FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
GEORGIAN STOCK EXCHANGE
The year 2007 was a year of significant
changes for the GSE that were mainly
related to the essential amendments to
securities market legislation in Georgia.
George Loladze
Chairman of the Supervisory Board
The year 2007 was a year of significant
changes for the Georgian Stock Exchange
(GSE). These changes were mainly related to
essential amendments to securities market
legislation in Georgia enacted at the end of
March 2007. Liberalized legislation effectively
shifted much of security trading from the stock
exchange and brokerage companies to the
unregulated market. As for the stock exchange
transactions–the main focus here was on
several relatively attractive stocks, though it’s
HISTORY AND DEVELOPMENT
Equity securities first appeared in Georgia in
1991 after the declaration of independence that
signaled the beginning of market-oriented
reforms. A vast majority of the newly
established joint-stock companies were owned
by a rather small number of private
shareholders and trading in these shares was
relatively inactive. With the launching of the
Mass Privatization Program in 1994,
approximately 1,300 state-owned enterprises
were organized as joint-stock companies,
creating about half a million individual private
shareholders. However, during a five-year
period (1994-1999), the lack of an appropriate
legal framework and organized market
infrastructure seriously impeded the secondary
trading of these shares and any over-the-
counter market activity was nearly nonexistent.
The GSE was founded in 1999 by a group of
Georgian securities market professionals,
leading banks, investment and insurance
companies. Today it is the only organized
securities market in Georgia. Designed and
established with the assistance of the United
States Agency for International Development
(USAID) and operating within the legal
framework of corporate and securities laws
drafted with the assistance of American and
German experts, the GSE can assert that it is
designed and operated to comply with “global
best practices” and offers an attractive
investment environment to foreign investors.
To promote the concept of self-regulation, the
GSE membership 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 (SRO) and received a stock
exchange license in January 2000.
The GSE utilizes an automated trading facility.
Thousands of securities can be traded by its
members from the workstations at the GSE
floor or remotely from their offices. The GSE
adopted the platform employed by the Russian
trading system (RTS) in Moscow. However,
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worth mentioning that that there are very few
really liquid securities in Georgia.
All the above-mentioned has significantly
reduced GSE turnover. However, we look with
optimism into the future, since investors’
interest towards Georgian securities market, in
general, and GSE, in particular, is constantly
increasing. We hope that through the policy of
aggressive reduction of tariffs and fees,
improving quality of the stock exchange and
central depository services (implementation of remote trading, remote access to central
depository, etc) we will attract new circles of
investors and soon see the next boom in GSE
volumes.
RTS–as an excellent informational-
communication system–was significantly
modified to ensure those requirements outlined
under the GSE trading rules reflected the
peculiarities of Georgian securities market. FUTURE OUTLOOK
Official trading at the GSE began in March
2000. The number of companies admitted for
trading at the GSE trading system increased
gradually and by the end of 2004 reached 277.
Practically all of these companies are former
state owned and operated companies
transformed into joint-stock companies and
then privatized. The growing but still low trade
volumes reflect the nascent stage of the
Georgian capital market and the level of
development of the Georgian economy.
In 2002, as a result of active cooperation with
the National Securities Commission and the
Ministry of State Property Management, the
Special Privatization Auctions commenced at
the GSE. In 2003 the GSE started trading
government securities.
2004, was a landmark year for the GSE, due to
the unprecedented increase in basic trading
figures compared with previous years,
reflecting the overall revitalization of the
economy in the wake of the “Rose Revolution”
of 2003.
In the end of November, 2006 Bank of Georgia
(GSE:BOG), the company listed at the GSE
since 2001, concluded a successful IPO at the
London Stock Exchange Main Market and
through issuance of GDRs raised circa US$
160 million. The bank is the first Georgian
company ever and the second bank from the
CIS since 1999 listed on the London Stock
Exchange.
In 2007 the remote trading system was
implemented at the GSE and number of
brokerage companies started remote trading
operations from their offices via internet and
VPN technology. The number of trading days
increased from two to three days a week.
2008 is the year of Presidential and
Parliamentary elections in Georgia and we
hope that the post-election stability period will
bring further investor confidence to the market.
1. Significant changes will take place at the
Georgian capital market in 2008. In particular,
the Georgian legislation, GSE Charter and
Rules will be amended to ensure:
• Demutualization of the GSE;
• Direct participation of various financial
institutions in GSE trading;
• Remote GSE membership (for foreign
institutions);
2. Based on the significant interest of a leading
European stock exchange operator, as well as
of the various financial investors, significant
changes in GSE ownership structure is
anticipated, entailing, among other, attraction
of required investments for further development
of the GSE.
3. Also, in 2008 the GSE plans to:
• Make important changes in its trading
system and trading rules so as to increase the
efficiency of trading and increase the liquidity
of the market:
• Intensify the trading process. In particular,
the trading sessions will be conducted on daily
basis and/or time period of the trading
sessions will be extended;
• Further improve remote trading system for
brokerage companies;
• Establish electronic links between securities
market participants (stock exchange, central
depository, brokerage companies, banks,
securities registrars)
• Increase the efficiency of the government
securities trading on the stock exchange;
• Introduce partially guaranteed trading of
securities;
• Introduce price quotation both in local and
foreign currencies.
• Launch a new web-site for the GSE, which
along with traditional statistics will provide
corporate reports database for the companies
who are admitted to the trading system. In
addition, the creation and publication of a
company database will allow companies to
publish their annual, semi-annual and current
reports which are required by law and thus
improve disclosure standards and corporate
transparency.