56 basic professional standards. Business association of brokerage houses as it exists today is not necessary. The business association of brokerage houses should be the stock exchange.
2. Trading
2.2 Shares
Before October 2000, trading in shares did not even exist on the Belgrade Stock Exchange in the real sense of the word. Banks were obliged to publicly trade with every new issue of shares, and the Belgrade Stock Exchange was only used as a place for technically carrying out the capital increase of banks by selling shares to already known buyers.
Privatization brought about a significant change with the insistence that all shares which emerged out of privatization must be traded on the stock exchange.
In autumn 2003, the Stock Exchange did not yet become a market of shares, but remained a market of companies. Auctions of shares on the Stock Exchange were discontinued, the market was not liquid, while no company has been permanently listed yet. This is so, among other things, because of the fact that the best companies in Serbia (ca. 1,000) underwent privatization in December 2000 under the 1997 Privatization Law, which put them in the hands of insiders, which most frequently resulted in strong influence of management on other shareholders (employees in that company). At the same time, since this concerns important companies, they are usually the target of tycoons, strategic partners and the Government, which, in agreement with the management, wants to take over a company through capital increase. The management itself, seeking the support of the Government, is often trying to take over the company by manipulating the rights of other shareholders2. Both these two phenomena prompted the fifth and sixth convocation of the Securities Commission to react.
As far as MBO is concerned, it was not very successful, i.e. it almost completely failed, being limited only to public opinion awareness raising of this problem. With regard to capital increases, the effects remain to be seen.
Current market capitalization of 240 companies whose shares were at least once traded on the Belgrade Stock Exchange is EUR 915.8 million, which is 10% of Serbia’s GDP (810.3 billion). To put it simply, through the continued process of privatization and economic growth, this figure is likely to increase and even to exceed the level registered in Slovenia. However, in view of the fact that only serious companies remain on the Stock Exchange for good, that on our Stock Exchange we have trading in companies and not trading in shares, and that only 13 companies constitute one half of the mentioned EUR 915.8 billion, we expect that after the end of privatization and consolidation of ownership, this figure will remain at the same level as in Croatia. It is very interesting that banks are not included in the listing of the Stock Exchange in our country, while on local stock exchanges in CEE countries, banks dominate, being characterized by the highest liquidity of all listed companies.
2 One can frequently hear of pressures imposed on workers to sign authorizations transferring their right to management, followed by watering down of capital which turns away investors and, finally, carpetbagging (see footnote 1).
58 Market capitalization, EUR 000m
Apatinska pivara a.d. 120.220
Hemofarm concern a.d. 89.999
Imlek a.d. 74.885
Fabrika cementa a.d. 70.402
IBP Beograd a.d. 48.227
Sintelon a.d. 44.571
Beoturs a.d. 25.049
Tehnogas a.d. 24.173
Henkel Merima a.d. 20.648
Palic THU a.d. 18.269
Energoprojekt holding a.d. 15.341
Bambi a.d. 11.904
Potisje Kanjiza a.d. 10.900
At the Belgrade Stock Exchange there is no liquid market of shares of any company. Shares are traded at periodical auctions which are scheduled in advance, with a usual period of 30 days between two actions. The shares of 240 companies3 are traded on the Belgrade Stock Exchange, while the Temporary Depositary contains some 1,200 companies. Many companies are postponing their decision to appear on the Stock Exchange, and many good companies are still not there, although they deserve this in terms of their performance. Many managing directors have failed to recognize the moment for the companies they run to appear on the stock exchange. They hope that their companies will be bought by the buyer of their choice, or by themselves or in association with workers, but do not have sufficient funds at their disposal for that transaction. In many companies there is conflict of interest between management and shareholders, which is one of the reasons for the backpedaling of the privatization process. The new Law on Securities should prevent the rule that only managing directors are entitled to sign the prospectus, which puts them in a position of preventing the company from appearing on the stock exchange. The company will be considered listed by the very act of becoming registered in the Temporary Depository. Hence, managing directors will not have to sign the prospectus for the company to appear on the stock exchange, which will considerably speed up the process of privatization and the development of the domestic financial market.
3 Companies in which trading was carried out.
2.3 Foreign Currency Savings Bonds
Trading in old foreign currency savings4 bonds started at the end of November 2001. The Republic of Serbia issued bonds for settling obligations on the basis of old foreign currency savings of citizens in the amount of EUR 4,200,000,000. The issue was divided into series from 2002 to 2016, with May 31 as the maturity date for each year (except 2002, when the maturity date fell on August 26). The nominal value of each bond is EUR 1. From September until the end of 2002, on the Belgrade Stock Exchange, old foreign currency savings bonds in the amount of CSD 1,720,908,815 were sold through 17,439 transactions, whereby no greater difficulties were encountered because the Belgrade Stock Exchange and the Central Depository carried out timely preparations for trading in these financial instruments.
Old foreign currency savings bonds are securities of the highest quality on the market, and there were no irregularities with regard to trading in them. This confirms the significance of a comprehensive institutional approach to the development of the market. From the very beginnings, the prerequisite for trading in these bonds was the placing of a bona fide deposit at the Central Securities Depositary with the then National Bank of Yugoslavia5. Registration of changes in ownership is completely computerized, and, as a process, separated from the process of trading. For this reason, manipulations with property rights are almost impossible.
Increase in the value and volume of trading in these securities is contributed to by a well organized special market on the Belgrade Stock Exchange, as well. In summer 2003, the Stock Exchange, after the discontinuation of individual auctions, provided all technical conditions for continuous trading in old foreign currency savings bonds. Moreover, distance trading in these securities is expected to start in the autumn.
3. Recommendations