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Cabinet passes new capital market law

Traders and investors were left bouyant after the government on May 17 approved the creation of an independent body to regulate the Bratislava bourse - a move seen as crucial to Slovak membership in the Organisation for Economic Cooperation and Development (OECD) and later the European Union.
However, the bill on the creation of the body must now go before parliament, and while no problems are expected in passing the legislation, the date set for the body's start, July 1, can only be met if the bill is rushed through the legislature in accelerated proceedings.
"If we want to meet that date [July 1] then we will have to pass everything in accelerated proceedings. It will all depend on the decision of the Speaker of Parliament [Jozef Migaš] if we can get these accelerated proceedings," said Michal Horváth, director of the financial markets section at the Finance Ministry.

Traders and investors were left bouyant after the government on May 17 approved the creation of an independent body to regulate the Bratislava bourse - a move seen as crucial to Slovak membership in the Organisation for Economic Cooperation and Development (OECD) and later the European Union.

However, the bill on the creation of the body must now go before parliament, and while no problems are expected in passing the legislation, the date set for the body's start, July 1, can only be met if the bill is rushed through the legislature in accelerated proceedings.

"If we want to meet that date [July 1] then we will have to pass everything in accelerated proceedings. It will all depend on the decision of the Speaker of Parliament [Jozef Migaš] if we can get these accelerated proceedings," said Michal Horváth, director of the financial markets section at the Finance Ministry.

Juraj Renčko, advisor to Finance Minister Brigita Schmögnerová, said that the bill would probably go before parliament for its first reading at the beginning of June, and agreed that if read in accelerated legislative proceedings, the July 1 deadline could be met.

The final parliamentary seal of approval is expected to reassure investors that the government is committed to creating a fully-functioning capital market.

Along with the independent body, the government also approved other measures to reinforce the image of a transparent bourse that it is trying to promote. Two draft bills on securities were passed, comprising a revision to the Securities Act that will change the present definition of publicly tradable securities. Under the first revised draft, a security becomes publicly tradable after its acceptance on the official stock exchange market, whereas at present a security is considered publicly tradable based on permission given by the Finance Ministry. Securities that are publicly tradable in line with the current law will be tradable on the stock exchange until the end of 2001, and an issuer will be obliged to observe disclosure duties.

The other revision to the stock-exchange law will lay down stricter conditions for securities' listings, bringing the law into harmony with EU regulations and also enabling a more effective execution of state supervision over stock exchange activities.

Problems still exist

Despite the fact that the Bratislava bourse recorded the third largest trading volume in its history in April, the Slovak capital market is still languishing in the doldrums, according to senior government officials.

At a conference in Bratislava May 11, Privatisation Minister Mária Machová admitted that there was still a long way to go before the stock market could really be classed as properly functioning.

"Since the stock market originated as a byproduct of voucher privatisation [begun in 1992 by then-Prime Minister Vladimír Mečiar], it features a large number of publicly tradable securities which are illiquid. Their issuers do not meet the disclosure duty and are not interested in further listing on the market," Machová said.

The minister added that poor legislation, especially concerning the protection of minority shareholders, still dogged the bourse and hindered attracting more interest in the stock exchange.

Under the current Business Code there are no facilities for ensuring so-called cumulative voting, which secures the direct participation of minority shareholders in company management.

Machová added that change on the capital markets would only come with a fundamental change in the concept of public tradeability.

NBS vice-governor Kohútiková agreed. She said: "The stock market insufficiently fulfills its allocation, signal and price-making functions, most of the transactions are carried out in a non-market way, and there is no independent institution for stock market management."

At the beginning of this year central Europe's capital markets recorded huge growth, led by trading in Budapest and Warsaw. The general success of the Czech Securities Commission had led to increased hopes that a similar body would be set up quickly in Bratislava. However, despite co-operation from the Prague-based regulatory body, the government had been accused of dragging its heels in getting its own body created.

BCPB representatives have long voiced their discontent with the situation on the bourse and pointed to the BCPB's poor performance in comparison to the bourses of neighbouring countries as a factor contributing to Slovakia'a stalling economy.

"It shows that the Slovak stock market has nothing to offer to a standard financial investor, and that the role of the domestic stock market is still on the periphery of interest," they said at the conference.

Domestic analysts have agreed that the BCPB's troubles lie with poor legislation. However, the paucity of attractive stocks and a lack of corporate governance have stifled capital market growth in Slovakia.

"Corporate governance is weak in Bratislava. Companies here have to take some responsibility," said Michal Kustra, equity analyst at Tatra banka in Bratislava. He added, however, that to embed standard western business practices in the Slovak corporate sector was a question of years rather than months.

Kustra said that there must be an impulse from the government to liven up the bourse. "Unless the number of new stocks on the market goes up we won't attract any new investors," he said.

"If you look at the other capital markets in the region they are all powered by telecom and such stocks. But here, these are all owned by the government and not on issue," he explained.

Deputy Premier for the Economy Ivan Mikloš has said that he is keen to begin opening up the stock market to sales of smaller government stakes in strategic companies.

"Privatisation through the stock market brings several advantages, including higher speed and transparency of this process," said Mikloš at the May 11 conference.

The government has already said that it is considering the sale of a 15% stake in the monopoly pipeline operator Transpetrol. It has also been mooted that a similar move may be made when the government comes to sell off a stake in the gas collossus Slovenský plynárenský priemysel (SPP) at the end of this year.

The plans have garnered praise, as it is believed that by putting the shares on the market the government will promote increased interest in the market from new investors, helping it revive and generating larger trading volumes and further interest.

"It would be a bit like a snowball effect," Kustra added.

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