Romanian Capital Market Regulatory Framework

Aprilie 2009

ALPHA FINANCE ROMANIA S.A.

 

Key regulations

The legislative framework of the Romanian Capital Markets consists of the following Laws and Regulations:

• Capital Market Law (Law 297/2004);
• Companies’ Law (Law 31/1990);
• CNVM instructions & regulations;
• Bucharest Stock Exchange regulations;
• Privatisation laws.

 

The legal framework for securities trading was first put in place in 1994, leading to the establishment of the Romanian National Securities Commission (CNVM), the organisation and functioning of the Bucharest Stock Exchange (BSE), the issuance and trading of securities, as well as the regulation of brokerage activities of intermediaries and investment advisors. As a consequence, effective securities trading started in November 1995 on the Bucharest Stock Exchange and one year later on the over-the-counter Rasdaq market.

Over the past ten years, the governing law on the Romanian capital market experienced numerous changes, which culminated in a new, consolidated capital market law that was enacted on 29 June 2004 and came into force one month later.

The new Capital Market Law (Law 297/2004) aims at bringing the Romanian capital market in line with European standards. While the new law outlines only the general principles, additional secondary legislation was elaborated by the regulatory body CNVM. In addition, given Romania’s accession to the EU starting January 2007, CNVM published Regulation 31/2006 that provides for the enforcement of the following European Commission Directives, starting January 2007:

• Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions.
• Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.
• Directive 2004/25/EC on takeover bids.
• Directive 2004/72/EC implementing Directive 2003/6/EC as regards the accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and the notification of suspicious transactions.
• Directive 2004/39/EC on markets in financial instruments.
• Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC.
• Directive 97/9/EC on investor-compensation schemes.
• Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).
• Directive 14/2007 laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market enforced in Romania by CNVM Regulation no. 1/2008.
• Directive 16/2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions enforced in Romania by CNVM Regulation no. 2/2008.

 

Moreover, the following European Commission regulations are applicable in Romania:

• EC Regulation no. 2273/2003 on the implementation of EU Directive no. 2003/6 regarding the exceptions on the redemption and stabilization activities;
• EC Regulation no. 809/2004 on the implementation of EU Directive 2003/71 regarding the information that should be presented into a prospectus and also the form, publication, dissemination and other requirements regarding the public offerings;
• EC Regulation no. 1787/2006 and no. 211/2007 amending the EC Regulation no. 809/2004;
• EC Regulation no. 1287/2006 on the implementation of EU Directive no. 2004/39 as regards record keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading;
• EC Regulation no. 1606/2002 on the application of international accounting standards;
• EC Regulation no. 1725/2003 adopting certain international accounting standards in accordance with EC Regulation no. 1606/2002.

 

 

Key regulators

The National Securities Commission (“CNVM” in Romanian) is the main regulatory body, which supervises both securities markets and the derivatives market. The Commission was established in October 1994, as an independent administrative authority accountable to the Romanian Parliament.

CNVM is comprised of seven commissioners (appointed by the Parliament) who constitute its management board. The commissioners have five-year mandates, which can be extended only once.

CNVM has an equivalent role to the one of the American SEC in regulating the functioning of the Romanian equity markets. It is responsible for the all operations on the Romanian securities markets, the protection of investors against unfair, abusive, and fraudulent practices, the circulation of information regarding securities, holders and issuers, and the establishment of a legal framework for financial services activities. In order to protect the investors’ interest, the Commission has the right to apply sanctions for the breach of the provisions of the laws and the regulations issued for its implementation. Sanctions may range from fines to withdrawal of authorization. Listed securities cannot be traded outside regulated markets, which are those established under the authority and the supervision of CNVM.

The Romanian brokerage companies are authorised to trade securities in Romania or in the EU member countries (members of the European Union and other states of the European Economic area) only with the approval of CNVM. The brokerage houses that intend to provide full financial investment services must have an initial capital of EUR 730,000. A foreign company (domiciled in an EU member state and other states of the European Economic area) can trade directly in Romania without CNVM approval if it is licensed as a brokerage company in its home country following a notification to CNVM from the Securities Commission of the country where the authorised brokerage is performing its activities.

There are currently two self-regulatory organisations (SRO), namely the BSE and SIBEX (the Sibiu Futures Market) who have received their SRO status from CNVM. The SROs have the authority to adopt their own rules regarding membership, listing, trading, clearing, settlement, and registry activities.

The National Bank of Romania’s main involvement in the functioning of the capital markets refers to:

• Authorisation of clearing and custodian banks, in cooperation with CNVM;
• Cash settlement bank for both equity markets.

 

Main company & stock market provisions

Corporate governance

The general framework for managing a Romanian company is provided by Companies’ Law 31/1990, modified by Law 441/2006, while some of the provisions have been adjusted by the Capital Market Law for application to listed companies.

The Law no. 441/2006 brought a number of important changes that were enforced starting December 2006. Regarding joint stock companies, the most important changes pertain to the corporate governance, especially with regards to the ordinary and extraordinary general shareholders meetings and the board system.

Thus, the new regulation significantly relaxes minimum legal quorum requirements for both Ordinary and Extraordinary General Shareholders Meetings. More precisely, for the 1st call of the Extraordinary General Shareholders Meeting (EGSM), the minimum quorum needed was lowered to 25% of total voting rights, from the previous 75% of the total share capital, while for the 2nd call the EGSM must gather at least 20% of total voting rights as compared to at least 50% previously required by the law. The EGSMs are called whenever necessary in order to discuss issues such as: the change of the company’s legal form, object of activity, headquarters, and share capital; the issuance of bonds; the merger with other companies or the splitting/spinning-off of a part of it; and changes to the company’s bylaws.

A shareholder meeting can be called at the request of any significant shareholder (holding at least 10% of the company’s shares outstanding). Shareholders can be also represented by other persons that the company’s shareholders, based on a notarised proxy.

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