Local stock exchange grapples with red tape

The Bucharest Stock Exchange needs to further remove cost barriers and streamline regulations to make it more appealing to foreign investors, argues Mark Gitenstein, member of the board of nominees at the EUR 3.3 billion Property Fund (FP).

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Gitenstein says it is often “very difficult” to get the answer to a question and that the regulations seem to be long-winded and unpredictable.

“Capital markets move very quickly and capital itself is fungible, and can go anywhere in the region. Where it is hard to get decisions, and when you have indecision like this, it is safer to put your capital in another place so this is going to discourage foreign direct investments here, especially in equity markets, where the regulatory process needs to be changed. Also the fees are very high here, probably the highest in the region, and I just think that’s unnecessary, also discouraging investments,” Gitenstein told BR.

The BSE is currently grappling with low levels of liquidity despite having over 80 listed companies, and the recent initial public offering in Romgaz, the state-owned gas producer, has increased liquidity to its highest level in the last six years.

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Duane Butcher, US charge d’affaires, said last week, on the occasion of the three-year anniversary of the FP’s listing, that the BSE’s capitalization is only 1.27 percent of the German Stock Exchange, and 12 percent of that of the Warsaw Stock Exchange.

“In order to tap the full potential of its capital market, Romania needs to make more progress in modernizing its financial regulatory structure, which would make the country more appealing to investors and issuers alike,” said Butcher.

The FP has been one of the supporters of a major reform within state-owned companies, some of which have been listed on the local stock exchange. This involved the appointment of professional managers and administration boards at key companies, in a bid to make them more transparent and resistant to political pressure. The program has registered mixed success: for example, at CFR, the board has been changed for the third time in less than a year.

However, Gitenstein believes in the program, despite the setbacks. “It has not happened fast enough, but when it happens it has a tremendously positive impact,” said the board member.

Romania strengthens rule of law

Gitenstein is the former US ambassador in Romania, and has remained active in the private sector since completing his diplomatic duties in December 2013. Earlier this month he was appointed advisor of Romanian insurer Astra.

BR asked the former diplomat how Romania has done on the rule of law since he finished his mandate. “It is getting better and the whole time I was here I felt it was getting stronger and more sustainable and I feel the same is true even with the new Cooperation and Verification Mechanism report. There is a general improvement,” said Gitenstein, adding that he had not read the report in detail, but had seen only a leaked version in the media. Asked when the US would appoint a new ambassador to Romania, he replied, “Soon, I hope.”

Gitenstein added that the country needs a transparent legislative process, referring to the quick approval of amendments to the Penal Code in Parliament last month, which came under heavy criticism from embassies, including that of the US. He said the manner in which the proposal was handled had “undermined its credibility.”

The amendments would put in place a special regime regarding anti-corruption investigations against the president and MPs, along with other members of the liberal professions.

Ovidiu Posirca

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