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Policy Paper
September, 1997
Sofia
Contents
Action
Line 1.- Development of a System to Support Market
Infrastructure
Action Line 2. -
Supply and Demand of Securities, Primary Market Development
Action Line 3. -
Preparing the Legal Infrastructure for a Self Regulatory
Environment
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(Action Plan)
Action Line 1.
Development of a System to Support Market
Infrastructure
The existing legal and institutional framework and
available technical facilities in the Bulgarian capital markets do
not work very efficiently towards supporting a fully developed
securities market. The necessary legislation, institutions and
technical facilities must be put in place, so that, over time, a
market will develop which will be able to absorb the volumes normal
for a country of the size of Bulgaria and, potentially,
international trades. The following discussion presents specific
issues that need to be addressed, so that said purposes could be
met.
Action Line 1.1.
Optimizing Regulatory Authority in Line with
European and International Standards
Action Line 1.1.1.
Power to Regulate the Over-the-Counter Market
Background
The Securities and Stock Exchange Commission
(hereinafter, the "SSEC") does not have the power to initiate or
enact rules governing the OTC market, nor does it have the power to
issue rules on record-keeping, reporting, internal organization,
internal control and conflict of interests avoidance in respect of
investment intermediaries. Thus, the OTC market development becomes
a volatile process, which does not guarantee that international
standards will be eventually met.
Objective
Create legislative delegation for an executive
agency (most probably the Council of Ministers; hereinafter, the
"CoM") to issue secondary rules governing the OTC market. That will
enable this very important segment of the market to develop and
function according to the principles of transparency, competition
and accountability. In particular, the investment intermediaries’
(hereinafter, the "IIs’") internal structuring, information
disclosure, conflict of interests, accounting procedures, and
loyalty and fairness standards should be regulated in order to
improve investor protection.
Actions
Amend the Law on Securities, Stock Exchanges and
Investment Companies (hereinafter, the "LSSEIC") accordingly.
Timeframe
One to two months.
Action Line 1.1.2.
Power to Regulate the Stock Exchange
Background
The SSEC does not have efficient control mechanisms
to guarantee that the stock exchange (hereinafter, the "SE") will
operate according to high standards, especially as regards its
Internal Rules. After the SE is licensed, the modification of its
Internal Rules is within its own discretion, which potentially may
become detrimental to investors.
Objective
The SSEC must be granted approval powers, as regards
subsequent amendments to the SE Internal Regulations. Thus,
adequate trading and disclosure of information rules, as well as
fair disciplinary procedures will be ensured.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.1.3.
Fostering Compliance and Streamlining Trade
Background
Market development is hampered by the regulatory
mechanisms’ failure to cause all market participants to follow
formal market procedures (such as registration, maintenance of
up-to-date registration records, provision of information in its
various forms, etc.) and to obey the rules of the market. If the
market is to develop in compliance with the legally established
model, greater compliance with regulatory rules and further
streamlining of the regulated securities trade are desirable. Such
a policy, however, is frustrated by the excessive fees charged by
the SSEC (which results in avoidance of various regulatory
procedures) and by the lack of fear from the relatively soft
penalties.
Objectives
Registration and other fees charged by the SSEC
should be substantially reduced. That will stimulate players on the
market to comply with all registration and supervision
requirements. The SSEC’s revenues will most likely not drop, due to
the increase of turnover resulting from lower fees. In parallel,
the law must provide for stiff penalties for violators. That will
increase the discipline of all players on the market.
Actions
Amend the LSSEIC and the Fee Schedules of the SSEC
accordingly.
Timeframe
One to two months.
Action Line 1.2.
Resolve the Problems Linked to Title in Publicly
Traded Securities
Action Line 1.2.1.
Remedying Duality of Title Registration
Background
Current law maintains a dual system of registration
of title in publicly traded securities: the Book of Shareholders
maintained by the publicly traded company and the Central
Securities Depository’s (hereinafter, the "CDS") registry.
Potential discrepancies between these two registrations and lack of
publicity and control by shareholders over what is registered in
the Book of Shareholders, insert a lot of title uncertainty in the
system.
Objective
Reach a high level of certainty as to who has title
in publicly traded securities, thus achieving high liquidity of the
market and increasing credibility of public trade.
Actions
Amend the LSSEIC in a way to exclude the
applicability of Law on Commerce (hereinafter, the "LC") rule about
securities title registration in the Book of Shareholders. Thus,
make registration (or lack thereof) with the CDS the only relevant
title record as to publicly traded securities. Proposed action must
be taken with respect to both certificated and uncertificated
securities.
Timeframe
One to two months.
Action Line 1.2.2.
Disabling Internal Trading Restrictions
Background
Current law allows companies to enact trading
restrictions regarding their shares and make them effective against
third parties by just writing them in the company’s by-laws. Lack
of publicity of the by-laws exposes third-party purchasers of
securities to substantial risk of bad title. While such limitations
are acceptable as regards securities of "private" companies, they
are totally unacceptable as regards securities admitted to public
trade.
Objective
Remove uncertainty in title to publicly traded
securities by disallowing publicly traded companies to create
trading restrictions binding on third parties, thus achieving high
liquidity of the market, increasing credibility in public trade and
enhancing domestic and foreign investors confidence.
Actions
Amend the LSSEIC in a way to exclude the
applicability of the LC rule authorizing third-party-binding share
transfer limitations, as regards companies whose shares are
admitted to public trade.
Timeframe
One to two months.
Action Line 1.2.3.
Giving Investors’ Rights Priority over IIs’
Creditors’ Rights
Background
Current law does not address well the issues linked
to the conflict of rights of an II’s client and an II’s creditors.
Those become the sharpest in a bankruptcy situation where investors
in securities held (in custody or account) by the II in (i) II’s
name and for the investor’s account, or (ii) in the investor’s name
and for the investor’s account, may not defend their rights against
creditors of the II.
Objective
Segregate the IIs’ portfolios into II’s personal
portfolio and II’s clients’ portfolio. Securities held in a
custodial, safekeeping or other fiduciary capacity must be
segregated from proprietary holdings and maintained to the level of
beneficial owner detail. A situation should be excluded where the
II’s creditors may reach over to securities held (in custody or
account) by the II in (i) II’s name and for certain investor’s
account, or (ii) in an investor’s name and for the investor’s
account. That will help achieve high liquidity of the market and
increasing credibility of public trade.
Actions
Amend LSSEIC to protect client accounts, including
segregation provisions. As a most efficient measure, an exclusive
CDS title registration system may be recommended. That will
guarantee the credibility of title registrations (including of
beneficial ownership) and correct timing log of transactions.
Creditors of the II will not be abused, while II’s clients’
interests will be guaranteed.
Timeframe
One to two months.
Action Line 1.3.
Efficient Clearing and Settlement
Action Line 1.3.1.
Creation of Detailed Rules Providing for One
Centralized Clearing and Settlement System
Background
Law does not adequately address clearing and
settlement. There is only a concise set of low level legal
provisions contained in the CDS Regulation. Further development of
those rules is made in the CDS’s internal Rules.
Objective
Design and implement one central clearing and
settlement system with the CDS. If necessary, by law grant the CDS
a license to engage in settlement (otherwise a banking activity).
All public trade must be cleared and settled through said system.
The clearing and settlement process, guarantee funds, and
securities held on behalf of others, must be insulated from
interference of bankruptcy proceedings. Said system must be
provided for on the level of law enacted by Parliament.
Actions
Supplement the LSSEIC by a new chapter dedicated to
CDS functions, clearing and settlement.
Timeframe
One to two months.
Action Line 1.3.2.
Coordinate Improvement of Clearing and Settlement
with Improvement of Title registration
Background
Issues discussed in Action Line 1.2 (title issues)
are relevant to clearing and settlement. Therefore, their
importance should be additionally evaluated with a view to
improving clearing and settlement
Objective
Improve title registration and other title issues
with a view to improving clearing and settlement. To this end,
remove the mandatory requirement of the LC for uncertificated
shares numbering.
Actions
Same as above
Timeframe
One to two months.
Action Line 1.4.
Improve the SE Mechanisms
Action Line 1.4.1.
Increase SE Accountability
Background
At present, there are no obligations by law for the
SE to keep track of trades and report to the SSEC in relation to
trading activities. This is a missing link in the mechanism of
providing for a secure market and departs from standards set in EU
law.
Objective
Accountability of the SE must be increased. SE must
keep track of trading activities and submit periodic reports to the
SSEC. The reporting must be done according to standard formats, to
be provided for by special regulation.
Actions
Amend the LSSEIC in a way to authorize the issuance
of a Regulation on SE Reporting.
Timeframe
One to two months.
Action Line 1.4.2.
Provide for Discontinuation of Trade in Securities,
Which are Traded Without a Contract
Background
Current law does not address the issue of
involuntary discontinuation of trade in securities the issuers of
which do not have a contract with the SE. That creates risk of
abusive SE behavior.
Objective
Provide for terms and conditions for the SE to drop
issues of securities traded without a contract, for example only
after public notice and opportunity for comment. That will
stabilize the relevant segment of the market, which is expected to
be relatively important in the initial stages of securities trading
where trading without a contract will most likely prevail. This is
particularly relevant with respect to mass privatization issues, if
a separate stock exchange tier for trading of those issues will be
available.
Actions
Amend the LSSEIC to mentioned effect.
Timeframe
One to two months.
Action Line 1.5.
Improve the Legal Framework for IIs
Background
IIs, as they are provided for in the LSSEIC, reveal
substantial shortcomings. A major problem is the absence of
"custodian services" from the list of the possible subject of
activities of IIs. Absent that power, only banks but not regular
IIs could become involved in the provision of custodian
services.
Objective
IIs need to be provided for in a way, which enables
them to provide the full range of services to their clients. In
this respect, custodianship services, both in regard to physical
custody of certificated shares and maintenance of securities
accounts, must be authorized. As part of that, an important
function of IIs that must be authorized by law is the maintenance
of client accounts.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.6.
Create and Improve an Organized OTC Market
Action Line 1.6.1.
Introduction of Disclosure Requirements
Background
OTC market is totally unregulated. Minimal
requirements for disclosure of information, regular price
quotations, reporting of traded volumes, etc. must be provided
for.
Objective
Enable this very important segment of the market to
develop and function according to the principles of transparency,
competition and accountability.
Objective
Amend the LSSEIC to mentioned effect.
Timeframe
One to two months.
Action Line 1.6.2.
Create Legislative Backup for the Electronic
Document
Background
The OTC market is emerging and will certainly even
more develop as a market of uncertificated securities and an
electronic market. That raises a number of potential issues:
authentication of electronically generated and transmitted purchase
requests and offers; safeguarding against electronic data
transmission errors; safeguarding against criminal behavior by way
of interference with the electronic trading systems; etc.
Objective
Create a concept of an electronic document well
grounded in the law. Make electronic messages exchanged in the
course of trade as reliable, as the written documents exchanged in
the course of traditional trade. In the context of electronic
commerce, enable electronic title registration in the CDS
Registry.
Actions
Develop and enact an Electronic Document and
Electronic Signature Law.
Timeframe
Twelve to eighteen months.
Action Line 1.6.3.
Automated Quotation System
Background
An OTC market requires an automated quotation
system. Thus, competing dealers will be linked through a data
network.
Objective
Create an automated quotation system. Thus, bid and
offer quotations will be entered by dealers and will be made
available to users on a real time basis.
Actions
Start working towards designing and implementing an
automated quotation system. As a short-term solution, create a
temporary automated quotation system operating via leased lines, to
be served by Dow Jones/Reuters.
Timeframe
Three to twenty-four months.
Action Line 1.6.4.
Enable Self-Regulation of the Organized OTC
Market
Background
The OTC market, just like the SE, must be
self-regulated to a great extent. Therefore, similarly to the role
of the SE as regards the SE market, the institutionalization role
as regards the OTC market must be played by a private or
quasi-governmental institution. Absent such an institution, an
organized OTC market is unthinkable, for there will be no entity to
take charge and responsibility of putting the necessary
infrastructure in place. That will also enable self-policing as the
utmost guarantee for fair trading.
Objective
Accommodate in the legislation a possibility for a
NGO representative for all dealers/brokers to be put in charge of
organizing an automated quotation system, adopting and enforcing
standards of fair dealer/broker practices, adopt OTC trading rules,
advertising standards, disciplinary procedures for members,
etc.
Identify/develop an automated quotation system to be
implemented in creating an electronic OTC market.
Actions
Amend the LSSEIC accordingly.
Commence work towards developing an automated
quotation system
Work towards promotion of a legitimate NGO
representative of all dealers/brokers.
Timeframe
Six to twenty-four months.
Action Line 1.6.5.
Separation between Investment and Commercial
Banking
Background
Bulgarian law does not provide for institutional
separation between investment and commercial banking activities.
While in itself this is not strange by international standards, it
must go along with clear and severe rules for building "Chinese
walls" inside banks with the purpose of severing their simultaneous
investment and commercial banking activities. Absent such rules,
conflict of interests and abuse of insider information are likely
to flourish to the detriment of the securities market in
general.
Objective
Bring banks involving simultaneously in commercial
and investment banking, to high standards of behavior guaranteeing
complete separation between their "commercial" and "investment"
arms.
Actions
Amend the Law on Banks accordingly.
Timeframe
Two to six months.
Action Line 1.7.
Improving the Disclosure of Information Requirements
for Publicly Traded Companies
Action Line 1.7.1.
Optimize Prospectus Updates
Background
Current law requires continued "updates" of already
issued prospectuses, even after the public offering has ended,
alongside with periodic disclosures of information. That is quite
burdensome both on the SSEC and the publicly traded companies.
Objective
Remove the requirement for prospectus "updates"
after the end of the offering, while preserving the periodic
disclosure of information requirement.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.7.2.
Introduce Disclosure Requirements for Companies with
Numerous Shareholders
Background
At present the law does not address the situation
where one company "involuntarily" becomes publicly traded by virtue
of high level of dispersion of its capital. Although technically
company’s stock was never publicly offered, the risk for the
numerous small investors becomes substantial.
Objective
Provide for submission to the periodic disclosure of
information requirements (annual and semiannual reports) of
companies which have not done a public offering but whose
shareholders have exceeded a certain number (say, 500). Thus a
high-risk area will be provided for and investors will become
better protected.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.7.3.
Optimize Public Takeover Procedures
Background
At present, any person who is willing to purchase
more than 25% of the securities in a company with publicly traded
shares, must get an approval by the SSEC and the Committee on
Protection of Competition (hereinafter, "the CPC"), before such a
person may place its offer before the shareholders. That procedure
is unworkable and will result in factual prohibition of similar
acquisitions.
Objective
Provide for a workable procedure for acquisition of
large quantities (above 25%) of the shares in publicly traded
companies. All substantive requirements before a legitimate offer
must be preserved. However, it is necessary to remove the
requirement for prior verification of compliance by way of approval
of the offer by the SSEC and the CPC. Rather, purchase-offerors
must be required to immediately inform the SSEC about initiated
acquisitons, thus allowing the SSEC to monitor the process and
intervene, would there be a violation of substantive
requirements.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.8.
Creation of a Mechanism for Publicly Traded
Companies to Go Back to Private Company Status
Background
Current law does not address the entire situation
where a company that has gone public has, as a matter of fact,
become substantially private. Therefore, such a company is bound to
drag along forever and comply with disclosure of information and
regulatory requirements, which are not justified. Thus, a
substantial amount of energy and effort is lost both by companies
and regulators, not to mention the market participants whose world
will become more and more filled by "phantom" publicly traded
companies.
Objective
Create mechanisms for publicly traded companies
which in substance have become or want to become private, to be
exempted from disclosure of information and other regulatory
requirements. This may include a mixed approach. On the one hand,
any company must be given the freedom to "self-determination" and,
provided its shareholders interests are protected, must be allowed
to stop being publicly traded. On the other hand, under certain
criteria, the SSEC must have powers to relieve public companies
from reporting requirements, thus allowing them to discontinue
their "public status". That will allow for a "clearing" mechanism
to be developed, so that efforts would not be spent in vain by
society for maintaining a formal public status of numerous
companies, which have become substantially private. This issue is
particularly relevant in the case of some of the shares, privatized
in the process of mass privatization, which are expected to be
traded for an initial period, but might become privately held after
ownership is settled.
Actions
Amend the LSSEIC accordingly.
Timeframe
One to two months.
Action Line 1.9.
Protection of Minority Shareholders in Publicly
Traded Companies
Background
While in closely held corporations the protection of
minority shareholders is usually not a problem, protection of
minorities in public companies must be carefully provided for.
Possibility for dilution of minority shareholders is among the more
undesirable phenomena.
Objectives
Minority shareholders in publicly traded companies
must be properly protected from dilution. In this respect, the
possibility of waiving shareholders’ right to subscribe for newly
issued shares in proportion to their current shareholding must be
restricted for public companies. In addition to high majority
requirements (3/4 of the capital), high quorum requirements might
be recommended.
Actions
Amend the LSSEIC in a way to supplement the LC
3/4-majority anti-dilution guarantee with a quorum anti-dilution
guarantee, as regards companies whose shares are admitted to public
trade.
Timeframe
One to two months.
Action Line 1.10.
Improving T-Bills Trading Mechanisms
Action Line 1.10.1.
Creation of an Adequate, Non-Contradictory Legal
Framework of T-bills Trade on the Level of Law
Background
Under current law, T-bills trading is not adequately
provided for. In the context of a legal framework for securities
provided for by an Act of Parliament (the LSSEIC), T-bills issuance
and trade is governed by inferior legislation, such as a Regulation
by the Bulgarian National Bank (hereinafter, the "BNB") and the
Ministry of Finance. Said regulation, on the one hand, and LSSEIC
and other legislation, on the other hand, are in outright conflict
as regards a number of issues. That creates risks for investors
relying on a formally illegitimate legal framework.
Objective
Provide for T-bills trading through an act of
Parliament. In doing this, all conflicts between the current
T-bills legislation and the LSSEIC must be resolved. That may
happen by way of accommodating the necessary provisions governing
issuance, trading and registration of title to T-bills in the
LSSEIC.
Actions
Draft necessary legislation
Timeframe
Three to twelve months.
Action Line 1.10.2.
Create Equal Secondary Market Conditions for all
Dealers
Background
Current T-bills law discriminates between primary
and non-primary dealers on the secondary securities market. As a
result, a proper secondary market may not be formed.
Objectives
All IIs must have equal access to the secondary
T-bills market. That will contribute towards competitiveness of the
market and will make price formation fairer.
Actions
Draft necessary legislation.
Timeframe
One to two months.
Action Line 1.10.3.
Improve T-bills Registry System
Background
The existing T-bills registry system is not
sufficiently operational. It represents a mixture of registries and
sub-registries managed by the BNB jointly with primary dealer
banks. Such a system is an impediment to real market trade in
T-bills.
Objectives
A uniform, centralized registry system for title and
other rights in T-bills must be introduced. The BNB or the CDS may
run it. A compromise is also possible where the BNB and the CDS
jointly operate a centralized system with two departments. The
legal effect of registration of title and other rights must be
clearly spelled out.
Actions
Draft necessary legislation
Timeframe
One to six months.
Action Line 1.11.
Development of Adequate Taxation, Valuation and
Accounting Standards for Securities Trading
Background
The existing taxation and accounting systems are not
at all geared towards securities trading. As a result, IIs and
other players on the securities market face hardships in properly
accounting for their activities and suffers tax losses.
Objective
Adequate standards for taxation and accounting must
be developed. Thus, a number of inconsistencies and contradictions
frustrating trade will be avoided. Further, information needed by
investors, in some instances, differs greatly from information
needed by tax authorities. Regulations and guidelines need to be
set forth for the reporting of investment related accounting
information.
Actions
Draft amendments to appropriate tax and accounting
laws and accounting standards. The SSEC must work closely with
appropriate Bulgarian tax authorities to promote the full and fair
disclosure of investment accounting reporting requirement. In
addition, the SSEC should be granted limited oversight over
reporting requirements and at very least, tax authorities should be
required to receive SSEC approval on investment related accounting
standards.
Timeframe
One to six months.
Action Line 2.
Supply and Demand of Securities, Primary Market
Development
A most significant problem of today’s securities
market is that, while being quite regulated and structured, its has
no volumes and practically does not function. Efforts should be
made, so that a sufficient amount of relatively high quality
securities are supplied to the market. That must happen by opening
the door for the only possible source: shares of privatized
companies.
Action Line 2.1.
Cash Privatization through Public Offerings
Background
A fast and market driven method of privatization may
become the public offering of government owned shares. The
impossibility to resort to said method results in shortage of
trading volumes on the securities market.
Objective
Provide for the necessary procedures, including for
a "prospectus" requirement, so that government owned shares might
be privatized through public offerings. Thus, a fair and open
market will be developed. The price of privatized shares will be
substantially increased as a consequence of the professional
offering and the competitive demand.
Actions
Develop and implement a procedure for preparation of
stock for public offering by the government. Develop specialized
auction procedures.
Timeframe
One to two months.
Action Line 2.2.
Create Tradability of Privatized Shares
Action Line 2.2.1.
Abolition of Trading Restrictions
Background
There is a large amount of outstanding stock that
has come from privatization, which, for one reason or another, is
not tradable. That stock may become the basis of public trading
almost immediately, should the trading restrictions be
abolished.
Objective
Abolish all trading restrictions for privatized
shares and other shares: workers’ preferential shares; mass
privatization shares; privatization funds’ shares.
Actions
Amend the Law on Transformation and Privatization of
State and Municipal Enterprises and the Law on Privatization Funds
(LPF)
Timeframe
One to two months.
Action Line 2.2.2.
Improvement of Disclosure of Information
Mechanisms
Background
Under current law, mass privatization shares are
exempt from prospectus and periodic disclosure of information
requirements for the mass privatization auctions. However, should
there be formed a secondary market for such shares, privatized
companies will have to deal with prospectus issuance. That has not
been the legislator’s intent and is highly undesirable.
Objective
Mass privatization shares must be exempted from the
issuance-of-prospectus requirements with regard to secondary public
trading. Thus, trade will develop more vigorously. At the same
time, investors’ interests must be guaranteed by an obligation for
the issuers of such shares to disclose information periodically.
The SSEC must have authority to specify the format of such periodic
disclosures.
Actions
Amend the LPF accordingly.
Timeframe
One to two months.
Action Line 2.2.3.
Privatization Funds’ Books of Shareholders
Background
Books of shareholders in privatization funds are
currently maintained only by the funds themselves. That creates
opportunity for abuse and confusions as to shareholding in these
typical "public" entities.
Objective
Authorize the CDS for the maintenance of the books
of shareholders of privatization funds.
Actions
Amend the LPF accordingly.
Timeframe
One to two months.
Action Line 3.
Preparing the Legal Infrastructure for a Self
Regulatory Environment
Background
As previously stated, the SSEC does not currently
have the means to police the entirety of the capital markets.
Several proposals contained herein, most importantly, Action Lines
1.1.1, 1.1.2 and 1.1.3, require the ability of the SSEC to hold
responsible, IIs and Self Regulatory Organizations ("SROs") for the
actions of their employees and members. In that regard, several
broad based policies and laws need to be in place to provide the
SSEC with this legal authority.
Objectives
To reduce the regulatory burden of the SSEC by
effectively pushing monitoring and disciplinary responsibility down
to SRO and member firm levels. To develop registration procedures
and requirements for SROs with the SSEC, a previously defined,
which gives the SSEC the authority, as well as the obligation,
under securities laws to fine, suspend, expel or otherwise
discipline member IIs and SROs, and people associated with these
members, who have violated securities laws.
Actions
Development of legislation, policies and opinions of
the SSEC which emphasize the important role of government oversight
in the self-regulatory process and clearly define the lines of
accountability between itself, SROs, member firms and their
employees as described below.
Timeframe
One to two months.
Action Line 3.1.
Development of Laws and Definitions Necessary to
Support Self Regulatory Environment
Action Line 3.1.1.
Development of Laws Governing In-House Compliance
Procedures
Background
Current law does not provide for the mandatory
development of in-house compliance procedures to guard against
fraud, sales and trading abuses and other securities laws
infractions. Such legislation is used to deter and detect
fraudulent practices at or about the time of their occurrence, and
to force immediate corrective measures. For the firm, they also
serve as an affirmative defense to a "failure to supervise
liability" as described in Action Line 3.1.2 below.
Objectives
To provide the necessary legislation that will
clearly define the roles of in house compliance policies and the
liability of the firms for failing to adhere to such legislation.
These actions foresee the development of provisions that address
the misuse of material nonpublic information as well as provide for
the requirement for IIs to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the misuse
of material nonpublic information by such firms or any person
associated with them.
Actions
In accordance with Action Line 1.6.5, create
appropriate legislation that not only provides for adequate
"Chinese walls," but also requires in-house monitoring of other
securities violations and trading abuses.
Timeframe
One to two months.
Action Line 3.1.2.
Failure to Supervise Liability
Background
Current law does not authorizes the SSEC to impose
sanctions against an II or SRO if it has failed to supervise, with
a view to preventing violations (of the federal securities laws),
another person who commits such a violation, if such other person
is subject to his supervision. Failure to Supervise Liability,
coupled with in-house compliance legislation, are essential to the
development of an effective self regulatory environment.
Objectives
To provide the necessary legislation that will
authorize the SSEC to impose sanctions against an II or SRO if it
has failed reasonably to supervise and to impose sanctions for
deficient supervision on individuals associated with
broker-dealers, respectively.
Actions
Create appropriate legislation in the LSSEIC.
Timeframe
One to two months
Action Line 3.1.3.
Development of Investment Suitability Laws
Background
Current law fails to require IIs to learn as much as
possible about his or her clients in order to understand clearly
their investment objectives and needs and to keep them away from
investments which are not in line with their objectives. Lack of
adequate legislation and regulation, and the lure of high
commissions, may lead to abusive sales practices. Many times,
individual investors that have limited knowledge and little time to
understand the financial markets are placed in inappropriate or
unsuitable investments.
Objectives
Implement laws and regulations that place the legal
and ethical responsibility to provide clients with suitable
investments with the investment professionals. Brokers and other
financial market participants should be bound by a "know your
customer" rule, which forbids them to place an investor in an
investment for which he or she is "unsuited" in terms of depth of
investment experience, net worth, annual income, investment
objectives, and other actors as discussed below under "Accredited"
or "Sophisticated" investor definitions.
Actions
To require all SROs and IIs, as terms of
registration with the SSEC, to include the basic concept of
suitability "know your customer" rules, which require them to use
due diligence to learn the essential facts relative to every
customer, every order, every cash or margin account accepted or
carried by their firms.
Timeframe
One to two months
Action Line 3.2.
Clear Definition of Accredited and Sophisticated
Investors
Background
Current law fails to define accredited and
sophisticated investors. Accredited investors are generally defined
by net worth and sophisticated investors are generally defined in
terms of market knowledge. The purpose of these definitions is to
provide IIs with guideline with respect to certain investments that
may fall outside what the regulatory bodies deem to be "suitable"
for the mass investing population. By defining accredited and
sophisticated investors, the regulatory bodies allow for the
accelerated placement of unregistered securities which may be
issued without standardized disclosure. These rules can play an
extremely important role in assisting the SSEC in regulating the
sale of securities as defined above under Action Lines 1.4.2,
2.2.1, and 2.2.2.
Objectives
Develop a set of regulations that clearly define
accredited and sophisticated investors so that the SSEC has the
ability to allow certain investments to reach the market without
lengthy registration and disclosure requirements while still
maintaining the integrity of the markets and protecting the average
investor.
Actions
Develop appropriate definition for an accredited and
a definition of a sophisticated investor in the LSSEIC.
Timeframe
One to two months.
Action Line 3.3.
Educating the Population
Background
The most effective means for regulating the market
and protecting the general investing population is to have a well
educated investment community. An educated public, while guarding
their own investment, can also serve as a watchdog for violative
practices by market participants. Further, when dealing with
educated investors, market participants have the business and legal
incentives to develop and adhere to sound SRO rules.
Objectives
To provide for the dissemination of information that
discusses what the average investor needs to know about the stocks,
bonds and other investments, the SE and over the counter markets,
brokers, investment companies and investment advisors, commissions,
and who to contact in the case of expected violations.
Actions
Work with IIs and SROs to disseminate appropriate
educational material of various content and through various
medium.
Timeframe
One to twenty four months.
CSD
Economic Program
Publications*
Privatization
Analysis of the Post-privatization Behavior of
Enterprises, by St. Barzashki.
Survey of the Efficiency of Foreign Consulting
Firms, by D. Bobeva, Y. Markov, S. Dilova, and J.
Dobreva.
Privatization and Economic Restructuring in
Bulgaria, Where Is Privatization In Bulgaria Heading To, by CSD
Team
Debt-Equity Swaps In the Context Of Privatization:
the Case Of Bulgaria, by S. Kassidova.
Development Of the Private Sector In Bulgaria, by D.
Bobeva and CSD Team.
Evaluation Of Privatization Results for 1994, by
D.Bobeva.
Initial Attitudes Towards Mass Privatization.
Postprivatization Behavior Of Enterprises In
Bulgaria: a Collection of Case Studies, by D. Bobeva, S. Dilova,
and S. Stefanov.
Legal and Institutional Framework Of the Private
Sector, by Valentin Georgiev
Privatisation Funds - the Bulgarian Model by M.
Prohaska
Policy and Legal Environment for the Growth of the
SME Sector in Bulgaria, by CSD Team.
Monitor of Privatization.
(bi-monthly digest of the Bulgarian
press)
Banks and Finance
Bad Credits: Financial and Institutional Aspects,
by Christina Vutcheva
Debt Conversion Program: Guidelines for Bulgaria,
Final Study, by M. Todorova
Social Impact of Transformation
Emigration Of Scientists and Engineers From
Bulgaria, by D. Bobeva.
Unemployment, Poverty, Social Security: the
Bulgarian Experience, by G. Shopov.
The Labour Market Policy In Bulgaria (1990 - 1993),
by D. Bobeva.
At-Risk Groups and Social Problems in Bulgaria,
by CSD Team.
Unemployment and Labor Market In Bulgaria, by
Yordan Hristoskov.
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