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Will market supervision be independent?

Fears have arisen among stock market dealers that the Financial Markets Authority, a soon-to-be-created capital market watchdog which will be run by a government-appointed board, will have little real power to control securities trading on the Bratislava Stock Exchange.
The new body, which is to be launched by November 1 and will initially oversee the capital and insurance markets and later also the banking sector, is to have its board members proposed by the Finance Ministry and then discussed and approved by the government - a provision that has left senior figures at the Bratislava bourse worried.
"With regard to the appointments, the question is rather who will appoint these people [to the body]. It may be better to have the government propose some people and then the president give final approval for these people. That may be a better model," said Juraj Lazový, secretary general of the Bratislava Stock Exchange (BSE).

Fears have arisen among stock market dealers that the Financial Markets Authority, a soon-to-be-created capital market watchdog which will be run by a government-appointed board, will have little real power to control securities trading on the Bratislava Stock Exchange.

The new body, which is to be launched by November 1 and will initially oversee the capital and insurance markets and later also the banking sector, is to have its board members proposed by the Finance Ministry and then discussed and approved by the government - a provision that has left senior figures at the Bratislava bourse worried.

"With regard to the appointments, the question is rather who will appoint these people [to the body]. It may be better to have the government propose some people and then the president give final approval for these people. That may be a better model," said Juraj Lazový, secretary general of the Bratislava Stock Exchange (BSE).

Following a series of high-profile clashes among coalition parties over the appointment of board heads and general directors to state-run firms, questions were raised over whether expert appointments to key economic positions were being sacrificed to party politics.

The likelihood of a similar situation arising with the Financial Markets Authority, the creation of which is believed to be vital to securing a future for the capital market and presenting an image of Slovakia's economy as transparent, depends, according to Lazový, on the independence of the body.

"It's important to distingusih between independence and people being appointed by the government. Independence is of the highest importance. If there is no independence it will be very hard for the stock exchange to operate," he said.

Michal Horváth, head of the Finance Ministry's financial markets department, admitted that the body would not be fully independent. "It is not going to be independent, but it will be autonomous. It's a body that will be financed by the state budget and as such could not be completely independent," he said.

There is also concern that the body will have little real power, with jurisdiction only to regulate the markets and not to prepare any acts or amendments to legislation affecting the markets.

"The body will have a lot of power from the point of view of regulation, but no power to prepare new acts on capital markets. It would be better to have these people with some power to draw up new acts because they should know the capital markets and their workings best, but unfortunately the laws are already in parliament and it would be very difficult to change them now," said Lazový.

However, some observers have pooh-poohed criticism of the body, saying that there is little threat that politics will be behind its running.

"Maybe the election system of this board may seem strange [in being appointments by politicians] but judges are appointed by the government and no one thinks those appointments are politically motivated," said Michal Kustra, equity analyst at Tatra banka. "I have no doubt that there will be no political motivation behind these appointments."

He added: "It [the creation of the body] was a necessity for the capital markets and one of the things insisted upon by the OECD [prior to Slovakia's membership]. The benefits of having this institution far outweigh any potential drawbacks."

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