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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 BUCHAREST STOCK EXCHANGE Stere Farmache General Manager & CEO Following the positive economic climate Central Eastern European (CEE) emerging markets registered in the last years, 2004 was the fifth year in a row when Romania’s GDP continued to grow (8.1% year-on-year basis) and inflation continued to decrease. The inflation rate dropped below 10% for the first time since 1989 to 9.3%. Further, the fall in saving interest rates and the decrease in the yield rate for Government bonds issued in 2004, as well as the volatility of foreign currencies contributed to an increase in the number of investors and capital driven toward the Bucharest Stock Exchange (BSE). The total market capitalization of the BSE in 2004 increased three times to reach almost US$ 12 billion compared to US$ 3.7 billion at the end of 2003. The market capitalization currently represents 17% of Romania’s GDP. Furthermore, all three indices computed by HISTORY AND DEVELOPMENT Trading in equities in Romania dates back to 1882, a year after the legal framework was passed. The market was very slim and from the beginning official trading was soon substituted by off-exchange trading. However, with the exception of the two world wars and the economic depression, the market grew to significant levels reaching, in terms of listed securities, 56 shares (banks, oil, mining, industrial, insurance and transportation companies) and 77 fixed income securities, in 1935. The peak was reached in 1938 but after the end of the Second World War, in 1948, the stock market was left without any public companies due to the nationalization of the entire economy. For almost fifty years Romania did not have one of the most vital institutions of a modern economy. The adoption in 1994, by the Parliament of Romania, of the Securities and Exchanges Act made the reconstruction of a modern capital market possible. Based upon the provisions of this Act, the main institutions of the Romanian capital market: the National Securities Commission, the BSE, brokerage companies, and the National Association of the Securities Dealers have been set up. PAGE 62 The total market capitalization of the BSE in 2004 increased three times to reach almost US$ 12 billion. The market capitalization currently represents 17% of Romania’s GDP. the BSE posted significant increases; reaching all time highs in 2004. On the last trading day of 2004 all indices recorded values two times higher than those of the last trading day of 2003. Thus, the BET index stood at 101% above the value on the last trading day of 2003. The BET-C index posted an annual growth rate of 104%, while BET-FI recorded an annual growth rate of 115%. The daily average turnover also increased from US$ 1.3 million in 2003 to over US$ 3.3 million in 2004 and the turnover for 2004 of US$ 746.8 million increased by more than 161% as compared to 2003 (US$ 285.7 million). 2004 also brought 3 new issuers to the BSE, representing banking, energy and textiles businesses. In addition, several listed companies raised capital through the BSE totaling US$ 16.3 million. It was the first time The BSE was re-established in April 1995, by a decree of the National Securities Commission (NSC) at the request of 24 brokerage houses – the founding members – to trade on the BSE. A new law on securities was approved by the Parliament in 2002. The BSE is a self-financing and selfregulating institution of public interest, operating on corporate principles. Trading is performed on the BSE in a dematerialized environment: Exchange operations have been conducted exclusively through the electronic systems since the reestablishment of the Exchange. that one company initiated an IPO in the amount of US$ 3 million. With the support of the Romanian Government, a multi-annual program “A Strong Market” was launched to develop the capital market and to consolidate the financial market for a successful integration of Romania to the European Union (EU) in 2007. Thus, seven large state-owned companies are planned to be listed on the BSE during the coming two years, and are expected to contribute to a higher liquidity and to increase in the market capitalization by 20%. In December 2004, the BSE and Wiener Borse AG (WBAG) signed a Memorandum of Understanding, which establishes the basis of a co-operation between the two institutions. FUTURE OUTLOOK In 2004, Romania's Stock Exchange has been one of the best performers in the region. According to our estimations, the upward trend will continue accelerate during the next years before the Romania’s integration in the EU and the market capitalization of the BSE will exceed 20% of the GDP in 2005. The BSE plans for 2005 are to: • allow new types of intermediaries to enter the market (according to the provisions of the new Romanian Capital Market Act), such as commercial banks and other credit institutions, including investment firms from member and non-member EU countries; • transform the BSE into a joint stock company; • introduce new instruments provided for by the new legislation, such as financial derivatives; • launch indexes for economic sectors that are represented on the stock market; and • finalize preparation for the implementation of a new trading system for shares: ARENA. ARENA is a trading system developed inhouse, which is now used only for supporting the bond market.
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 BUCHAREST STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ Millions # Shares Millions Total Volume Avg. Daily Volume Total Volume Avg. Daily Volume Stocks Jan-05 276.2 13.2 2,615.5 124.5 Feb-05 343.1 17.2 2,087.5 104.4 Mar-05 219.6 9.5 1,831.7 79.6 Apr-05 139.3 7.0 1,013.9 50.7 May-05 124.5 5.9 771.5 36.7 Jun-05 6.2 0.35 30.5 1.7 TOTAL 1,109.0 8.8 8,350.6 66.3 Bonds Jan-05 2.4 0.12 0.04 0.002 Feb-05 11.4 0.57 0.06 0.003 Mar-05 5.3 0.23 0.02 0.001 Apr-05 5.1 0.25 0.02 0.001 May-05 2.3 0.11 0.01 0.0004 Jun-05 9.2 0.51 0.21 0.01 TOTAL 35.7 0.30 0.35 0.003 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 14,942.4 1,473.7 Feb-05 18,103.9 1,707.1 Mar-05 13,526.3 1,372.9 Apr-05 12,583.0 1,293.1 May-05 12,409.1 1,212.6 Jun-05 13,277.6 1,221.1 CONTACT INFORMATION MONTHLY STOCK VOLUME VS INDEX (US$ Millions) 350 300 250 200 150 100 50 0 Stocks Index Contact Name Ms. Adriana Tanasoiu E-mail Adriana.Tanasoiu@bvb.ro Website www.bvb.ro MONTHLY MARKET CAPITALIZATION (US$ Millions) 1,800 20,000 1,600 18,000 1,400 16,000 1,200 14,000 1,000 800 600 12,000 10,000 8,000 6,000 400 4,000 200 2,000 0 0 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun PAGE 63
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