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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 MACEDONIAN STOCK EXCHANGE Ivan Steriev Chief Executive Director The first half of 2005 was very successful for the Macedonian Stock Exchange. Total turnover almost doubled compared with the same period of 2004. Trading in equities and bonds was higher than the first half of 2004 (equities were 342.15% higher and bonds, 41.69% higher). The stable inflation rate and fixed foreign exchange rate of the Euro, with further financial and fiscal stabilization created needed conditions for sustainable economic growth in the next few years. HISTORY AND DEVELOPMENT The Macedonian Stock Exchange was founded on September 13, 1995 and commenced trading on March 28, 1996, as a central marketplace for trading in securities and the first organized stock exchange in the history of the Republic of Macedonia. The MSE was founded as a not-for-profit joint stock company with founding capital of 500,000 Euros. According to the legislation that was in force in 1996 the only possible eligible founders of the MSE were banks and other financial institutions (saving houses and insurance companies) MSE initially had 19 members: 13 banks, 3 saving houses and 3 insurance companies. Since 1997, according to the new Law on Issuance and Trading in Securities, MSE members must be legal entities whose sole activity is trading in securities (brokerage houses). Due to these changes the number of MSE members decreased to 7. The new Securities Law from 2000 introduced again the possibility of banks being MSE members (starting from 2002). All MSE members must be licensed for trading in securities by the Macedonian Security and Exchange Commission. Only brokers, authorized by the MSE members may trade in securities at MSE (in Macedonia there are 253 brokers). MSE currently has 14 members - 8 brokerage houses and 6 banks. According to the Securities Law from 2000 the initial share capital of each MSE member must be at least 75,000 Euros (license for acting as an agent) and the liquid capital must be 15,000 Euros. In order to get full license as broker-dealer, a brokerage company must have at least 500,000 Euro share in capital. PAGE 100 The first half of 2005 was very successful for the Macedonian Stock Exchange. Total turnover almost doubled compared with the same period of 2004. The main features of the Macedonian Stock Exchange operations in the first half of 2005 are as follows: • 57 listed companies with market capitalization of approximately 434.5 million Euros, showing an increase of 53.83% as compared with the first half of 2004; • significantly higher volume of trading in shares (turnover of the shares was 342.15% higher than in the first half of 2004); • 25 residual government shares were traded, with the turnover of 6.6 million Euros; • The new MBI-10 index, introduced at the beginning of 2005, increased 83.43% reaching a level of 1,834.28. Starting from June 20, 2001 (with the new amendments of the Securities Law), MSE started to operate on a for-profit basis, with a founding capital of 500.000 Euros. MSE shareholders may be any legal and private domestic and foreign entity. Shareholdings per entity is limited up to 10% of the MSE outstanding shares. Currently MSE has 20 shareholders (8 brokerage houses, 8 banks, 1 insurance company and 3 private investors). FUTURE OUTLOOK After the expiration of the mandatory listing (as of end of 2004) the number of listed companies at the MSE has decreased to 57 companies. However, the remaining listed companies are those Macedonian corporations which have real market potential and trading activity in their shares is expected to grow. The level of disclosure and corporate governance are planned to be strengthened simultaneously with the revision of the MSE Listing Rules and the development of the MSE Code of Corporate Governance (with technical assistance of the USAID Corporate Governance and Company Law Project and the Dutch Ministry of Finance). Dissemination of the data related with the listed companies is planned to be reorganized by introducing a software application (Internet based) that will be used by the issuers for their public disclosure purposes. The participation of foreign portfolio investors in the Macedonian securities market should further increase due to better transparency achieved during the mandatory listing period and favorable MSE has made changes in its trading system in order to boost trading in some of the illiquid stocks–modifying its current call market system for these securities with the aim of increasing the size and transparency of its public order book. MSE has continued its activities in the field of international co-operation, both in the region of South-Eastern Europe and wider. We would like to stress that in the first half of 2005 MSE has become a member of FESE. financial ratios of some of the Macedonian companies compared with their peers in the region. Nevertheless, this development will be directly correlated with the political stability in the region. After obtaining the first credit rating from S&P in July 2004 (BB with positive outlook), the Macedonian Government announced that it will start with the issuance of new government bonds in 2005 (it is likely that the first bonds issued will be with a 1 year maturity), which should contribute to a further increase in the trading activity in debt instruments at MSE as well. Two newly founded private pension funds within the mandatory second pillar of the reformed pension system in the Republic of Macedonia will start their operations in the second half of 2005, creating the first institutional investors on the market. The amounts collected from the pension fund’s members in one part should be invested in the the secondary securities market, especially in debt instrument traded at the MSE. A demonstration effect is also expected i.e. the creation of the first classical investment funds could be a favorable outcome for the further development of the Macedonian securities market. Pension reforms will contribute to the development of one of the missing elements of the Macedonian securities market – the setting up of custody operations with major Macedonian banks. This will facilitate further foreign portfolio investments in the country. MSE should continue its international cooperation arrangements, maintaining already established informational network SEM- ON.NET (with exchanges from Ljubljana, Varazdin, Sarajevo, Banja Luka, Belgrade and Podgorica).
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 MACEDONIAN STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ Millions # Shares Millions Total Volume Avg. Daily Volume Total Volume Avg. Daily Volume Stocks Jan-05 17.4 1.09 0.39 0.02 Feb-05 12.8 0.80 0.56 0.04 Mar-05 20.7 1.09 0.46 0.02 Apr-05 10.6 0.66 0.29 0.02 May-05 10.6 0.66 0.34 0.02 Jun-05 4.5 0.25 0.82 0.05 TOTAL 76.6 0.76 0.48 0.03 Bonds Jan-05 1.5 0.10 1.7 0.10 Feb-05 1.6 0.10 1.7 0.11 Mar-05 8.6 0.46 10.2 0.54 Apr-05 5.0 0.31 5.7 0.36 May-05 2.8 0.17 3.4 0.21 Jun-05 3.0 0.17 3.8 0.21 TOTAL 22.6 0.22 26.6 0.26 Other Jan-05 0.0 0.0 0.0 0.0 Feb-05 0.0 0.0 0.0 0.0 Mar-05 0.0 0.0 0.0 0.0 Apr-05 0.0 0.0 0.0 0.0 May-05 0.0 0.0 0.0 0.0 Jun-05 0.0 0.0 0.0 0.0 TOTAL 0.0 0.0 0.0 0.0 Market Capitalization US$ Millions Index Jan-05 408.4 1,075.8 Feb-05 496.1 1,502.8 Mar-05 618.6 2,197.2 Apr-05 593.6 2,026.4 May-05 552.3 1,851.1 Jun-05 526.3 1,834.3 CONTACT INFORMATION MONTHLY STOCK VOLUME VS INDEX (US$ Millions) Contact Name Mr. Milco Kupev E-mail mse@mse.com.mk Website www.mse.com.mk 25 20 15 10 5 0 2,500 2,000 1,500 1,000 500 MONTHLY MARKET CAPITALIZATION (US$ Millions) 0 0 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun 700 600 500 400 300 200 100 PAGE 101
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