Bulgaria thinks big with Xetra launch

By bne IntelliNews June 25, 2008

Nadia Damon in Sofia -

While it may be riding out the global credit crunch like any other financial institution at present, the Bulgarian Stock Exchange's (BSE) recent implementation of Deutsch Börse's Xetra trading platform has buoyed expectations for the future. After months of anticipation, since the migration deal was announced last autumn, the Exchange enjoyed a relatively smooth first week in June as a fully-fledged partner.

Following a two-day hiatus while the implementation took place, the BSE resumed trading on Monday, June 16 - despite investors' concerns that there would be problems. In the run-up to the launch, Bulgaria's Standart had reported that some investors were preparing to boycott the stock market on Monday due to their concern at the change that would generate new company codes, types of orders and validity.

However, after Finance Minister Plamen Oresharski rang the opening bell at 9.30am, it was clear it was business as usual at the Sofia exchange, notwithstanding the reported failure by 10 brokers to connect to the system - a fact that was quickly put down to human error, rather than German technology.

The first deals conducted through the new platform included shares of the pharmaceutical giant Sopharma, Kremikovtsi and Industrial Capital Holding. "Of course, during the first few days our members were quite careful in order to avoid any costly mistakes, as this is a new system with new features," concedes Victor Papazov, founder and chairman of the BSE board. "Except for some outstanding issues that need clarification with the Financial Supervision Commission regarding certain regulations in our rules, the implementation went without any problems at all.

"We cannot prevent human error. But one can make mistakes even with old and known systems. For the first few days there were lower volumes - and for sure they are due to increased consciousness from brokers and investors, but I am sure that in a matter of days this factor will cease to play a role," he said.

Low liquidity, high hopes

The Xetra contract covers an initial term of five years. During this period, Deutsche Börse will be responsible for organising trading in approximately 500 securities listed on the BSE. The deal will provide users of the fully electronic Xetra trading system with direct access to the Bulgarian financial market. As of June 16, Deutsche Börse assumed responsibility for calculating and licensing the Bulgarian indices SOFIX, BG 40 Index, BG TR30 Index and BG REIT Index as well as delivering real-time Bulgarian Stock Exchange market data. Deutsche Börse Market Data & Analytics offers three new information products from the stock exchange in Sofia, which it will distribute via CEF data feeds.

For a low liquidity exchange like Sofia, it is hoped that the migration to Xetra - as well as the marketing muscle of Deutsche Börse - will attract more foreign investment, and thus boost confidence, in Bulgaria. "With the adaptation of Xetra, we not only opted for a new and reliable platform, I believe that we secured one that is well known by the majority of investors. My hope is that they will feel more confident about investing in Bulgaria with Xetra than they might have done when we were using a fairly exotic trading system," states Papazov.

"Together with the attractive business and tax environment (both corporate profit tax and personal income tax stand at 10%, tax on dividends is 5% and capital gains tax for shares traded on the regulated market of the BSE is 0%), I will not be surprised if Bulgaria soon emerges as a new financial centre in Europe."

Deutsche Börse has been a sourcing partner for the Viennese and Irish Stock Exchanges since 1999 and 2000, respectively. The Eurex subsidiaries Eurex Bonds and Eurex Repo as well as the European Energy Exchange also use the Xetra trading system. The Shanghai Stock Exchange also plans to use Xetra as the basis for its new electronic trading system.

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