Legal and institutional framework for ensuring the functioning of the capital market from Romania The Romanian

capital market, while still young, has progressed over recent years from being an incipient market to a fairly regulated and complex one. The Romanian legal framework for securities trading was fi rst initiated in 1994 and led to the establishment of the Romanian capital markets regulator, the ational !ecurities "ommission #" $%& and to the establishment of the 'ucharest !tock (xchange. )resently, the infrastructure of the Romanian capital market is similar to other (uropean *nion #(*& markets. There are two regulated markets in Romania+ #i& the 'ucharest !tock (xchange which is the main regulated market and #ii& !ibex , the !ibiu !tock (xchange, which is mainly a derivatives market. "learing and settlement are performed by the Romanian "entral !ecurities -epositary for transactions concluded on the 'ucharest !tock (xchange and by the Romanian "learing .ouse for transactions performed on !ibex. The legislative framework of the Romanian "apital %arkets consists of the following /aws and Regulations+

 "apital %arket /aw #/aw o. 09120334&4 "ompanies5 /aw #/aw o. 6121993&4 " $% instructions 7 regulations4 'ucharest !tock (xchange regulations4 )rivatisation laws. The ational !ecurities "ommission #8" $%9 in Romanian& is the main regulatory body, which supervises both securities markets and the derivatives market. The "ommission was established in :ctober 1994, as an independent administrative authority accountable to the Romanian )arliament. " $% is comprised of seven commissioners #appointed by the )arliament& who constitute its management board. The commissioners have five; year mandates, which can be extended only once. " $% has an e<uivalent role to the one of the =merican !(" in regulating the functioning of the Romanian e<uity markets. >t 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. >n order to protect the investors5 interest, the "ommission has the right to apply sanctions

for the breach of the provisions of the laws and the regulations issued for its implementation. !anctions may range from fines to withdrawal of authori?ation. /isted securities cannot be traded outside regulated markets, which are those established under the authority and the supervision of " $%. The implementation of the necessary institutional and regulatory framework and the liberalisation process made access by foreign investors to the Romanian market easier and led to a prolonged bull market between 0333 and 0331. The trading volume increased by almost 03 times between =pril 0333 and =pril 033@ and the trading value increased by almost 633 times.1 !ince 033@ Romania has experienced, like many other markets in the (uropean *nion, a prolonged financial crisis and, currently valuations of Romanian stocks continue to be low compared with peers in the region. .owever, a number of interesting new listings and government; planned initial and secondary public offerings, expected in a wide range of sectors and industries, paint a brighter picture for the future. These envisaged listings include, among others+ .idroelectrica #the largest Romanian energy producer&4

uclearelectrica #the nuclear power producer&4 Transelectrica #the operator of the national electricity transmission system&4 Romga? #the largest Romanian natural gas producer&4 Transga? #the operator of the national system of natural gas transmission&4 Romtelecom #the largest Romanian telecommunications company&4 "AR %arfa #the state;owned freight railway carrier&4 and Tarom #the Romanian airline company&. The EU accession process and the boosting effect on Romanian capital markets Thanks to the (* accession process, Romanian securities legislation experienced numerous changes which culminated in a new, consolidated "apital %arket /aw that was enacted in 0334. The "apital %arket /aw #/aw o. 09120334& is aimed at bringing the Romanian capital market in line with the (* acquis communautaire by implementing several (* directives.0 This law covers the following+ #i& regulated markets and their operation #ii& financial investment services

companies and other intermediaries and their activities on the market #iii& issuers and operations concerning securities including public offers #iv& undertakings for collective investments and investments management companies #v& the central depository and clearing house together with the registration, clearing and settlement operations performed through their systems. Bhile the "apital %arket /aw outlines only the general principles, additional secondary legislation was incorporated by the ational !ecurities "ommission. >n addition,when Romania became a member of the (uropean *nion on 1 Canuary 0331, the (* regulations and other enactments directly applicable to %ember !tates also became applicable to the Romanian market.

Romania adopted the following strong investor protection rules, and transparency and corporate governance principles that are generally in line with :("- and (* principles+ D The corporate governance framework ensures e<ual treatment of all shareholders of the same class, including minority and foreign shareholders. D 'oard members of listed companies are re<uired to disclose material interests in transactions or matters affecting the company. D /isted companies are re<uired to promptly and accurately disclose all new material matters that may affect their patrimony, financial condition or business and are also re<uired to prepare and release <uarterly, half;yearly and annual reports. D Transactions with securities tradeable on the capital markets on the basis of privileged information are prohibited and such transacting parties may be also penalised regarding insider dealings and market abuse. >ssuers must promptly disclose any privileged information of which they become aware. =lso, they must

prepare and regularly update records of persons who have access to inside information and submit such records to the ational !ecurities "ommission on re<uest.6 D =ll individuals and entities who directly or indirectly ac<uire shares in Romanian listed companies which entail their voting rights to reach, exceed or fall under certain thresholds must notify the relevant company, the ational !ecurities "ommission and the regulated capital market where the shares are traded. >ndividuals and entities who directly or indirectly ac<uire more than 66 per cent of the voting rights in a Romanian listed company, must launch a takeover public offer addressed to all the other shareholders for the balance of the remaining shares in that company. D The issuer, the offeror and other parties involved in a public offering of securities #including the investment banks that intermediate the offering& are liable for the truthfulness and accuracy of the information they

included in the offering document and the offering announcement. D >n addition, the "apital %arket /aw provides for an >nvestors "ompensation Aund which is established to compensate investors .

Conclusion Bhile Romania5s efforts to improve its local capital market framework has yielded notable success, areas in need of improvement remain and the development of these areas should be expedited in order to stimulate investments on the Romanian market. The reaction of the Romanian authorities in relation to these areas has been encouraging and amendment initiatives have been recently launched in relation to the legal frameworks dealing with E-Rs and mortgage bonds, respectively. These measures are expected to have a positive impact on the development of the securities market in Romania, leading to an increase in the number of domestic and foreign investors, issuers and professional market participants