TWENTY FOUR HOURS IN THE LIFE OF THE BUCHAREST STOCK EXCHANGE On quitting and missions

The surprising resignation of Daniel Ţepeş from the Board of Directors of the Bucharest Stock Exchange, which took place two days ago in the evening, seems to be related to the merger with the Sibiu Stock Exchange.

On Monday, in preparation for the General Meeting of the Shareholders of the Bucharest Stock Exchange (BVB), a meeting took place which apparently ended up in a conflict.

The cause of the tension that ruled the entire meeting, was an article published by an on-line publication, which claims that brokerage firm Estinvest of Focşani had drawn up a comparison between the potential of the stock of the BSE and that of the SIBEX, which recommends those of the Bucharest Stock Exchange as a better investment.

Such a conclusion comes at a very bad time, just as the two exchanges are tentatively discussing a merger between the two exchanges, an idea which was again put down on the table after several years of "cold war" between them.

The entire broker community agrees to the idea of the merger, the only idea that divides the two sides being the moment when the merger should take place.

The timing of the merger seems to have an outstanding importance when it comes to determining the parity between the two exchanges (see the communiqué of Sibex published hereinafter), which could make some brokers richer and others poorer.

If the merger were to take place now, then the share capital increase performed by the Sibiu Exchange would not be taken into account and this would favor brokers that hold BSE stocks, whereas the holders of Sibex stock (among which Daniel Ţepeş holds a significant position) would lose out.

On the contrary, if the merger were delayed, that would not only allow the Sibiu Exchange to perform a share capital increase, but also to attract new issuers to their spot market, which would consolidate its position against the Bucharest Stock Exchange (to say nothing about the hopes of the Sibiu exchange to subvert the influence of the Bucharest Stock Exchange, by taking away some of its issuers - such as SIF Muntenia and SIF Oltenia, which have already expressed their preference for the Sibiu Exchange, and are even waiting for the norms of the Romanian Securities Commission to get transferred).

The delay of the merger would thus benefit the brokerage firms that hold major stakes in the Sibiu exchange at the time of the merger with the Bucharest Exchange.

It is said that the struggle between the two sides had gone so bitter that, one month ago, some of the supporters of the Bucharest Exchange had threatened that if the president of Sibex Teodor Ancuţa did not agree with the merger immediately, then they would start "demolishing Sibiu".

Since this posed a threat to his interests, Daniel Ţepeş found in Monday"s meeting that he no longer could rely on all of the five people of the Board that had backed in the elections of February (Cosmin Gheorghiu, of "Delta Valori Mobiliare", Octavian Molnar, of IFB "Finwest", Lucian Isac, of "Estinvest" Focşani, Ciprian Zah of "Broker " Cluj and Ionel Uleia, of "Prime Tranzaction"), a group which sometimes includes (as the case may be) Stere Farmache, the chairman of the BSE.

On the Board, the "Opposition", initially included just two of its members - Siminel Andrei, of "Active International" and Mircea Botta of "Romcapital" Timişoara, but the publishing of the study attributed to brokerage firm "Estinvest" Focşani, was the first signs that its ranks were growing.

The heated discussions of the meeting of Monday, around the issue of the presidency of the Central Depositary (the chairman of which, Mugur Pop, is considered as an adversary of the group of Daniel Ţepeş), a presidency which will be decided at the general shareholder meeting of September 10th, well!, these discussions most likely have showed Ţepeş that he is losing control over the group.

Because of this, Daniel Ţepeş resigned, and did so in writing.

It seems his plan was to stir up advance elections for the management of the Bucharest Stock Exchange (it is said that together with some of his close associates, he holds 10% of the shares of the BSE), in order to help him regain absolute control.

The management of the BSE could not be contacted for comments, which is easily explainable since heated discussions occurred and lots of ways were used to convince Ţepeş to go back on his resignation.

Sometime around noon, Ţepeş eventually conceded, (most likely because had he resigned from the Board of the BSE, it would have been far more difficult for him to control the outcome of the elections for the position of chairman of the Central Depositary).

Daniel Ţepeş changed his mind.

It is an ugly story.

A story of pure selfishness, without any concern for the good of the market and for the principle of "everybody wins!"

It is the story of "I don"t care about the market, I only care about my own gain!"

The same story that keeps us small, even though we could have been great.

It is about what could be, and what the "mission" is.

Not about quitting.

• A Communiqué by Sibex

The defamation of the Sibiu exchange serves third party interests

Following the appearance in the mass-media of a so-called "market study" , in which the analysts of brokerage firm Estinvest stated that the stock of the BSE had a higher potential than that of the Sibex, the Sibiu Exchange considers that it is regrettable that a company that owns stock in both the BSE and in the Commodities Exchange, and which also has members on the board of the BSE and on the board of the Romanian Settlement House, publishes this kind of studies at a totally inopportune time for the Sibiu Exchange, which is currently performing a share capital increase, and is currently listing its rights of preemption.

We consider that this kind of material is nothing else but a way of serving some third party interests, since SSIF Estinvest is one of the most active buyers of shares on the BSE. It thus becomes obvious that the article is nothing more than a way to discourage potential buyers of shares of the Sibiu Exchange and instead turning them towards the shares of the BSE, in order to raise their price.

However, the study drawn up by the brokerage firm is incomplete, as it omits important factors that radically alter the overall picture. More to the point, the Sibiu Exchange currently has 22.6 million shares with a face value of 1 leu/share, and the BSE has 7.6 million shares with a face value of 10 lei/share. Therefore, a simple calculation reveals that the BSE has a share capital approximately 3.4 times bigger than the one of Sibex. However, in spite of this, in 2009, the profit of the BSE and of the Central Depositary, which stood at 10.5 million lei, was just 2.5 times greater than that of the Sibex group (The Commodities and Financial Exchange of Sibiu, The Romanian Clearing House and the Sibex Depositary) which had a profit of 4.2 million lei. For a capital 3.4 times greater, the profit of the BSE should have been proportionally greater. Under these circumstances, the Sibiu Exchange has a higher ROE than the one of Sibiu.

All this information proves that even though its turnover is smaller, the Sibex group has results that are similar to those of its competitors, which would mean that the shares of the Sibiu Exchange is at least just as profitable.

Concerning the results of the first semester of 2010, the study in question does not mention the fact that operating expenses paid for a major development process, following which the Sibex has all the components of a major stock exchange, a process which was precisely intended to increase the operating capacities of the company. In spite of all these major expenses, the Sibex has succeeded to remain profitable for the first semester of 2010. Compared to the similar period of 2009, the total revenues have increased, but so did expenses. The total revenues have increased more than 11%, but total expenses have increased 23%, due to the process to implement the spot market, the Sibex Depositary, the self-listing of the stock of the Sibiu Exchange and the implementation of the futures contract for the Dow Jones Industrial Average index, which have all incurred major costs. But without investing there can be no results.

Another biased statement that concerned the so-called low liquidity for Sibex stocks which would supposedly involve additional risk for investors. This is another argument that doesn"t hold water. And that is because in the first semester of the current year there was a period where we proved, in spite of all those who doubted us, that our spot market works, that our investments in all the required elements, from software to settlement, worked flawlessly, and that investors are interested in this segment. Since the self-listing of the Sibex stock in January 2010, 5.7 million of its shares were traded, which represents more than 25% of the share capital. Such a turnover over the course of six months represents a remarkable success for a newly listed company on a market taking its first steps and proves that the listing of the Sibiu exchange was awaited by many investors. Besides in the brief period elapsed since the listing of the Sibex, its number of shareholders increased by over 31%. At the same time, the success of the SBX shares is a guarantee for the companies that will choose to get listed on the Sibiu spot market, giving them the confidence that they will find there a strong and liquid market, with a great growth potential. Our great evolution has dealt a major blow to the defamers and those who didn"t wish us well.

Unfortunately, it becomes visible again, how, under the pretense of publishing so-called market studies, there are attempts to denigrate Sibex and the actions of the company, which is why we once again take this opportunity to express our indignation, and we are certain that investors will not enter this game of interests, and will continue to hold the same confidence in the potential of the shares of Sibex just like they did now.

•

Publishing investment recommendations, like the very obvious study published by brokerage firm "Estinvest" Focşani, is in my opinion an act that shoduln"t take place on an organized capital market, as long as the brokerage firm is not acting as "market-maker".

An aggravating circumstance is the fact that "Estinvest" holds shares in the BSE, and it is issuing a buy recommendation for them, a suggestion which, if investors were to follow, would cause an increase in the price of BSE shares and would thus increase the value of the shares that the brokerage firm is holding.

And finally, a second aggravating circumstance is the fact that the brokerage that published the study holds seats in the management of the BSE, and therefore has unrestricted and direct influence on the decisions of the management of the BSE and has access to any confidential information.

By the time the paper went to print, the Romanian National Securities Commission (CNVM) did not reply to our request for an opinion on the adequacy of such a review.

In our opinion, if the current regulations are missing provisions that would prohibit such practices, then it needs revising to include such rules. (Florian Goldstein)