Twenty-five series of Romanian state securities issued by the Ministry of Economy and Finance (T-Bonds) started trading on August 4 2008 on the Bucharest Stock Exchange (BSE). Promised from 2001, the trading of T-Bonds on the BSE has been long awaited and been publicised as the event of the year for the Romanian capital market.
The press has been quick to emphasise that the T-Bonds trading will benefit pension funds, mutual funds and insurance companies, which do not have many choices when it comes to fixed income instruments traded on the stock exchange with good liquidity. The trading was expected to attract more institutional investors on the market, and as such to invigorate the Romanian capital market, and substantially increase the liquidity of the BSE.
The trading has been made possible through the joint effort of the Ministry of Economy and Finance, National Securities Commission (NSC), the National Bank of Romania, the BSE and the Central Depository. As part of this process, NSC has issued Regulation 6/2008, published in the Official Gazette on July 21 2008, which amended the regulation regarding the secondary market of T-Bonds organised as a regulated market. Such amendments aimed at harmonising the legal provisions regarding the trading of T-Bonds on a regulated market with other legal provisions issued by NSC and by the National Bank of Romania.
The NSC Regulation has clarified that the T-Bonds regulated market functions in accordance with the general regulation applicable to regulated markets and alternative trading systems (NSC Regulation 2/2006), as well as with the regulations issued by the market operator which administers the regulated market.
The Central Depository has been authorised to handle the operations regarding the registration, depositing, clearing and settlement of the transactions with T-Bonds, performed on a regulated market, in accordance with its rules. The register operations can be also performed by other entities, based on an agreement concluded with the issuer of the T-Bonds and the Central Depository.
Also, on August 28 2008, Order 2509 of the Ministry of Economy and Finance approving the Regulation regarding operations with T-Bonds issued in de-materialised form has been published in the Official Gazette.
The respective regulation sets among its objectives to establish (i) the general terms and conditions for the trading of the T-Bonds issued by the Ministry of Economy and Finance in de-materialised form, in Romanian or foreign currency, on the internal market, (ii) the obligations of the entities empowered by the Ministry of Economy and Finance to administer the primary or secondary market of T-Bonds, as well as (iii) the obligations of the entity empowered by the same Ministry to administer the depositing and settlement system of T-Bonds.
The system for the depositing and settlement of T-Bonds is organised based on the indirect holdings principle, characterised by the existence of one or more layers of intermediaries between the depository and the final holder of T-Bonds.
For the participants to the depositing and settlement system, the ownership right over the T-Bonds is acquired by registration of the T-Bonds in the accounts held in their own name with the depository. In all the other cases, the ownership right is acquired by registration in the accounts held with the intermediaries, if the respective T-Bonds exist in the records of the depository.
In an effort to encourage the development of the T-Bond market, the BSE has announced reduced fees for T-Bonds, to become effective from September 15. The BSE has also introduced a new category of a market participant, which will be a participant authorised to perform stock operations only on the T-Bonds market. In order to facilitate their access, the BSE will not charge these participants the admission fee, the participant fee and the stock exchange agent exam fee for a period of 12 months.
However, since they started trading, only a very limited number of T-Bond transactions have been recorded on the BSE. Various reasons have been put forward, such as the novelty of the market, the general unfavourable context of international markets, the reduced yield of the T-Bonds in comparison with the interest rates offered by banks, or the fact that institutional investors continue to use for investments in T-Bonds the interbank market (where negotiations play an important role) and not the BSE system. Market participants are nevertheless optimistic that the trading will increase in the future, especially if these instruments are better promoted to investors, if those intermediaries that can also play a market-maker role will be attracted to the market and if the total value of T-Bonds in circulation is increased.
By Mihaela Maxim