The Investor Compensation Scheme (ICS), established two years ago to ensure safety for investors on the capital market, can only afford to compensate several dozen investors out of the about 30,000 operating on the stock exchange, in case one or more brokerage firms default.
The Investor Compensation Scheme currently has 384,000 euros available, according to its chief executive Stefan Hirtu, which can be used to reimburse 85 investors. These investors should get 4,500 euros each, the maximum allowed by the law in 2007.
When they established the ICS in December 2005, the authorities checked one more item of the strategy to bring the Romanian legislation in line with European law.
The Compensation Scheme currently collects contributions from 102 members (financial investment service companies - SSIFs, investment management companies - SAIs and lending institutions), which it invests in low-risk financial instruments, in government securities (50% of its assets), bank deposits (45%), and bonds (5%). As members of the ICS, brokerage and investment management companies pay an initial contribution of at least 1,000 euros and an annual contribution calculated in line with the investment value. In case one of the members of the scheme defaults and the ICS does not have the necessary resources to pay the compensation required by the law, the General Shareholders Meeting sets a special contribution that adds up to bank loans to get the ICS out of trouble.
Considering the average value of an individual investment account with an investment manager stood at 416,520 RON or 122,867 euros on January 31, 2007, the 4,500-euro compensation cap guaranteed by the ICS for 2007 is almost 30 times lower than the actual value of the investments.
"The compliance with the orders of CNVM (National Securities Commission) binds Scheme members to pay very large amounts of money as contributions for 2007, which is hard to bear and justify, all the more so since those who have clients that cannot be compensated are not entitled to any service in exchange for such payments," says Stefan Hirtu.
The compensation scheme does not cover qualified investors, managers, including leaders, directors, censors, financial auditors of Scheme members, the legal entities part of the same group as Scheme members and the investors that are directly liable for the actions that increased the cash flow problems of a member or contributed to the deterioration of the financial situation of that member.
The investment management companies that are members of the ICS pay an annual contribution of at least 500 euros, calculated by the value of investment and by the number of investors. The annual contribution of an ICS member may reach as much as 19,000 euros in some cases.
Considering that only 9 of the 14 existing companies are actually managing individual investment accounts instead of working only on paper, the other five companies pay a non-repayable annual contribution to the Scheme, but will not benefit from its advantages in case of a collapse.
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