CENTRAL DEPOSITORY AD ACTIVITY REPORT 31 DECEMBER 2011

Transcription

1 ACTIVITY REPORT 31 DECEMBER 2011

2 TABLE OF CONTENTS INTRODUCTION... 2 LEGAL FRAMEWORK CHANGES IN NATIONAL LEGISLATION CHANGES IN THE RULES AND REGULATIONS OF THE CENTRAL DEPOSITORY GENERAL MEETING OF SHAREHOLDERS... 4 INTERNATIONAL RELATIONS TARGET2-SECURITIES PROJECT /T2S/ RELATIONS WITH OTHER DEPOSITORY INSTITUTIONS EUROPEAN CODE OF CONDUCT FOR CLEARING AND SETTLEMENT SWIFT ISO 9001: OTHER ACTIVITIES... 7 TRADING... 8 SERVICES TO ISSUERS AND SERVICING CORPORATE ACTIONS SERVICING OF SPECIAL PLEDGES AND OTHER COLLATERAL INFORMATION SYSTEM SERVICES TO GOVERNMENTAL INSTITUTIONS AND JUDICIAL BODIES FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOWS STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS REPORT AS AT 31 DECEMBER

3 Introduction This report has been prepared in accordance with Article 139, paragraph 2, of the Public Offering of Securities Act and Article 48 of Ordinance No 8 of the Financial Supervision Commission on the Central Securities Depository. It contains data on the activity and the financial statements of the Central Depository for The report provides information about Central Depository AD s performance in 2011, specific data, analyses and conclusions. The report outlines the main trends in the development of the capital market, as well as the fulfillment of company s objectives and priorities. Legal Framework 1. Changes in national legislation In 2011, the Central Depository took part in the process of coordination of the draft Law on the Activities of Collective Investment Schemes and Other Collective Investment Undertakings (LACISOCIU) which aimed at implementing into Bulgarian law the requirements of Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS). With the coming into effect of the LACISOCIU in 2011, new opportunities were introduced for the management company of a Collective Investment Scheme (CIS) to pursue business through: - introducing of a single passport valid throughout the entire EU; - establishing new structures of a Master Feeder CIS type; - diminishing administrative barriers in relation to cross-border offering of CIS units; - enhancing the requirements concerning transformation of CIS; - facilitating cross-border transformations; - improving investor protection, including through the introduction of a single model document referred to as Key Investor Information. REPORT AS AT 31 DECEMBER

4 On 26 July 2011, the Law of Amendment and Supplementation of the Public Offering of Securities Act was promulgated whereby amendments to the legal requirements concerning the Central Depository were introduced, in particular regarding: - the requirements for distribution of company s capital shares; - the ability to distribute dividends to shareholders; - the liability for payment of corporate tax; - the procedure for funding of company s Guarantee Fund and Reserve Fund; - the preliminary approval by the Financial Supervision Commission of the changes in Central Depository s Rules and Regulations. In view of the participation of the Central Depository in Working Group 26 Financial Services under the Council for European Affairs, the Central Depository provides on an ongoing basis its advice regarding the following legislative initiatives at an European Union level: - A draft legislation on the legal certainty regarding acquisition and disposal of securities; - A draft legislation on central securities depositories; - A proposal on Regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories; - A proposal on Regulation of the European Parliament and of the Council on short sales and some aspects of CDSs. 2. Changes in the Rules and Regulations of the Central Depository In January 2011, the Board of Directors of the Central Depository approved a new Service Price Tariff, implementing Resolution No 1629/ of the Commission on Protection of Competition (CPC). The new Tariff reflected all the requirements of the CPC ensuring a separate payment by Central Depository clients for each individual service. In August 2011, the Rules and Regulations of the Central Depository were adapted and supplemented in accordance with the effective amendments and supplementations of the Payment Services and Payment Systems Act. In December 2011, changes in Enclosure 23 Completion of Transactions in Securities through the Gross Settlement in Real Time System to Central Depository s Rules and Regulations were approved. REPORT AS AT 31 DECEMBER

5 3. General Meeting of Shareholders On 9 March 2011, an extraordinary General Meeting of Central Depository s Shareholders was held which approved the following decisions: Decision on the early dismissal of Mrs Milena Boikova as a Board of Directors Member, effective from the date of entry of the General Meeting s decision in the Commercial Register. Decision on the election of Vasil Golemanski as a new Board of Directors Member as a representative of the Ministry of Finance. On 28 June 2011, the regular Annual General Meeting of Shareholders of the Central Depository was held and it approved the following decisions: Decision on the approval of Board of Directors activity report for 2010; Decision on approval of the Annual Financial Statements of the Company for 2010 and the Auditor s Report of AFA OOD; Decision to approve the allocation of the excess of income over the expense for the accounting 2010; Decision on the exoneratation of the Board of Directors members from liability for their activities in 2010; Decision on the election of specialised audit firm AFA OOD to audit and certify the Annual Financial Statements of the Company for 2011; Decision to approve amendments to the Articles of Association of Central Depository AD in compliance with the amendments to POSA. The decisions of the extraordinary and regular General Meetings of Shareholders have been entered into the Commercial Register with the Registry Agency. International Relations 1. TARGET2-Securities Project /T2S/ In the first half of 2011, the Central Depository submitted information on the request of T2S Corporate Actions Sub-Group regarding the level of compliance and implementation of international market standards for servicing corporate actions. In this respect, as well as with regard to the necessity to design a detailed plan for their implementation in national practice, an REPORT AS AT 31 DECEMBER

6 internal expert group has been established. An analysis of the procedures complying with the standards and the procedures requiring implementation of a harmonization process to remove the discrepancies has been carried out. The necessity to establish, at the next stage, an interinstitutional working group to pool the efforts for elimination of Giovannini Barrier 3 of all stakeholders, i.e. professional organizations, supervisors, the Bulgarian Stock Exchange, was outlined. The Central Depository decided, as a member of the European Central Securities Depositories Association (ECSDA), which in its turn is represented in the Broad Stakeholder Group, to take the initiative for the establishment of the group. In relation to the survey and the subsequent analysis carried out by the special-purpose working group with T2S (established on the initiative of T2S Advisory Group) regarding disclosure of investor information and registration of legal title, and the completed questionnaire, the Central Depository received for final coordination Market Analysis of Shareholders Transparency Regimes in Europe paper. After reviewing the document for applicability of data regarding the Central Depository, a confirmation on the information contained in the report has been sent. The aim of the above mentioned surveys has been to provide an overall assessment of the readiness of the individual depository institutions to comply with the standards and the requirements of the Eurosystem in joining the T2S. The Central Depository had not undertaken to sign the Memorandum of Understanding proposed by the ECB in 2009, but keeps on monitoring project development, the work of project subgroups to the ECB, as well as the other initiatives in this field. 2. Relations with other depository institutions In 2011, the Central Depository maintained its securities and cash account with Clearstream, Luxemburg in view of providing a technical feasibility for Bulgarian market participants for cross-border trades and access to European markets. At the end of 2008, the Central Depository established a link with the Romanian depository of corporate securities RoClear and became its member. In October 2011, the Romanian depository expressed its wish to become a member of the Central Depository and consequently the Central Depository sent a draft membership agreement and a draft contract for establishing the link. Technical comments have been sent and the Central Depository has, as of now, replied to them. In the meantime, in cooperation with the Bulgarian Stock Exchange, technical meetings, REPORT AS AT 31 DECEMBER

7 information sharing, legal consultations, test communications via SWIFT messages, etc have been carried out, in view of the successful finalization of the project in the nearest future. In 2012, a framework agreement and a contract will be signed whereby the dual listing of Bulgarian companies on the Bulgarian and the Bucharest Stock Exchanges would become possible. 3. European Code of Conduct for Clearing and Settlement The European Code of Conduct for Clearing and Settlement, signed by the Central Depository in February 2007, set out certain requirements which the Central Depository follows and strictly complies with. In accordance with the principles of the Code of Conduct for Clearing and Settlement, the Central Depository should prepare on an annual basis two self-assessment reports on the implementation and the level of compliance with the requirements of the Code: Self-Assessment Report on Service Unbundling and Accounting Separation which ascertains whether the services provided by the Central Depository are unbundled from each other and customers may use particular service without being obliged to purchase any other service, as well as whether each service is offered at a particular fixed price. General Implementation Report on Compliance with Code of Conduct requirements which assesses the overall compliance with the requirements imposed thereby, based on the following three principals: price transparency, access and interoperability, and service unbundling and accounting separation. The General Implementation Report for 2010 has been prepared and submitted to ECSDA and the European Commission and posted on the website of the Central Depository. The report has been audited by the certified audit firm AFA OOD. Based on the review and the analysis performed on the compliance of the methodology designed by the Central Depository for unbundling, allocation and accounting for the income and expense by group of services with the principles of the Code, the auditors have prepared an unqualified auditor s report. In relation to the new Tariff of the Central Depository, the ECSDA Conversion Table, which forms an integral part of the Code, has been revised and updated. In compliance with the requirements set out, the Table is available on the website of the Central Depository. 4. SWIFT REPORT AS AT 31 DECEMBER

8 In relation to the establishment of direct links with other European depositories and the need to ensure the security and reliability of financial data transmission, in 2011, the Central Depository maintained its membership in SWIFT, ensuring thereby full compatibility with the other participants in the international capital market. 5. ISO 9001:2000 In September 2011, the renewed certification for a further three-year period of the Quality Management System under ISO 9001:2000 was successfully completed certificate No HU08/3498 issued by SGS United Kingdom Ltd Systems & Services Certification. 6. Other activities In 2011, the Central Depository prepared and submitted information on a number of questionnaires and surveys launched by ECSDA. Their scope encompassed issues related to the rules on synchronization of settlement instructions (ECSDA/ESSF Standards), ownership limits imposed on CSDs, and a survey on emission rights. The Central Depository also supported the Matching and Settlement Failures Discipline Measures paper prepared by WG 3 of ECSDA. The Central Depository supported also the advice provided by ECSDA to the consultation paper of CPSS IOSCO * on Principles for financial market infrastructures. The Central Depository submitted also information in relation to enquiries from various international institutions: Banker`s Almanach, Financial Calendar, as well as to DTCC, Estonian Swedbank AS, NSD, etc. Information has also been prepared and submitted in relation to the preparation of reports by international organizations Thomas Murray and the World Bank, as well as under questionnaires of the Association of Global Custodians, etc. In 2011, meetings were held with representatives of Morgan Stanley, The Northern Trust Company, State Street Bank and Trust, Pictet and Cie Banquirees, J.P. Mogran in the course of the review performed by those institutions of the capital market in Bulgaria. * CPSS Committee on Payment and Settlement Systems IOSCO International Organization of Securities Commissions REPORT AS AT 31 DECEMBER

9 In relation to the membership of the institution with ANNA /Association of National Numbering Agencies/ and execution of the commitments arising from the status of National Numbering Agency, in 2011, the Central Depository submitted information upon the request of the Association with regard to the Country Repor paper in respect of Status of ISIN, CFI and Standardization and updated its profile posted on the website of ANNA. In the beginning of 2011, a meeting was also held with a representative of the international media organization European Times. The meeting was held within the review and assessment of the business environment and the opportunities for investments in Bulgaria - EU Readiness Assessment Analysis. In 2011, the Central Depository held meetings with representatives of the World Bank and the International Monetary Fund as a result of which the Central Depository took part in the process of coordination of the prepared report Capital Market Integration and Implementation of MiFID: the Experience of Bulgaria, which aimed at analyzing and providing recommendations on the application of the Markets in Financial Instruments Directive in Bulgaria by the institutions involved in the functioning of the capital market. Trading Market has reached the bottom and started picking up this is the expression which characterizes most objectively and concisely the year An increase by 4.83% in the number of executed trades and an increase by more than 80.13% in transfers of financial instruments are indicators which are already in line with the analyses according to which Bulgaria is coming out of the crisis. TRANSFERS / TRADES YEAR EXCHANGE OTC TRADES TOTAL TRADES ,244 9,577* 216, ,858 8,559* 120, ,993 15,240* 126,233 * OTC transfers do not include patrimony transfers, donation transfers, and transfers from own account to client sub-account at an intermediary REPORT AS AT 31 DECEMBER

10 OTC TRADES BY MONTH FOR THE PERIOD number Despite reported increase however, the levels of trading are comparable to those of 7-8 years ago and this is of no surprise to anybody recovering lost confidence in the capital market will take much longer time than the recovery of other areas of the economy. NUMBER OF EXCHANGE TRADES BY MONTH number TRANSFERRED SECURITIES YEAR NUMBER ,531, ,197, ,009,302 REPORT AS AT 31 DECEMBER

11 Regarding transactions and payments in compensatory instruments, data indicates diverging changes a decrease by 31.70% was reported in the number of trades, while the number of registered payments in compensatory instruments to state institutions recorded an increase by more than 33%. The inheritance related transfers, as well as the issuance of depository receipt duplicates, registered a decrease but those amounts do not represent criteria for the assessment of the capital market. YEAR TRANSACTIONS IN COMPENSATORY INSTRUMENTS REGISTERED PAYMENTS IN COMPENSATORY INSTRUMENTS TO STATE INSTITUTIONS PATRIMONY TRANSFERS DEPOSITORY RECEIPT DUPLICATES , ,139 2, , ,685 2, , ,019 1,982 In contrast to 2010, when in respect to transactions in rights a decrease was recorded, both with regard to the number of trades and to the number of securities transferred, in 2011, the number of trades dropped by 57.42%, but the number of rights transferred jumped more than three times. EXCHANGE TRADES IN RIGHTS YEAR NUMBER OF TRADES TRANSFERRED RIGHTS ,845 30,468, ,172 41,352, ,155,741 On the basis of the analysis performed, it could be concluded that the amounts in respect of the reporting period are a pleasant surprise as compared with those for 2010, and the figures reflecting most adequately the actual dynamics of the capital market, i.e. the number of executed trades, evidence positive development. REPORT AS AT 31 DECEMBER

12 Services to issuers and servicing corporate actions Against the background of the crisis in 2011, the activity of the Registries Unit maintained levels not lower than those in previous years. As compared with 2010, an increase could even be noticed in the payments through Central Depository s system. The amount of dividend payments was twice as large as the amount of dividends paid in the previous year. The number of received requests for registration of new issues of securities and requests for information from the register remained at almost the same level. For the reporting period, a total of 73 issues of dematerialized financial instruments, i.e. 27 issues of shares, 23 issues of bonds, 2 mutual funds and 21 rights, were registered. For 2010, the figures respectively were 27 issues of shares, 13 issues of bonds, 9 mutual funds and 15 issues of rights. Requests for processing of a significant number of corporate actions were received, with the more important among them being: The procedure related to the registration of the issue of preference shares of MEKOM AD; The procedure related to the registration of the issue of ordinary and preference shares of HEALTH INSURANCE FUND FiHEALTH AD; During the reporting period, changes in the capital of 112 issues of securities were registered, the most important of them being the increase of the capital of SOFIA HOTEL BALKAN AD and BULSTRAD VIENA INSURANCE GROUP JSC, EUROHOLD BULGARIA, TBI BANK AD, RAIFFEISEN BANK BULGARIA AD; The issues of the electricity distribution companies were registered in the registry of the Depository and subsequently the changes in their capital were entered; At the end of 2011, changes related to the issue of AROMA AD were entered and subsequently entries of the new companies AROMA REAL ESTATE AD and AROMA COSMETICS AD were made. The work related to elaboration of new services to issuers of securities and facilitation of the access of the companies which had issued dematerialized financial instruments to those services continued. These included: REPORT AS AT 31 DECEMBER

13 Improvement of the communication with the security issuer companies in receiving information from the register via the website of the Central Depository. Companies use those services with a valid electronic signature and this new way of communication facilitates the access to the register of the Central Depository and enhances security. As a result, companies can already search information about their financial liabilities and receive in electronic form a document for the services paid; Sending regular information to the companies about their financial obligations when receiving information reports from the register and information about payments made under bond issues and dividend payments via the system of the Central Depository. In 2011, 263 dividend payments and payments under bond issues were made. As a number, the payments remained at the same level but the amount of the dividend payments through the system of the Central Depository increased twofold. The number of information reports, prepared for the companies which have issued dematerialized financial instruments for purposes related to the activity of governmental and other institutions, remained at a significant level. In 2011, 1,041 security holder registers were provided. During the period the number of assigned ISIN was 104, as compared with 111 in In 2011, the Central Depository undertook actions to update information about the companies which have issued dematerialised financial instruments consistent with data entered into the Commercial Register with the Registry Agency. This was due to the circumstance that changes have been entered into the registry record of some companies while the information thereon has not been sent to the Central Depository. Issues of companies which have been deleted from the Commercial Register were deregistered from the register of the Central Depository. On the basis the synchronization being carried out, a more secure system for the collection of the obligations of the companies which have issued dematerialized financial instruments to the depository would be established, while, on the other hand, issues of companies which have been deleted from the Commercial Register with the Registry Agency would be deregistered from the register with the Central Depository REPORT AS AT 31 DECEMBER

14 Servicing of special pledges and other collateral The activity related to servicing special pledges is performed in compliance with the requirements of the Special Pledges Act, the Regulation on the Structure and Activity of the Central Register of Special Pledges at the Ministry of Justice, the Financial Collateral Agreements Act and the Rules and Regulations of the Central Depository. In compliance with the effective changes to the Private Enforcement Agents Act, the new Service Price Tariff of the Central Depository, effective as of 31 January 2011, introduced a fee for the provision of services to enforcement agents, namely: distraint registration fee; discharge of distraint fee; fee for preparing report on financial instrument holdings requested by an enforcement agent; fee for preparing report on registered liens on debtor s financial instruments. In 2011, a total of 370 entries were made in the Special Pledges Register, of which: 66 entries of special pledges; 170 distraints; 134 entries of other circumstances (deletion of a pledge, discharge of a distraint, entry of changes, etc.). For this period, in 31 cases securities were blocked and in 9 cases unblocked. A total of 15 entries were made in the register of financial collateral agreements. Information system In 2011, the Central Depository continued its work on the improvement of the information system in compliance with the objectives set out in the Development Strategy of the Central Depository to improve the ongoing servicing of Depository s clients. Information system changes and implementation of new modules are being agreed on an ongoing basis with market participants (representatives of investment intermediaries organizations) aiming directly at satisfying in full their requirements and needs. Two meeting and a training seminar were held in relation to the designing of company s new information system. The scope of the information reports which can be ordered and received by issuers via the Central Depository s official website was expanded. Software for automatic processing of requests for information reports submitted by private enforcement agents is also being developed. REPORT AS AT 31 DECEMBER

15 In compliance with the objectives set out in the Development Strategy, the Central Depository carried out tests and accepted the application software for the new information system: Registries module, Corporate Actions module, Clearing module, Settlement module, Custodian Services module and Securities Lending module. This expansion of system functionalities corresponds to the needs of market participants and ensures compliance with the standards for technical and operational compatibility with the EU depository institutions. In 2010, the Central Depository took part in an open application procedure BG161PO Fulfilling Internationally Recognised Standards under Operational Program Development of the Competitiveness of Bulgarian Economy with the project Raising the competitiveness of the Central Depository under the conditions of integration of EU national capital markets through ensuring continuity and safety of data flows and assets and certification under ISO 27001:2005. Project costs amounted to BGN 202,114 while the amount of awarded grant which could be obtained by the Central Depository under the requirements of the procedure and the particular project proposal amounts to BGN 148,318. In 2011, the Central Depository commenced the implementation of the project and in June 2011, Financial Grant Agreement No ZMS / was signed. In 2011, part of the activities related to the implementation of the project were carried out, i.e.: Selection of a Contractor within the meaning of Art. 12, para 2(2) of Regulation of the Council of Ministers No 55 of 12 March 2007 to provide services with a subject Consultation Services to Design and Implement an Information Security Management System under ISO 27001:2005, and Approval and coordination of documentation for the open application procedure with a subject Supply, Installation and Putting into Operation of Equipment and Software for the Central Depository AD within the Framework of Financial Grant Agreement No ZMS / with the Bulgarian Small and Medium Enterprises Promotion Agency. In the course of project execution, the Central Depository will be certified under ISO/IEC 27001:2005, one of the main standards for information security, will implement the information security system under ISO 27001:2005, and will purchase IT equipment /servers and software/, facilitating the efficient implementation of the management system. REPORT AS AT 31 DECEMBER

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