conflicts among the directors. For the capital market, that is not a good example. The existence of the two structures would be justified for major companies. The BSE has far too few employees, and management through a Board of Directors is better than two-tier management".

Prior to the General Shareholder Meeting of the BSE, the ASF has put up for public debate a draft regulation which relaxes the rules concerning the conflict of interest between jobs on the stock market, which will allow board members of listed companies to hold executive positions with stock exchanges.

A project which stipulated the elimination of the restriction of holding multiple positions has been put up for debate in the past, but without any concrete results.

The ASF was awaiting proposals and observations concerning the draft regulation, until October 25th, prior to the General Meeting of the Shareholders of the Bucharest Stock Exchange (BSE), where the switch to the two-tier management system would be discussed.