THE HARINVEST CASE/ SOBOLEWSKI RESPONDS TO THE ASSOCIATION OF BROKERS: "It is a matter of time until a new case like Harinvest happens, if we do not manage the systemic risks"

The CEO of the Bucharest Stock Exchange, Ludwik Sobolewski, stands by his opinion that brokers need to meet stricter requirements for being allowed to participate in the market, after the Association of Brokers, both through president Dan Paul, as well as through its vice-president Nicolae Gherguş, has reacted against this kind of measures, claiming that it is unfair for other brokerage firms to be punished, after the "Harinvest".

Over 40 clients of "Harinvest" Râmnicu Vâlcea have filed complaints in which they stated that they were left without shares and money in their accounts, after the brokerage firm sold them from their portfolios, without authorization, to cover losses from trades in structured products.

"In times of crisis - and since December 18th 2013, we have been living through that kind of moments -, we need everybody on board", said Ludwik Sobolewski, who added: "The institutions of the stock market are thinking up ways to improve the manner in which they monitor some risks. I am rather sure that the Association of Brokers can participate in this effort, by finding adequate measures. These measures could be lenient, according to the role of such organizations all over the world, but they can reinforce the culture of standards and the responsibility".

According to the CEO of the BSE, it is a matter of time before another Harinvest case happens, if certain risks aren't managed at a systemic level: "We need to increase the resilience of all the participants in the system in situations of crisis".

In a conference in the beginning of the week, he referred to harsher capital requirements for brokerage firms and, possibly, to the implementation of professional standards for them.

The measures will affect small brokerage firms, even though the "Harinvest" case has also reached the small brokerage firms - BCR and SSIF Broker, which have responded to the sell-outs initiated by the forced sales initiated in Vâlcea.

Ludwik Sobolewski told us: "I do not comment on specific institutions. Generally speaking, it is clear that there are bad people everywhere. They have to be punished. But clients need to be protected by institutions. Strong brokerage firms can usually compensate investors and sometimes do that even if they have not been declared guilty. But they understand what a valuable asset confidence is. Thus, we can reinforce trust in the market".

Still, major brokerage firms can also experience greater frauds, and we have plenty of examples, in Europe and America.

The CEO of the BSE said: "The existence of money to compensate the clients, once problems arise, is a matter of probabilities. We need to have different brokers that would serve different groups of clients, but they should all obey the same well-designed requirements. I would explain it like this: on a highway, we can have Ferraris and Dacias, as well as other smaller and slower cars, but everyone would have to pay the car insurance policy".

The IPOs and the offers for the listings of the state have brought enthusiasm back to the market, this autumn, but the stock market was dealt some hard blows through the case of "Harinvest", the failure of the "AdePlast" IPO or the thefts of shares from the portfolios of some clients, for example the notorious situation of the head of the IFC Ana Maria Mihăescu.

"I think that the confidence is not ruined and it is just a matter of repairing some damages", says Mr. Sobolewski, who added: "Under these circumstances, I understand that saying that in my opinion, the BSE or the Central Depository did their job properly, is not what people are expecting, because they - the clients - are expecting solutions for their losses. But when we speak about confidence, it is important for the infrastructure to respond when something suspicious is noticed. On the other hand, we do not have the right or even the technical capability to intervene in the relationship between the broker and the client. This is the same everywhere. Right now, everything must be done to return the money to the customers of Harinvest, who had nothing to do with this situation, aside from keeping their assets with the firm. In order to maintain trust, we should not deal just with particular situations, but also prevent such cases, in the future.

Prevention shouldn't mean sending in the Police or the ASF to every brokerage firm. It shouldn't mean a stricter or more < orthodox >. This usually isn't effective and all it does is increase operating expenses for brokers, and in the end, it's the clients that are affected.

This means that the structures of the market need to be made stronger. This case is different from Adeplast. In a way, Adeplast is a normal case. Sometimes, IPOs fail. But Harinvest is not something normal. Harinvest is a problem that should never have happened".

When asked how he found out about the Harinvest case, Ludwik Sobolewski responded: "I found out this autumn, when Harinvest resumed some trades that attracted our attention.

We are monitoring trades and the findings were reported to me (the information I received had an internal source and have represented an outcome of the procedures). Still, it must be said that the BSE can only analyze the characteristics of the transactions rather than the relations between the broker and clients, and this is what our internal reports concerned".

The ASF has announced that it is analyzing the possibility of investors in Harinvest getting part of their money back from the Compensation Fund. Dan Paul, the president of the Association of Brokers, considers that honest brokers should not have to pay for the theft committed by somebody else.

In an interview he gave us on Wednesday, he said: "It's one thing for investors to get their money back and another to resort to the Fund for the Compensation of Investors. As long as I am involved in this market, no honest broker will pay for a dishonest one".

Ludwik Sobolewski has a different opinion: "The compensation funds serve to protect the clients of the stock market, including in cases of fraud. If the Compensation Fund can be used - which will require a serious formal analysis - it means it should be used".

The Financial Oversight Authority (ASF) has shut down "Harinvest", a brokerage which has resorted for a year to sell-outs, operations which should have been exceptional.

The shareholders of Harinvest are Valentin Cismaru, with a stake of 23.04%, Veronel Lungu (30.86%), Dumitru Crăciunescu (23.04%), Ion Antonescu (23.04%).