The stock market in Bulgaria has been experiencing a long period of interim. Fretted by the negative developments on international financial markets, foreign and local investors have been so disimpassioned as to lead bourse turnovers and liquidity to all-time lows. That ambience, however, prompted decision-makers to formulate methods to lift them up.

One is just about to start. The new trading platform – Xetra – will host the first buzz on the Bulgarian Stock Exchange (BSE) on June 16. Its introduction has not only pushed local stock brokers’ learning curve on the ascent by holding trainings on its basics, new supported orders and ways to invest in stocks on networked bourses, but has also capacitated some 5000 foreign investors to expend funds on BSE.

Through Xetra, the BSE management has delivered the technical prerequisite for spurring the bourse trade. Now, the non-banking financial watchdog, the Financial Supervision Commission (FSC), is busy calming the regulatory framework. Bourse players have long pointed at legal limitations to operation managers of collective investment schemes (mutual and contractual funds), real estate investment trusts (REITs) and private pension funds. Had they been given more latitude, they could have been the liquidity drivers on the BSE floor, experts note.

Furthermore, Bulgaria’s bourse is yet to transpose a score of EU regulations in the field of trade in securities.

All of these are on FSC’s agenda, the 2007 annual report of the financial watchdog reads. Filed with Parliament on June 4 and available on the FSC website, the report casts light on FSC’s strategy in regard to legislation. This year, the commission is set to draw up an entirely new law on collective investment schemes, granting collective investment enterprises a detailed kit of rules covering each aspect of their operations. These rules will fill in loopholes in existing legislation and give collective investment scheme managers more freedom when strategising.

The commission hopes that the approach will prompt managers to inject ample funds into the existing feebly financed collective investment schemes. Presently, the FSC notes, the market is set for growth with many players having licensed mutual and contractual funds but still holding them under-financed in wait for apt times. The assets of contractual funds, for example, account for a mere four per cent of Bulgaria’s cumulative deposit base. For comparison, the average in the EU is at 30 per cent of the total value of deposits. The representation of mutual funds is similar.

Another plan for legislative changes aims to professionalise the field of REITs and align the scope of their operations to that of peers elsewhere in the world, FSC head Apostol Apostolov said. The commission plans to raise the paid-in capital cap to one million leva and maintain a free float of at least 10 per cent, ensuring the removal of idle REITs. Presently, 60 REITs are operating in Bulgaria. If and once changes take effect, their number is expected to diminish radically to ensure the sift-out of licensed but idle firms.

What is more, REITs would no longer be entitled to profit tax exemption if changes get the nod from the investor community.

Furthermore, the commission will consider enforcing operational limitations, by taking away their right to develop real estate projects as is customary in the EU and other developed markets. They would be allowed to only acquire and give property for rent. Yet, they could be authorised to go international and purchase and manage property abroad, a ban that has angered REITs’ the most. The FSC is yet to decide whether to restrict operations to the EU.

According to the FSC, a sign of the still immature market is the fragmentation of both the collective investment schemes and REIT markets. While the former sees its top four players holding an aggregate market share of 30.34 per cent, the latter sees 36.4 per cent. The percentages are small against the backdrop of general insurance (52 per cent), life insurance (64.5 per cent) and supplementary health insurance (72.13 per cent).

Yet another considered amendment is the full revamp of the Public Offering of Securities Act, again aimed at updating it to fit the new and more diverse list of investors as well as adjust it to relevant legislation in the European Union.

A consideration on FSC’s agenda is also bringing the full suite of laws to effect in the EU. The financial oversight body is planning to draw up a brand new Clearing and Settlement Act; however, Bulgaria is yet to move into the clearing and settlement services niche. The bill’s fast approval is also necessary in light of plans of the European Central Bank to bring a pan-European platform for this type of service. The bill also foresees minimising clearing and settlement fees and allowing fast trans-border sealing of transactions. Furthermore, it is hoped to facilitate the listing of companies on multiple stock exchanges, according to the FSC.

If the full suite of legislation takes place this year, experts believe trade on the bourse would rise by tens of per cent in a matter of months.