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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
GEORGIAN STOCK EXCHANGE
2010 was devoted to development and
implementation of important new features
at GSE and GCSD.
George Loladze
Chairman of the Supervisory Board
2010 turned out to be somewhat difficult year for
us, at one hand – because we had to deal with
number of problems, however, at the same time,
it was quite interesting – because practically the
whole year was devoted to development and
implementation of important new features at GSE
and GCSD.
Introduction of the GSE index (GSX) could be
considered as the most important accomplishment
of the year. The preparatory work on the index was
ongoing for years but its introduction have been
postponed several times due to concerns it would
not be representative enough – because of small
capitalization and low liquidity of the market.
However, in 2010 we made such decision and
don’t regret about it since introduction of the index
made it possible for the investors and general
public to grasp more easily and explicitly the
growth (still moderate but stable) of the Georgian
securities market.
Several months ago one of the largest global
custodians expressed its interest towards the
Georgian securities market – which is quite
encouraging. After series of active consultations
with representatives of the global custodian and
of the largest participants of the Georgian
securities market, important development of
systems and procedures took place at the
Georgian Central Securities Depositary to create
more favorable conditions for improvement and
further extension of the custodian services
spectrum.
All the aforementioned, together with social -
political processes developing in Georgia,
encourages us that 2011 year will be busy as well
– however more efficacious and successful.
HISTORY AND DEVELOPMENT
Equity securities first appeared in Georgia in 1991
after the declaration of independence that signaled
the beginning of market-oriented reforms. A vast
majority of the newly established joint-stock
companies were owned by a rather small number
of private shareholders and trading in these shares
was relatively inactive. With the launching of the
Mass Privatization Program in 1994, approximately
1,300 state-owned enterprises were organized as
joint-stock companies, creating about half a million
individual private shareholders. However, during a
five-year period (1994-1999), the lack of an
appropriate legal framework and organized market
infrastructure seriously impeded the secondary
trading of these shares and any over-the-counter
market activity was nearly nonexistent.
The Georgian Stock Exchange (GSE) was founded
in 1999 by a group of Georgian securities market
professionals, leading banks, investment and
insurance companies. Today it is the only organized
securities market in Georgia. Designed and
established with the assistance of the United States
Agency for International Development (USAID) and
operating within the legal framework of corporate
and securities laws drafted with the assistance of
American and German experts, the GSE can assert
that it is designed and operated to comply with
“global best practices” and offers an attractive
investment environment to foreign investors.
Official trading at the GSE began in March 2000.
The number of companies admitted for trading at
the GSE trading system increased gradually and by
the end of 2004 reached 277. Practically all of
these companies are former state owned and
operated companies transformed into joint-stock
companies and then privatized. The growing but
still low trade volumes reflect the nascent stage of
the Georgian capital market and the level of
development of the Georgian economy. In 2002, as
a result of active cooperation with the National
Securities Commission and the Ministry of State
Property Management, the Special Privatization
Auctions commenced at the GSE. In 2003 the GSE
started trading government securities.
2004, was a landmark year for the GSE, due to the
unprecedented increase in basic trading figures
compared with previous years, reflecting the overall
revitalization of the economy in the wake of the
“Rose Revolution” of 2003.
In the end of November, 2006 Bank of Georgia
(GSE:BOG), the company listed at the GSE since
2001, concluded successful IPO at the London
Stock Exchange Main Market and through issuance
of GDRs raised circa $160 ml. The bank is the first
Georgian company ever and the second bank from
the CIS since 1999 listed on the London Stock
Exchange.
In 2007 the remote trading system was practically
implemented at the GSE and number of brokerage
companies started remote trading operations from
their offices via internet and VPN technology.
Number of trading days increased from two to three
days a week.
In 2008 significant amendments were made in
Georgian legislation, GSE Charter and Rules
ensuring GSE demutualization, stock-exchange
membership for various licensed financial
institutions, including remote membership for
respective foreign entities. In August 2009 the
decision on GSE capital increase was taken by
GSE General Meeting of Shareholders with purpose
of attraction of NASDAQ-OMX as a strategic
partner. In May, 2010 the GSE Supervisory Board
took decision on introduction of the GSE index
(GSX). GSX is published on a daily basis at the
GSE website. It is the official indicator of GSE and
represents share price level of the leading
companies admitted for trading at GSE.
In November, 2010 the Georgian Central Securities
Depository (GCSD) – the 99% subsidiary of GSE –
completed fundamental amendments to it selfregulation
rules inspirited by intention of one of the
largest global custodians to start operations in
Georgia. In the end of 2010 the National Bank of
Georgia adopted new regulation according to
which the procedure of public offering in Georgia of
the securities admitted for trading at the eligible
foreign exchanges is dramatically simplified.
FUTURE OUTLOOK
In 2011 the Georgian Stock Exchange plans to:
1. Make important changes in its trading system
and trading rules so as to increase the efficiency of
trading and increase the liquidity of the market:
• Intensify the trading process. In particular, the
trading sessions will be conducted on daily basis
and/or time period of the trading sessions will be
extended;
• Further improve remote trading system for
brokerage companies;
• Establish electronic links between securities
market participants (stock exchange, central
depository, brokerage companies, banks, securities
registrars)
• Increase the efficiency of the government
securities trading on the stock exchange;
• Introduce partially guaranteed trading of
securities;
• Introducing of price quotation both in local and
foreign currencies.
2. Launch a new web-site for the GSE, which along
with traditional statistics will provide corporate
reports database for the companies who are
admitted to the trading system. In addition, the
creation and publication of a company database
will allow companies to publish their annual, semiannual
and current reports which are required by
law and thus improve disclosure standards and
corporate transparency;
3. Sign the data distribution agreement with one of
the largest global data vendors.
4. Finalize upgrade of the Georgian Central
Securities Depository (GCSD – the 99% subsidiary
of GSE) clearing and settlement system, thus
increasing efficiency of operations for large
institutional investors and global custodians.
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