GEORGIAN STOCK EXCHANGE
George Loladze
Chairman of the Supervisory Board
These fundamental
political changes have
completely opened new
perspectives for
improvement of the
general economic
climate, recovery of the
investment environment
and development of the
capital market.
If not for the revolutionary events that unfolded
at the end of 2003, it would have been another
colorless year for the Georgian Stock Exchange
(GSE) and the Georgian economy as a whole.
These fundamental political changes have
completely opened new perspectives for
improvement of the general economic climate,
recovery of the investment environment and, as
a result, development of the capital market.
Therefore we will not dwell on the work that the
GSE accomplished in 2003. This was mostly a
continuation of the projects started earlier, with
their ultimate success quite questionable
against the background of a disastrous
economic policy (or rather its absence) that the
former Georgian government had implemented.
necessary legal and technological infrastructure
for such auctions is in place, but also certain
practical experience in conducting auctions has
already been accumulated.
Prospects are good for the development of
fixed income securities, especially a municipal
bond market. We hope the development
project recently begun with the assistance of
international donors (First Initiative Foundation)
will greatly assist the development of the
municipal and T-bond markets. The GSE will
start T-bill trading in 2004.
We can confidently say that 2004 is a year of
high hopes and important opportunities for the
GSE.
Georgia’s “Rose Revolution” has brought
young and progressive forces into leading
roles. Hopes are high that key issues
necessary for the development of the capital
market will be effectively addressed. Of special
importance is the commencement of the
“corporatization” and privatization process of
state-held blue chip companies, the latter to
happen through the most transparent and
efficient mechanism: Exchange privatization
auctions. Fortunately, thanks to the hard work
of the GSE and its partners, not only the
HISTORY AND DEVELOPMENT
FUTURE OUTLOOK
Equity securities appeared in Georgia in 1991
after the declaration of independence that
signaled the beginning of market-oriented
reforms. A vast majority of newly established
joint-stock companies were owned by a small
number of private shareholders, and trading in
these shares was relatively inactive. With the
launching of the privatization program in 1994,
approximately 1300 state-owned enterprises
were organized as joint-stock companies,
creating 500,000 private shareholders. From
1994 to 1999, the lack of an appropriate legal
framework and an organized market
infrastructure seriously impeded the secondary
trading of these shares, and OTC market
activity was nearly nonexistent. To promote self-regulation, the membership has
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, receiving its license
in January 2000.
The Georgian Stock Exchange (GSE) was
founded in 1999 by a group of Georgian
securities market professionals, banks, and
investment and insurance companies and is the
only organized securities market in Georgia.
Designed and established with the US Agency
for International Development (USAID) and
operating within the legal framework of
corporate and securities laws drafted with
American and German experts, the GSE is
designed to comply with “global best
practices”. In 2002, as a result of active cooperation with
the National Securities Commission and the
Ministry of State Property Management, special
privatization auctions began.
The GSE utilizes an automated trading facility.
Thousands of securities can be traded by its
members from workstations on the floor or from
offices. The GSE adopted the platform
employed by the Russian trading system (RTS),
which was significantly modified to reflect the
peculiarities of the Georgian securities market.
After months of training and some mock
sessions, official trading began in March 2000.
• Since 2000, all companies with more than
100 shareholders and all companies traded
on the Exchange had to file financial reports
to the National Securities Commission of
Georgia (NSCG) and the GSE. In 2003,
important amendments were made to the Law
on the Securities Market and the Law on
Entrepreneurs. The number of companies
subject to strict reporting and disclosure
requirements was quadrupled. Standards of
corporate governance have been significantly
tightened to positively affect Georgian capital
market dynamics.
• Important technological improvements are
planned. An in-house software package is
being prepared to facilitate trading in T-bills
and a special broker interface will be
improved. Also the ability of the GSE will be
enhanced to monitor strict implementation of
trading rules.
• Together with its partners (USAID, CIPE,
PSI), the GSE has designed the Training
Course in Corporate Governance to be
delivered to more than 100 company
managers and directors in 2004.
• The GSE plans to prepare the
Commentaries to the Law on the Securities
Market, together with the NSCG. This
fundamental work will greatly assist all
securities market participants, the NSCG and
the judiciary in market participation while
increasing overall market efficiency and
investor protection.
• Plans are underway to prepare and
ultimately adopt (together with the NSCG) the
Georgian National Corporate Governance
Code. This will become the basis for
tightening the listing requirements so as to
reflect and promote best practices in
corporate governance in Georgia.
FEDERATION OF EURO-ASIAN STOCK EXCHANGES YEARBOOK 2003/2004
PAGE 46