The Bucharest Stock Exchange (BSE), the operator of the stock market in Romania, had almost 66 million RON (18 million euros) invested in bank deposits at the end of last year, although one of the main goals of the institution is to attract as many investors as possible to its market.
BSE has made about 2 million RON (0.55 million euros) from these investments since the beginning of the year, according to ZF calculations, while the shares listed on the BSE generated losses of about 30% on average for investors.
For this year, BSE set out to maintain its cash reserves at about 55 million RON (15 million euros) to be put in bank deposits or government securities, which offer an average interest of 8.5%, according to the budget draft to be submitted to its shareholders for approval.
"There are certain legislative limitations that do not allow us to invest in shares, but only in fixed income instruments such as government securities, bonds and bank deposits," said Stere Farmache, Bucharest Stock Exchange's CEO and chairman of the board.
Pursuant to CNVM (National Securities Commission) regulations, operators of regulated markets may only invest in certain types of shares and are not allowed to invest on the capital market unless certain conditions are met. The investments that CNVM allows include shares of other stock markets. BSE has bought shares in listed stock markets in Europe over the last few years, but did it to be able to participate in general meetings of shareholders to exchange experience rather than anything else.
The average interest of 8.5% BSE takes into account for investments in deposits and government securities is lower than the level offered on the market, where banks are now offering even more than 10%. The BSE representative, however, says, "the budget was devised before interests went up so that we expect to exceed this level."
The main investments that BSE is considering for this year include technology purchases, consolidation of positions to companies inside the group and the acquisition of a building for its headquarters. The investment budget stands at 27 million RON (7.5 million euros). BSE also anticipates, as set forth in the budget, that its gross profit will go down by 60%. This year's profit should therefore stand at 14.04 million RON (3.9 million euros), down compared with last year because of the significant decline in traded value on the BSE in the first few months of the year.
Last year, BSE posted a record gross profit worth 34.7 million RON (10.4 million euros), almost double the profit in 2006, given the strong rise in trading volumes, especially in the first half of the year.
It anticipates to derive revenues worth 41.3 million RON (11.4 million euro) in 2008, down 21% on 2007, due to the lower volume and to the reduction in trading fees, according to the budget draft that will be submitted to shareholders for approval during the meeting scheduled for May 19.
"This year is more difficult for BSE, because of the unfavourable context. We anticipate revenues from trading fees to go down, which are a major component of BSE's revenues, due to the decline in transactions," Stere Farmache said.
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