Minority Shareholders' Protection - Theoretical and Applied Economics

Minority Shareholders’ Protection: the Romanian Experience n

Victor Dragotã Anamaria Ciobanu Delia Cataramã Andreea Semenescu Carmen Maria Lãcãtuº Academy of Economic Studies, Bucharest

Abstract. This paper performs an analysis of the regulation regarding minority shareholders protection in Romania. The paper estimates the level for minority shareholders protection based on the Pistor, Raiser and Gelfer (2000)

Minority Shareholders’ Protection: the Romanian Experience

index during the period 1996-2008. This index improved from 13 (January 1996) to 17.25 (March 2008) having a maximum value of 17.75 during May 2002- November 2006. Key words: corporate governance; minority shareholders protection; Romania.

n

JEL Codes: G34. REL Codes: 11B.

35

Theoretical and Applied Economics

36

1. Introduction

Historically, in December 1989, the time of the Romanian anti-communist

Since the Anti-Communist Revolutions,

revolution, individuals were not familiar

from the end of twentieth century, the

with market economy mechanisms. This

Eastern Europe emergent markets are in a

state was due to more than fifty years of a

continuous transition process to functional

non-market economy. In fact, before the

market economies. Although most of these

Second World War, Romania was under a

countries became members of the European

royal (1938-1940) and, after that, a fascist

Union, the capital markets regulation still

(1940-1941) dictatorship. Between 1941

remains a main issue for the capital markets

and 1945, Romania fought in the Second

development.

World War, and beginning with 1945 was

The Romanian experience can be

under the influence of the Union of Soviet

interesting for at least two reasons: i) no

Socialist Republics. During this period

knowledge of the market economy for a

information related to anything that was

very long period of time (after 1938) and

associated with the market economy

ii) no economic freedom or even

doctrine was practically unavailable to the

relationships with the market based

majority of the Romanian population.

economies for this period. The result of this

Moreover, maybe in connection with this

study can be useful for investors, as they

state, even after 1989, the mechanisms of

will be able to find out whether their rights

the market economy were not enforced

as minority shareholders are protected by

soon. Hence, there is an opportunity for

Romanian regulators. This result might

studying the evolution of regulations

prove to be very important in the context

related to corporate governance, especially

of Romania’s accession within the

to minority shareholders protection in a

European Union, with constantly growing

country that had no recent history of a

opportunities and no barriers for capital

market economy. The results can be

flows within EU.

analysed comparatively to Gillies et al.

Most of the countries in transition

(2002) for Estonia. However, the situation

adopted organizational structures inspired

in Romania is very different relative to

by the ones in the developed countries.

Estonia. For instance, if Estonia benefited

Anecdotally, the Romanian over the

from the Finnish television network from

counter market is called RASDAQ, from

40 miles away, Romania’s neighbours were

NASDAQ. Yet, the implementation

only communist countries – USSR,

mechanism was not always brought into

Hungary, Yugoslavia, and Bulgaria so these

practice. As a result, a heterogeneous

television networks were under the

system has been created, which gathered

Communist doctrine, too.

structures and institutions some of them

Historically, the Romanian stock

typical to the market economy, others of

market exchange activity began in 1839,

the state-owned economy.

when trade markets were open. On January

bonds are divided in three tiers, depending

(BSE) was officially opened, and after one

on how they fulfil the NSC requirements

week the stock market quotations were

(www.kmarket.ro, section “Presentation.

published in the Romanian Official Journal.

History”). Currently, at the first tier there

During its existence the stock market’s

are 21 securities listed, at the second 38

activity was influenced by the socio-

securities and at the third one security

political events of the time (the 1907 revolt,

(www.kmarket.ro, section “Listed shares”).

the Balkan war in 1912-1913), but it was

Several indices are computed by the

closed only during the First World War. The

BSE. The most important are BET, which

activity of the stock market is interrupted

includes the most liquid 10 shares from the

in 1948 following nationalization. At the

first tier, and BET-COMPOZIT, which

moment of its closure, there were listed

include all the shares from the first and the

shares of 93 companies and 77 fixed

second tier. Some descriptive statistics for

income assets (bonds) (www.kmarket.ro,

the BET Index evolution are presented in

section “Documentaries”).

Figure 1.

After a break of almost 50 years, the

In this figure descriptive statistics are

BSE was reopened in 1995, the first day of

provided for the series of nominal and real

trading being November 20th 1995. BSE is

return on BET. The data regarding the BET

a share-owned company and was set up by

index was provided by the Bucharest Stock

the decision of the National Securities

Exchange site (www.bvb.ro). Monthly data

Commission (NSC). Presently, it offers the

for the period 1997 - 2007 was used, taking

possibility to invest in equity securities

into account that the BET index was

(shares and allocation rights), debt

computed starting with July 1997. In this

securities (municipal bonds and corporate

study the index value has been considered

bonds), securities issued by mutual funds

as the last working day of the month. The

(shares and fund units), and futures

index monthly return was computed

contracts. Shares, rights and corporate

according to the relationship:

Return on Index =


1st 1882 Bucharest Stock Exchange Market

Index at the end of the month - Index at the beginning of the month Index at the beginning of the month

As the studied period was characterized

on the monthly inflation rate was provided

by high inflation, an analysis of the real

by the Romanian National Institute of

monthly return was also performed. Data

Statistics.

37


Return on BET index 30

S e r ie s : B E T S a m p le 1 9 9 7 : 0 2 2 0 0 7 : 0 7 O b s e r v a t io n s 1 2 6

25 20

M ean M e d ia n M a x im u m M in im u m S td . D e v. S kewn ess K u r t o s is

15 10 5

2 0 3 -3 1 0 5

J a rq u e -B e ra P r o b a b ilit y

0 -3 7 .5

-2 5 .0

-1 2 .5

0 .0

1 2 .5

.2 9 .8 5 4 .9 5 .6 0 .3 .2 0 .4 4

9 5 2 3 7 2 3

9 0 0 0 1 1 1

5 0 0 0 4 7 8

3 2 .1 9 6 3 7 0 .0 0 0 0 0 0

2 5 .0

BET index return evolution over the period 40 30 20 10 0 -1 0 -2 0 -3 0 -4 0 97

98

99

00

01

02

03

04

05

06

07

BET

Real return on BET 28

S e r ie s : R B E T S a m p le 1 9 9 7 : 0 2 2 0 0 7 : 0 7 O b s e r v a t io n s 1 2 6

24 20

M ean M e d ia n M a x im u m M in im u m S td . D e v. S kew ness K u r t o s is

16 12 8 4

J a rq u e -B e ra P r o b a b il i t y

0 -3 7 .5

-2 5 .0

-1 2 .5

0 .0

1 2 .5

0 -0 3 -3 1 0 5

.5 5 .0 0 2 .6 6 .2 0 .3 .0 6 .2 0

8 1 7 3 8 6 7

3 2 0 0 2 0 7

8 5 0 0 8 5 0

2 5 .0

BET index real return evolution over the period 30 20 10 0 -1 0 -2 0 -3 0 -4 0 98

99

00

01

02

03

04

05

06

07

R B E T

Figure 1. Descriptive statistics for BET Romanian market index (1997-2007)

38

4 0 0 0 9 6 6

2 5 .6 7 9 9 5 0 .0 0 0 0 0 3

40

97

0 0 0 0 7 5 3

privatizations. However, some studies

Romanian capital market (before 2002), the

related to Romanian capital market

most important events were: (i) setting up

questioned the market efficiency (see, for

the market for unlisted securities traded

instance, Dragotã, Mitricã, 2004).

through the system of the stock market

The development of capital markets

(1999); (ii) the listing of the five financial

seems to depend, in a great measure, on

investment companies - SIF (1999); (iii) the

ensuring the conditions for information

trade of the first deposit certificates issued

disclosure and also on setting up the

by a bank and the first issue of corporate

framework which would encourage the

bonds (listed on RASDAQ in 2000); (iv)

minority shareholders to invest. Therefore,

the first transaction with derivatives at the

studying minority shareholders’ protection

Sibiu

and

became a frequent subject of analysis. In

Commodities Exchange (2000); (v) the first

the existing literature, some issues can be

listing of municipal bonds at the Bucharest

mentioned: (i) the analysis of minority

Stock

(2001)

shareholders’ protection in different

(www.kmarket.ro, section “Documentaries

countries (La Porta, Lopez-de-Silanes,

and analysis”).

Shleifer, and Vishny, 1998, 2000; Pajuste,

Monetary

Market

–

Financial

Exchange

The year 2002 brought changes for the

2002; Klapper, Laeven, Love, 2006); (ii)

capital market regulations that created the

the impact of minority shareholders’

framework for introducing a lot of

protection on capital market development

innovations: rights’ transactions, options on

(Modigliani, Perotti, 1997, Pagano, Volpin,

shares, futures on stock market indices,

2006); (iii) the estimation of the optimum

short sales etc. Among the effects of the

control level and its impact on company

new regulations that can be mentioned are:

value (Butz, 1994, Pagano, Roell, 1998,

raising the standards of transparency,

Claessens, Djankov, Fan, Lang, 2002,

investors’ protection, improving the activity

Edwards, Weichenrieder, 2004)(1); (iv) the

of the market’s intermediaries and the

protection of the investors and the effects

growth of the market’s activity. The change

on company value (Yarrow, 1985,

of investors’ perception made the capital

Zingales, 1994, La Porta, Lopez-de-Silanes,

market a viable alternative to invest, 2002

Shleifer, Vishny, 2002, Buysschaert,

being a year of growth in shares’ quotations

Deloof, Jegers, 2003) etc.

and as a result in indices.


In the development period of the

Modigliani and Perotti (1997) consider

During 2003-2007 BSE had an

that the essential conditions for capital

encouraging evolution, which could be

market development are: (i) the existence

explained by the increase of foreign

of proper legislation; (ii) the appropriate

investors’ funds flow as an effect of

enforcement of the law and (iii) the

Romania’s accession to the European

guarantee of free trade. The absence of

Union, and by the development of large

adequate legislation or of an efficient

companies and also by several mass

implementation mechanism generates a low

39


confidence in capital markets and weak

reflecting capital market development. The

efficiency, as a result of restricted

conclusion is that the improvement of

transactions. Inadequate legislation or

minority shareholders’ protection leads to

inefficient enforcement mechanisms lead to

capital market development and that a

a low protection of minority shareholders,

developed capital market determines the

thus making possible the existence of higher

efficiency of the mechanisms ensuring the

control premiums. The conclusions of

minority shareholders’ protection.

Modigliani and Perotti (1997) are similar to

The issue of corporate governance for

Nenova (2003), revealing that lower control

Romania became a field of interest in the

premiums are connected to economies with

past few years (Mallin, 2000, Pajuste, 2002,

developed capital markets, while higher

Hashi, 2004, Claessens, Tzioumis, 2006,

levels are specific to the bank-oriented

Dragotã, Semenescu, Pele, Liparã, 2008

countries. Hence, Romania, having a small

etc.). The seminal literature dealing with the

(2)

capital market , may be included in the

protection of the minority shareholders in

class of countries with low protection. In

ex Communist countries is represented by

this context, Dragotã et al. (2007) estimated

Pistor et al. (2000) and Pajuste (2002). We

a control premium for Romanian listed

can mention that in Romania, companies

shares in the period 2002-2004, with a

with major shareholders owning a large

median of 44.62% and an average of

percentage of the capital set dividend ratios

82.44%.

lower than the others (Dragotã, 2006). The

It has to be emphasized that it is not

average stake owned by the major

only the institutional factors that have a

shareholder is very large (the average first

dominant influence on the capital market,

shareholder control percentage is 53%, and

but the company financial policies and the

for the second is 16.6%). Also, the control

corporate governance, too. Thus, in some

premium for the companies listed on the

countries, even if the legislation is more

Romanian capital market is higher than the

relaxed, the shareholders benefit from an

world average (Dragotã et al., 2007).

adequate treatment because of the custom of the company to acquire financial

minority

resources through the capital market

regulations measured through the Pistor,

(Albuquerque, Wang, 2005).

Reiser and Gelfer (2000) index applied to

Analyzing the influence of minority

shareholders’

protection

the Romanian capital market. The rest of

the

this paper is organized as follows. The

development of the capital market, Pagano

evolution of regulation in the field of capital

and Volpin (2006) build a model used to

markets over the period 1996-2008 and the

prove the existence of a bidirectional

way it was reflected in the index quantifying

relationship between the variable reflecting

the minority shareholders protection in

minority shareholders protection, namely La

Romania is described in Section 2. Section 3

Porta et al. (1998) index, and variables

concludes the study.

shareholders’

40

This study analyzes the evolution of

protection

on

2. Minority shareholders protection in Romania

voting power of minority shareholders, the easiness of exercising their right to vote and

The measurement of the minority

(2) Exit, which is a variable showing how

shareholders protection may be completed

easy the minority shareholders may

by construction of some indices like the one

liquidate their positions at the right price if

of La Porta et al. (1998), Pistor et al. (2000),

they consider their rights are not fulfilled;

Lele and Siems (2007), etc. A specific index

(3) Stock Market Integrity index, which is a

for the East European countries, the ex-

variable defining the capital market

communist ones, is the one recommended

regulation and the legislative protection of

by Pistor et al. (2000).

the minority shareholders.

The present Romanian capital market is

Based on the Pistor et al. (2000) index,

relatively young and the legislation has had

a similar analysis for the Romanian

a dynamic evolution. The main legislative

legislation for the period 1996-2008 has

events that influenced the protection of

been performed. The 24 characteristics

minority shareholders’ rights are presented

taken into account in the Pistor et al. (2000)

in Appendix 1. In order to reveal the

index have been analysed in accordance

evolution of Romanian legislation related to

with the Romanian legal settlements

minority shareholders’ protection, Pistor et

concerning the minority shareholders

al. index (2000) was estimated. This index

protection. The index has been computed

was also used by Pajuste (2002) in order to

monthly. The impact of the legislative

analyse corporate governance issues behind

changes on this index was considered

stock market performance in nine Central

starting the month after they appeared.

and Eastern European (CEE) countries, over

After analysing the regulations on

the period June 1994-June 2001.

corporations and capital market (see

Comparatively to the La Porta et al.

Appendix 1), the result was 13 points for

(1998) index, the Pistor et al. index (2000)

the legislative index registered in 1996,

was considered because of the more detailed

reaching a maximum of 17.75 points in

analysis of legislation concerning minority

May 2002, a level which remained the

(3)

shareholders’ protection . As a result, small

same until the end of 2006 (see Table 1)(4).

changes of the regulations in force are

The updates of Company Law (Law no.

reflected in the index level.

441/2006) that allow decisions of the

The legal index introduced by Pistor et

Shareholders’ Assembly be taken with a

al. (2000) is based on the sum of three

quorum of only 1/4 of the shareholders

indices, in their turn explained by some

have decreased the index level to 17.25.

market characteristics as follows: (1) Voice,

The issues for which the legislation has

which shows the minority shareholders

registered deficiencies during the entire

power to be informed and to exercise their

period of the study are as follows: (i) the

right to vote. This index quantifies the

right for voting by mail; (ii) the lack of an


of subscribing to the new shares issues;

41


obligation to register the shares by a

existence of a minimum limit above which

specific date in order to have the right to

takeover offers are compulsory, the

participate in the Shareholders General

shareholders’ register to be kept by an

Meeting; (iii) the requirement of the

independent company, the right of the

qualified majority (at least 3/4) for

shareholders owning less then 10% to

fundamental decisions, including charter

invoke the censors’ committee , the

changes, liquidation of companies, sales

prohibition of insiders’ transactions, the

of major assets; (iv) the existence of the

disclosure obligation on transactions

right to transfer the shares without legal,

which result in the acquisition of a

statutory or constitutive documents’

significant percentage of shares. These

restrictions; (v) the obligation that

represent criteria which have been fulfilled

corporate statutes must specify a certain

over time, the effect being the growth of

amount of dividends to be paid to

the index from 13 to 17.75 (until December

shareholders. The cumulative vote; the

2006).

The monthly level of Pistor, Raiser and Gelfer legislative index, estimated for Romanian case in the period Jan. 1996 –March. 2008 Table 1

42

No.

Year

Quarter

Month

Pistor, Raiser and Gelfer Index

1 2 3 4 5

1996 1996 1996 1996 1996

I I I II II

Jan. Feb. March Apr. May

13 13 13 13 13

50 51 52 53 54

2000 2000 2000 2000 2000

I I II II II

Feb. March Apr. May June

16 16 16 16 16

99 100 101 102 103

2004 2004 2004 2004 2004

I II II II III

March Apr. May June July

17.75 17.75 17.75 17.75 17.75

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

1996 1996 1996 1996 1996 1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997

II III III III IV IV IV I I I II II II III III III IV IV

June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March Apr. May June July Aug. Sept. Oct. Nov.

14 14 14 14 14 15 15 15 16 16 16 16 16 16 16 16 16 16

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

2000 2000 2000 2000 2000 2000 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001

III III III IV IV IV I I I II II II III III III IV IV IV

July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March Apr. May June July Aug. Sept. Oct. Nov. Dec.

16 16 16 16 16 17 17 17 16 16 16 16 16 16 16 16 16 16

104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121

2004 2004 2004 2004 2004 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2006

III III IV IV IV I I I II II II III III III IV IV IV I

Aug. Sept. Oct. Nov. Dec. Jan. Feb. March Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan.

17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75

24 25 26

1997 1998 1998

IV I I

Dec. Jan. Feb.

16 16 16

73 74 75

2002 2002 2002

I I I

Jan. Feb. March

16 16 16

122 123 124

2006 2006 2006

I I II

Feb. March Apr.

17.75 17.75 17.75

No.

Year

Quarter

Month


No.

Year

Quarter

Month


No.

Year

Quarter

Month


27 28 29 30 31 32 33 34 35 36

1998 1998 1998 1998 1998 1998 1998 1998 1998 1998

I II II II III III III IV IV IV

March Apr. May June July Aug. Sept. Oct. Nov. Dec.

16 16 16 16 16 16 16 16 16 16

76 77 78 79 80 81 82 83 84 85

2002 2002 2002 2002 2002 2002 2002 2002 2002 2003

II II II III III III IV IV IV I

Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan.

16 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75

125 126 127 128 129 130 131 132 133 134

2006 2006 2006 2006 2006 2006 2006 2006 2007 2007

II II III III III IV IV IV I I

May June July Aug. Sept. Oct. Nov. Dec. Jan Feb.

17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.25 17.25 17.25

37 38 39 40 41 42 43 44 45 46 47 48 49

1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 2000

I I I II II II III III III IV IV IV I

Jan. Feb. March Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan.

16 16 16 16 16 16 16 16 16 16 16 16 16

86 87 88 89 90 91 92 93 94 95 96 97 98

2003 2003 2003 2003 2003 2003 2003 2003 2003 2003 2003 2004 2004

I I II II II III III III IV IV IV I I

Feb. March Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb.

17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75 17.75

135 136 137 138 139 140 141 142 143 144 145 146 147

2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2008 2008 2008

I II II II III III III IV IV IV I I I

March Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March

17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25 17.25

No.

Year

Quarter

Month


No.

Year

Quarter

Month


Although the changes in regulations

of the minority shareholders can be partly

seem to improve the minority shareholders

offset by the regress manifested in the

protection, the enforcement of the law is the

enforcement of the law field.

problem that remains. An exhaustive

3. Conclusions


presentation for enforcement of the law indices is made in Kaufman et al. (2005). However, in their paper there is no clear

This study offers a presentation of the

evidence regarding a change in enforcement

stages in the evolution of the developments

of the law in Romania over the analyzed

related to the minority shareholders

period. The evolution of the Romania

protection in Romania for the period 1996-

enforcement of the law index is presented

2008, measured by the Pistor, Raiser and

in the International Country Risk Guide. The

Gelfer (2000) index. It can be noticed that

figures revealed by this publication show a

this index improves from 13 (January 1996)

decrease of “law and order” index, that had

to 17. 25 (March 2008). The result shows

a level of 5 (from a maximal value of 6) in

to investors interested in the Romanian

the period 1996 – January 1999, to 4 points

capital

since February 1999. From this perspective,

shareholders’ protection has increased over

the improvement of legislative protection

the years.

market

that

the

minority

43


Acknowledgements

wish to thank to XLII Euro Working Group on Financial Modelling (15-17 May, 2008,

This research was supported by the

Stockholm University School of Business)

Romanian Ministry of Education and

participants and, especially, to Christine

Research – National University Research

Mallin and Nico van der Wijst for very

Council (NURC) through a Grant type At,

useful comments. Also, the authors wish to

Grant No. 130/2006. The authors would like

thank Daniel Traian Pele for his useful

to thank NURC for its support. The authors

observations. The usual disclaimer applies.

Notes (1) Given the characteristics of each economy, the optimal

quantifies the existence of adequate regulations,

control level is not the same. The deviations from this

scaling from 0 to 6, where 0 represents the lowest

optimal level generate a decrease in company market

minority shareholders protection. In Romania this

value, with effects on investors’ behaviour on the

index reached 2.75 points in 2005 (Dragotã, 2006).

specific share market.

This level is very close to the world average. For

(2) In 2007, the market capitalization represented

comparison, the median values for this index in

35,326.04 millions USD, respectively around

English-origin countries, based on „common law”,

21.24% from the gross domestic product, but the

equals 4, as for the countries based on French law

annual transaction volume represented almost 15.72%

and German law the average level is 2.33, while

of the market capitalization.

Scandinavian law countries reach 3 points.

(3) The Antidirector Rights Index, proposed by La Porta,

(4) The maximum level for this index is 23.

Lopez-de-Silanes, Shleifer and Vishny (1998),

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45


Appendix 1

The evolution of minority shareholders’ protection legislation in Romania. A chronological presentation The Romanian legislation may be divided into

September, 10th, 1994: The Law No. 52, on

two categories: (a) Primary legislation: laws, ordi-

securities and stock exchanges. It settled “Comisia

nances, governmental resolutions; (b) Secondary

Naþionalã de Valori Mobiliare” (The National Se-

legislation: regulations and decisions of the Na-

curities Commission) - an autonomous administra-

tional Securities Commission. The following dates

tive authority and a legal person. It undertook the

represent points in time when the respective docu-

tasks from the Agency for Securities which stopped

ments came into force.

functioning. It settled the public offer and the securi-

th

December, 17 , 1990: The Law no. 31 – The

ties trading. It also established that stock exchanges

Company Act established the fundamental charac-

be created as public institutions, by the decision of

teristics for corporations. It is the first act that estab-

the National Securities Commission. It regulated the

lished the shareholder’s rights equality. As there

operations allowed on a stock exchange. It also es-

were no specific rules, the transactions with shares

tablished some rules about investors’ protection, port-

were made respecting the simple trading rules. The

folio consultants and the share register.

n

ones who wanted to sell using publicity had to make

n

April, 24th, 1995: The Decision No. 20 of the

a prospectus. It was established that the sharehold-

National Securities Commission, which created the

ers will be represented in the general shareholders

Bucharest Stock Exchange. Its first transaction ses-

meeting proportionally with equity holdings. Each

sion was on November, 20th.

share gave the right to one vote, but it was possible

n

May, 7th, 1996: The National Securities Com-

to diminish the number of votes for the sharehold-

mission regulates the periodical and continuous

ers who owned more than one share.

information reports made by the issuers of securi-

October, 15th, 1992: The „Agenþia Naþionalã

ties. It established the reports which had to be made

pentru Titluri de Valoare” (The National Agency

by the issuers to the National Securities Commis-

for Securities) was set up as regulator for trading

sion and published, for example: current reports,

shares and trading agents. It was a part of the Eco-

semester reports and annual reports. It also estab-

nomics and Finance Ministry. The content of a pub-

lished the treatment for confidential information

lic offer was also established and the rules for giving

and the list of persons considered to have such in-

information to the shareholders on a company’s

formation.

n

result. n

n

August, 26 th, 1993: “Agenþia Naþionalã

pentru Titluri de Valoare” (The National Agency for

46

n

October, 25th, 1996: RASDAQ was founded,

the Romanian over-the-counter market. n

June, 27th, 1997: the Company Act was modi-

Securities) transformed into “Agenþia de Valori

fied: preferential shares were introduced and the

Mobiliare” (The Agency for Securities), which rep-

regulation of shares transactions was left to the spe-

resented a general office of the Ministry of Finance.

cial law on securities and stock exchanges. It was

The transactions with securities had to be made only

also decided that the shares not fully paid will not

by an authorized agent. For the first time some rules

have voting rights, unless the company by-laws

were established in the shareholders’ protection field.

permitted this.

August, 6 th, 2001: Bucharest Stock Ex-

possibility to organize other regulated markets as

change adopted the Running and Management

joint-stock companies. It regulated the types of

Code of Corporate Governance, which undertook

market operations and introduced margin transac-

the corporate governance principles of OECD. This

tions, transactions of preferential rights and also

established the shareholders’ rights as follows: the

transactions with derivatives. It detailed the sig-

right to participate in the General Meetings, the

nificance of investors’ protection emphasizing the

right to ask questions at the General Meetings gath-

importance of the Company Act in this area and the

ering, the right to debate the issues on the General

special rules for listed companies. It established rules

Meeting’s agenda, the right to receive information,

for market-disclosure and equality between inves-

the right to receive dividends, the right to partici-

tors. For the first time in Romania, it prohibited the

pate in the major decisions of the company’s man-

handling of the market and transactions based on

agement, the right to be represented in the Admin-

inside information. The Fund for Investors’ Com-

istration Board, the preference shareholders’ rights.

pensation started its activity. Also, this Act regulated

There were also established the duties of adminis-

the activity of the financial investments companies,

trators in the shareholders’ protection area. The

the investment consultants, the compensation, de-

Company Act in 1990 had fixed all these rights and

duction, deposit and registering systems, etc.

the capital market specific legislation supported the shareholders’ right to be informed. th

n

August, 5th, 2002: The Governmental Ordi-

nance was approved by law with some amendments.

April, 4 , 2002: There were established the

In the initial version, the shareholders may ask for

roles and objectives of the National Securities Com-

intermediary reports about the financial situation of

mission on the market. These are as follows: “a) to

the company only if they own individually 5% or in

establish and maintain the necessary background for

common 10%. The law modified the threshold to 5%

the development of the regulated market; b) the pro-

of the capital for both individually or in common.

n

motion of trust in regulated markets and in financial

n

July, 1st, 2004: A new settlement of The Na-

instruments investments; c) to ensure the protection

tional Securities Commission on the issuers and the

of investors and operators against the illegal, abu-

securities operations. It established the reports which

sive and fraudulent practices; d) the promotion of

had to be presented by the listed shares issuers and

the correct and transparent functioning of the regu-

the treatment of preferential information.

lated markets; e) the prevention of market manipula-

n

July, 29th, 2004: The Law No. 597 on the

tion, of fraud and the insurance of the integrity of

capital market. It transposed the European orders in

the regulated markets; f) to fix the standards for the

the capital market field, as follows: a) Directive No.

financial solidarity and honest practice of the regu-

93/22/CEE, on investment services in the securi-

lated markets; g) to adopt the necessary measures to

ties field; b) Directive No. 97/9/CEE, on investor-

avoid systemic risk in markets; h) to prevent the lack

compensation schemes; c) Directive No. 85/611/

of equality in investors’ information, treatment or in

CEE, on the coordination of laws, regulations and

the respect of their interests”.

administrative provisions relating to undertakings

April, the 9th, 2002: A new Governmental

for collective investment in transferable securities

Ordinance on securities, financial investment ser-

(UCITS); d) Directive No. 98/26/CEE on settlement

vices and the regulated markets. It established the

finality in payment and securities settlement sys-

stock exchanges as public institutions but also the

tems; e) Directive No. 2003/71/CEE, on the pro-

n


n

47


spectus to be published when securities are offered

Directive No. 2003/6/EC of the European Parlia-

to the public or admitted to trading and amending

ment and of the Council as regards the definition

Directive No. 2001/34/EC; f) Directive No. 2001/

and public disclosure of inside information and the

34/CEE, on the admission of securities to official

definition of market manipulation; h) Directive

stock exchange listing and on information to be

No. 2004/72/EC, implementing Directive 2003/6/

published on those securities; g) Directive

EC of the European Parliament and of the Council

No. 2003/6/CEE, on insider dealing and market ma-

as regards accepted market practices, the definition

nipulation (market abuse); h) Directive No. 2002/

of inside information in relation to derivatives on

65/CEE, concerning the distance marketing of con-

commodities, the drawing up of lists of insiders, the

sumer financial services; i) Directive No. 1993/6/

notification of managers’ transactions and the noti-

CEE, on the capital adequacy of investment firms

fication of suspicious transactions; i) Regulation

and credit institutions.

No. 2273/2003/EC implementing Directive

January, 13th, 2006: The Regulation No.1 in

No. 2003/6/EC of the European Parliament and of

2006, on the issuers and the securities operations. It

the Council as regards exemptions for buy-back

assumes the following European orders: a) Direc-

programmes and stabilisation of financial instru-

tive No.2001/34/EC, on the admission of securities

ments; j) Regulation No. 809/2004 implementing

to official stock exchange listing and on informa-

Directive No. 2003/71/EC of the European Parlia-

tion to be published on those securities; b) Direc-

ment and of the Council as regards information con-

tive No.2003/71/CEE, on the prospectus to be pub-

tained in prospectuses as well as the format, incor-

lished when securities are offered to the public or

poration by reference and publication of such pro-

admitted to trading and amending Directive

spectuses and dissemination of advertisements.

n

No. 2001/34/EC; c) Directive No. 2003/6/CEE, on

48

n

December 1st 2006, The Law no. 441 modi-

insider dealing and market manipulation (market

fied the Company Act bringing fundamental

abuse); d) Directive No. 2004/39/EC, on markets in

changes as regards the companies’ administration.

financial instruments; e) Directive No. 2004/25/EC,

Thus two systems of administration were intro-

on takeover bids; f) Directive No. 2004/109/EC, on

duced: a unitary system, based on an administra-

the harmonisation of transparency requirements in

tion council, and a dualist system, based on

relation to information about issuers whose securi-

a managerial board and a supervisory council. A

ties are admitted to trading on a regulated market

fundamental change was that the decisions of the

and amending Directive No. 2001/34/EC;

Shareholders’ Assembly may be taken with

g) Directive No. 2003/124/EC, implementing

a quorum of only 1/4 of the shareholders.