CNVM nominated by brokers for "Blunder of the year"

The National Securities Commission (CNVM) yesterday managed to take the Romanian capital market by surprise. However, the surprise was not a “crystal-clear” regulation or a measure aimed to protect investors, but a move deemed by brokers as a “big blunder.”

According to the brokers, this faux pas can trigger losses worth several billion ROL for the Bucharest Stock Exchange investors.

On Tuesday night, the first official draft of the consolidated capital market law was published on the CNVM website. This was a draft eagerly awaited by all market players. Once the bill was published, most investors and brokers went straight to the chapter on the statute of Financial Investment Companies (SIFs). Much to their surprise, under this category they found stipulations regarding an increase in the maximal stake that can be held by an investor in a SIF, from 0.1% to 1%. Only several weeks before, CNVM president Gabriela Anghelache had said the consolidated law draft that was to be sent to Brussels for validation by the European Commission officials would not include any stipulations on increasing stakes in SIFs.

This increase had been awaited for more than a year by the Stock Exchange investors, as its application would have led to more control for the SIF shareholders and, implicitly, to a better price for the shares. The financial investment companies are among the richest Romanian companies, with total cumulated assets worth some $600 million.

Although theoretically a very wise investment, the SIF shares are undervalued on the Bucharest Stock Exchange, because investors are not allowed to own more than 0.1% in SIFs and therefore their voting rights are insignificant, unable to influence the management decisions.

After reading the law draft posted by the National Securities Commission (the CNVM also issued a release stating the project was available for analysis and opinions were welcome), the investors rushed to buy SIF shares immediately after the beginning of yesterday’s trading session.

All five SIF stocks surged 5-6% yesterday, as investors concluded transactions worth almost two million dollars. Almost all the brokers were happy that the SIF situation was finally clear and recommended their clients to buy. Thus, the price of SIF stocks had climbed about 4.13% by the time the trading session closed yesterday.

The first question marks emerged when the CNVM members were asked to comment on the law draft.

“What do you mean the project posted on the website included a stipulation to up the maximal stake to 1%? We never sent anything like that to Brussels. The law draft we sent to Brussels did not mention the obligation to increase the stake, but left this to every SIF to do as it sees fit. Let me check,” a CNVM member said yesterday under condition of anonymity.

After the verification, the Commission drafted an official position.

“An intermediate version of the law draft was posted on the CNVM website by mistake, but this version was subsequently changed. The accurate version, which does not stipulate an increase in the maximal stake an investor is allowed to hold in a financial investment company, will replace the incorrect variant,” CNVM spokesperson Ciprian Ene told Ziarul Financiar.

“This is the blunder of the year. It is unbelievable. Such an official institution, which is supposed to offer clarifications, is by no means allowed to make such mistakes. What CNVM did can cause damages of billions to the investors that bought today (yesterday, i.e.). What are we supposed to say to our clients in situations like this?” said Rares Nilas, general manager at BT Securities, the brokerage controlled by Banca Transilvania.

SIF officials were just as surprised by the mix-up and would not comment on this situation.
laurentiu.ispir@zf.ro ; vlad.nicolaescu@zf.ro