FEAS Yearbook FEAS Yearbook 2006 | Page 100

FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 MACEDONIAN STOCK EXCHANGE Ivan Steriev CEO 2005 was without any doubts the best year since the commencement of trading at the Macedonian Stock Exchange (MSE) in 1996, both in terms of turnover and securities prices appreciation. Total turnover reached EUR 145 million which is close to a 7% increase as compared to 2004. However, more detailed analysis of the turnover shows the quality level of the MSE performance in 2005: trading in equities through BEST reached EUR 75,5 million (262% increase compared with the same figure in 2004), bond trading was EUR 33,9 million (42% higher than in 2004) with simultaneous decrease in block trading (EUR 28,4 million or 66% decrease from 2004). Lower volume of block trading should be characterized as a positive trend as that means that MSE in 2005 did not primarily serve as market for company control as it HISTORY AND DEVELOPMENT The MSE 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 Republic of Macedonia. The MSE was founded as a not-for-profit joint stock company with founding capital of EUR 500,000. At that time, the only eligible founders were banks and other financial institutions. MSE initially had 19 members: 13 banks, 3 saving houses and 3 insurance companies. In 1997, the number of members decreased to 7 because at that time MSE members could be legal entities whose sole activity was trading in securities (brokerage houses. The new Securities Law from 2000 introduced again the possibility of banks being MSE members (starting from 2002). Only brokers, authorized by the MSE members may trade in securities at MSE (in Macedonia there are 253 brokers). MSE currently has 15 members–9 brokerage houses and 6 banks. According to the 2000 Law, the initial share of capital of each MSE member must be at least EUR 75,000 (license for acting as an agent) and the liquid capital must be EUR 15,000. In order to get full license as broker-dealer, brokerage company must have at least EUR 500,000 share capital. Due to a change in the law, in June 20, 2001, MSE started to operate on a for-profit basis, with a founding capital of EUR 500,000. MSE PAGE 98 2005 was without any doubts the best year since the commencement of trading at the Macedonian Stock Exchange in 1996, both in terms of turnover and securities prices appreciation. used to be a case in the previous years. The new MSE index (MBI 10) introduced at the beginning of 2005 was up around 130% p.a. Also, MSE ended up 2005 with 57 listed companies that have a market capitalization of around EUR 540 million, increasing the total market capitalization of listed companies by 78% compared with the end of 2004 (when there were 68 companies listed at the MSE); Main factors contributing to the volume and price increase at the MSE: • improved transparency of the listed companies operations; • the influx of foreign portfolio investors who carried out new valuations of many undervalued securities (in period April- December the foreigners participated with 32.6% in the total buying turnover and 10% in 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). the total selling turnover at the MSE); • the start of the operations of the new private pension funds within the pension system reform process • the vibrant activity in the Macedonian banking Also, during 2005 MSE made significant changes in its trading system in order to boost trading in its illiquid stocks (modifying the opening price calculation algorithm, introducing automatic switch between its call and continuous trading system module and/or imposing and lifting the price limits fluctuations, introduction of interruptible auction after smaller price fluctuations, imposing new rules for exposing orders and widening the size and transparency of its public order book etc). better transparency achieved during the mandatory listing period and favorable financial ratios of some of the Macedonian companies compared with their peers in the region. This development that actually started in 2005 will probably continue in 2006 and hopefully will be additionally boosted due to the granted EU candidate status for the Republic of Macedonia. FUTURE OUTLOOK The listed companies will have an exemption of 30% of the profit tax in 2006 and 15% of the profit tax in 2007. MSE also expects the possible sale of the government shares in the Macedonian Telecom through the stock exchange and subsequent listing of these shares, as well as the sale of the national electric power company through the stock exchange. The level of disclosure and corporate governance are planned to be strengthened simultaneously with the revising of the MSE Listing Rules and the implementation of the MSE Code of Corporate Governance. Dissemination of the data related with the listed companies is planned to be reorganized by introducing an internet-based software application that will be used by the issuers for their public disclosure purposes. The implementation of this application is planned for January 2006. The participation of the foreign portfolio investors on the Macedonian securities market should further increase due to the After obtaining the first credit rating from S&P in July 2004 (BB with positive outlook), the Macedonian Government in November 2005 started issuance of new government bonds denominated in local currency which should contribute to a further increase in the trading activity in debt instruments at MSE in 2006. In December 2005 the Republic of Macedonia has issued its first eurobond, which is listed on the London Stock Exchange. In November 2005 Fitch Ratings gave the Republic of Macedonia long term credit rating in domestic and foreign currency “BB” with positive prospects, short term credit rating “B” and maximal country rating “BB.” Two newly founded private pension funds within the mandatory second pillar of the reformed pension system in the Republic of Macedonia started their operations in the second half of 2005, creating the first institutional investors on the market. MSE should continue its international co-operation arrangements, maintaining already established informational network SEM-ON.NET (with exchanges from Ljubljana, Varazdin, Sarajevo, Banja Luka, Belgrade and Podgorica).