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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 GEORGIAN STOCK EXCHANGE George Loladze Chairman of the Supervisory Board It is our strong belief that the principles of transparency and disclosure underlying the operation and development strategy of the GSE, are the unquestionable guaranty of our success. The year 2004 was a landmark one for the Georgian Stock Exchange (GSE), due to the unprecedented increase of the basic trade figures compared with previous years, reflecting the overall revitalization of the economy in the wake of the “Rose Revolution” of 2003. As to the future, the Georgian capital market has an opportunity to intensify its development through the recently resumed privatization process. GSE has rich experience in organizing privatization auctions, as well as, in providing the necessary legislative and IT support. Undoubtedly, through sustainable conducting of privatization the Georgian capital market will continue on its path of sound growth and development. Progress of the capital market, in many respects, depends on the soundness of corporate governance in Georgia. Thus, good corporate governance is one of the top priorities on our agenda. In 2003, the GSE established a corporate governance training program for corporate representatives, legal professionals and the mass media. The leading professionals of the National Securities Commission of Georgia, the GSE, Central Securities Depository, and other capital market institutions prepared and distributed the Corporate Governance Manual. In parallel, we have initiated the establishment of the Georgian Corporate Directors Association and the development of the National Corporate Governance Code on this basis. It is our strong belief that the principles of transparency and disclosure underlying the operation and development strategy of the GSE, are the unquestionable guaranty of our success. The GSE will continue promoting the policy to encompass all different sectors of the Georgian capital market, and we will gladly cooperate with all actors, who strive for the economic development of Georgia. HISTORY AND DEVELOPMENT Equity securities first appeared in Georgia in 1991 after the declaration of independence that signaled the beginning of marketoriented 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 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. To promote the concept of self-regulation, the GSE membership adopted new rules. After approval of these rules by the National Securities Commission of Georgia, the GSE was officially recognized as a self-regulatory organization (SRO) and received a stock exchange license in January 2000. The GSE utilizes an automated trading facility. Thousands of securities can be traded by its members from the workstations at the GSE floor or remotely from their offices. The GSE adopted the platform employed by the Russian trading system (RTS) in Moscow. However, RTS–as an excellent informationalcommunication system–was significantly modified to ensure those requirements outlined under the GSE trading rules reflected the peculiarities of Georgian securities market. 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. FUTURE OUTLOOK In 2005 the GSE plans to: • make important changes in its trading system and trading rules so as to increase the efficiency of the treasury bills trading on the stock exchange; • intensify the trading process. In particular, the trading sessions will be conducted on daily basis and an additional trading session will be introduced during the trading day; • increase the efficiency of trading • increase the liquidity of the market; • introduce partially guaranteed trading of securities; • remove the day-trading restriction on the GSE; and • launch a new website for the GSE, which along with traditional statistics will provide a 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 is required by law and thus improve disclosure standards and corporate transparency. PAGE 72
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 GEORGIAN STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ millions # Shares millions Total Volume Average Daily Volume Total Volume Average Daily Volume Stocks Jan-06 0.66 0.09 0.34 0.05 Feb-06 0.48 0.06 0.20 0.02 Mar-06 0.59 0.07 0.45 0.05 Apr-06 0.73 0.09 0.001 0.0001 May-06 18.2 2.28 3.8 0.48 Jun-06 1.0 0.12 1.3 0.14 TOTAL 21.7 0.45 6.1 0.12 Bonds Jan-06 0.02 0.003 0.0001 0.00002 Feb-06 1.16 0.15 0.002 0.0003 Mar-06 0.07 0.008 0.0003 0.00003 Apr-06 0.06 0.008 0.40 0.05 May-06 0.01 0.001 0.0001 0.00002 Jun-06 0.02 0.002 0.00004 0.000004 TOTAL 1.3 0.03 0.40 0.01 Other Jan-06 n/a n/a n/a n/a Feb-06 n/a n/a n/a n/a Mar-06 n/a n/a n/a n/a Apr-06 n/a n/a n/a n/a May-06 n/a n/a n/a n/a Jun-06 n/a n/a n/a n/a TOTAL n/a n/a n/a n/a Market Capitalization (US$ millions) Index MONTHLY STOCK VOLUME (US$ millions) MONTHLY MARKET CAPITALIZATION (US$ millions) Jan-06 377.4 n/a Feb-06 390.3 n/a Mar-06 434.1 n/a Apr-06 468.1 n/a May-06 485.1 n/a Jun-06 485.4 n/a 20 18 16 14 12 10 8 6 4 2 0 500 450 400 350 300 250 200 150 100 50 0 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun CONTACT INFORMATION Contact Name Mrs. Ekaterine Katamadze E-mail info@gse.ge Website www.gse.ge PAGE 73
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