Investor's Guide

All natural or legal persons can become investors on the Bucharest Stock Exchange. The instruments mostly traded are shares listed on one of the Bucharest Stock Exchange regulated markets. It is also possible to trade municipal and corporate bonds in other sections of the market. The first step to be taken by a potential investor on the Bucharest Stock Exchange is to accurately evaluate his/her financial status and only invest the amount he/she is willing to forgo. For example, you are advised to invest neither the money saved for your children's education, nor the money needed for your daily expenditure. You should be aware of the fact that when investing on the Bucharest Stock Exchange, both losing and gaining are possible outcomes. Unlike depositing your money in a bank, investing on the Bucharest Stock Exchange is not in any way guaranteed to work in your favor. High gains tend to be associated with high levels of risk, and it is due to this fact that it is of paramount importance to firstly assess not only the amount of money to be invested, but also your degree of risk aversion, as well as the amount of time money is to be invested for. When buying shares, gains may be obtained from increases in the respective shares' prices. Also, the investor may benefit from dividends granted to shareholders by the issuing company, although potential investors should be aware of the fact that not all companies are obliged to do so.

Capital Market Institutions

The capital market is monitored and regulated by the Romanian National Securities Commission (RNSC). RNSC is empowered to authorize market institutions, investment companies and the activities thereof. RNSC, in turn, has to account for its activity to Commissions of Parliament in charge of Budget, Finance and Banking, the Senate Economics Commission and the Chamber of Deputies' Commission for Economic Policy, Reform and Privatization. The RNSC is governed by seven members: a president, two vice-presidents and four commissioners. The capital market operator is the Bucharest Stock Exchange. The clearing and settlement of transactions are carried out by the Central Depository, also in charge of maintaining records of all listed companies shareholders at any one time.

What is the trading system?

The shares bought are dematerialized, which is to say that you will not receive valuable pieces of paper in return for your money. You will however receive a confirmation from your broker informing you of your acquisition. In order to buy shares you need to go to an investment company employing several brokers, and not the Bucharest Stock Exchange directly. On the basis of a signed agreement with the investment company you can then instruct or consult your broker over the shares to be bought in exchange of the sum of money you transferred into the investment company's account. The shares will be transferred into your account three days after the acquisition. The buyer will receive, either by mail or e-mail, depending on the written agreement specifications, a confirmation of the transactions concluded as well as the cost thereof: the price of the shares and the commission charged by the investment company. When wishing to sell shares the same procedure applies, only that after three days the shares in your account will be substituted by money.

How to choose your investment company

When you have 75 investment companies to choose from and do not know which one to pick, you may decide to opt for one close to home or perhaps one recommended to you by a friend. You may also take the decision on the basis of the level of commissions charged by the investment company, the way in which you are treated by your broker and the degree of professionalism displayed by the investment company personnel. Other decisive factors may be: reputation, monthly ratings published by the Bucharest Stock Exchange, shareholders' equity and the previous year's financial results. Another important element you should take into account is whether the broker will be able to advise you on the investment you are about to undertake. Some investment companies have a no advisory policy or, alternatively, can provide you with a financial analysis only at a cost. It is advisable you ask about the related services the investment companies have to offer (issuing financial analysis, market reports, news on listed companies, etc.). In addition you may want to find out whether the investment company has an online trading facility in place. Such a facility would enable you to place buy/sell orders with your broker over the internet.

Take note of fees and commissions

After having decided on the investment company to work with, the next stage is signing a written agreement. You will need your ID card and to answer a few questions regarding your financial status and the degree of risk aversion. This is the time to negotiate the commission per transaction charged by the investment company. There is no such thing as a legal upper limit on the commission to be charged. You can usually negotiate anything between 0.5 % and 2 or 3 %, depending on the amount of money to be invested. If after a period of time you increase your investment, you can renegotiate for smaller commissions, depending on the list of fees and commissions the investment company operates on. Make sure you ask about all other fees and commissions you may be subject to, such as the account opening fee, transfer of shares between your account and the registry, withdrawing money, account management, receiving written confirmations, etc. Not all investment companies charge such extra fees; you should nevertheless be aware of this possibility and specifically ask your broker in this respect.

How to choose which shares to invest in

The hardest decision you will have to make when deciding to invest is which shares to buy. The Bucharest Stock Exchange is not a lottery. Each investment must be undertaken after carefully analyzing the company's financial status, the most important criteria of all when buying shares in that company. A company with strong financial status will enjoy high levels of interest from investors and therefore is less likely its shares will decrease in price for significant periods of time. If you do not have the required skill to interpret financial data it is best you have one of the investment company's analysts do that for you. If the company does not have one, you can hire one elsewhere. Another aspect to be looked at when choosing where to invest is the ownership structure. The more shareholders there are the more likely it is the shares are highly liquid, whereas a company with few shareholders might mean there is not much interest in the market for the respective shares and it may be difficult for you to acquire and then sell them when needed. A share is considered 'liquid' when the share 'changes hands' several times in a day, on a daily basis, thus the acquired share can be easily converted into cash by being able to sell it right away. Also it is recommended to diversify your investment, i.e. do not invest all your money in one company alone and instead choose to make smaller investments in a few companies. This way you reduce your potential losses when one company's shares plummet and perhaps even compensate for these losses by gaining profits elsewhere. Analysts will recommend you choose long term investments in companies with strong financial status and good reputation in terms of organizing and managing its activities in an orderly and transparent fashion, thereby protecting its shareholders and their investments.

Always track your investment

A well informed investor gains more and loses less than an indifferent one. Investing on the Bucharest Stock Exchange is nothing like depositing your money in a bank. You should always be aware of how the companies you have invested in are progressing, whilst being on the lookout for new opportunities in the market. Read the companies' quarterly reports so that you can take informed decisions. Ideally you should take part in all GSMs (General Shareholders Meeting) so as to vote for or against decisions you believe to have a positive or negative impact on the companies, and in turn on the value of your shares. For example, a decision to attract financial resources off the capital market by issuing new shares can benefit the shareholder if dividends increase as a result of the company earning more profits in time due to those resources. In addition you may want to read the press releases published by the Bucharest Stock Exchange on its website.
The media also constitutes a good source of information for investors. For further details visit the Bucharest Stock Exchange website (www.bvb.ro ) or consult a capital market specialist on their online chat rooms. Alternatively you may want to contact them directly via e-mail or telephone.