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For the Bucharest Stock Exchange (BSE), the year 2005 has brought about not only its 10^th anniversary, from re-opening in November 1995, but also has benchmarked the start of important transformation processes, representing the cornerstone of its future development. It can be said that once its first decade of existence elapsed, BSE has closed the first stage of its modern history and it is facing now a new start, new economic factors and new challenges. In the general context, of the country’s integration in the European Union, the future of the Romanian capital market will, undoubtedly, depend of the manner in which the transformation processes, begun by BSE in 2005, will be finalized or sustained in the years to come.

There were the first days of 2005 that have marked the first important decision: the Extraordinary General Assembly of the members of BSE Association has decided, on January 10, 2005 to change the BSE legal status from an institution of public interest into a joint stock company, in accordance with Romania’s Companies’ and Capital Market Acts. The finalization of the transformation legal procedures, on July 13, 2005 has permitted the merger of BSE with the Rasdaq Electronic Exchange (BER), a process which has been wound up on November 30, 2005 when the Extraordinary General Assembly of BSE shareholders has approved the merger document by which BSE absorbed BER.

While preparing and implementing these important strategic decisions, BSE has continued, in 2005, to carefully consider all changes that concerned the orderly and good functioning of the BSE market. Thus, starting with March 14, 2005 all trades, negociated in BSE have been effected on “ARENA” - the new electronic platform, designed and built in-house by the BSE IT specialists. The high flexibility offered by this trading system has permitted BSE, on July 1, 2005, to smoothly accommodate the Romanian currency re-denomination from ROL to RON and has sustained the deepening of the operational co-operation between BSE and BER, which together launched on June 17, 2005 a new market segment, named BER-XMBS, the embryo of the future BSE-ATS.

All these changes and projects, implemented in a relatively short time, have been developed on the background of the consolidation of, both Romanian and foreign investors, trust in the Romanian capital market and in the financial instruments traded on the BSE market. The positive trends, that marked the BSE market during the last years, have continued in 2005, the market indicators and indices recording new historical highs.

The investors that have chosen during 2005 to change their attitude towards the risk/return ratio and have invested in BSE traded securities have earned considerably more than those who have chosen other financial instruments, which yields were far below. During 2005, all BSE indices have recorded new historical highs, the values computed for them at the end of December 2005, having shown significant increases as compared to the beginning of the year: +51% BET, +38% BET-C, +175% BET-FI, +66,7% ROTX.

The most of the BSE listed stocks have registered, during 2005, important increases of their reference prices, but the positive trends of the BSE indices have been, mainly, sustained by the BSE listed “blue chips”. Petrom (SNP), Banca Româna pentru Dezvoltare (BRD), Banca Transilvania (TLV) or Rompetrol Rafinare Constanta (RRC) are the stocks with important weight in the BET, ROTX or BET-C indices baskets and the positive evolution of their market prices has given the upward trend of the BSE indices. On their turn, the shares issued by the five BSE listed financial investments companies (SIFs) have, “in corpore”, recorded spectacular figures: at the end of 2005 all SIF symbols registered prices higher by +100%, against those of December 2004.

It is worth mentioning that the year 2005 has also brought about significant increases for the main regional exchanges indices. Though, the market volatility in Romania is still higher compared to that of Hungarian, Polish or Czech markets, the evolution of BET Index seems to become more and more correlated with those of the BUX, WIG20 or PX50 Indices, which means that the foreign investors are looking at the BSE market and, generally speaking, at Romania as at important segments of the Central and Eastern European financial market.

An extra rationale for this assertion is the fact that on September 27, 2005 Erste Bank – Austria (which, meanwhile, became the major shareholder of Banca Comerciala Romana – BCR – the biggest Romanian bank) and Vienna Stock Exchange (WBAG) have together launched a regional exchange index, synthetically reflecting the general evolution of the Stock Exchange markets in Central and Southeastern Europe, by bringing together in its basket the most important 30 listed and traded stocks on the national Stock Exchanges. In this regional index, named “The New Europe Blue Chip Index” (NTX), the Romanian capital market is represented by two BSE listed companies, having the highest market capitalization, namely Petrom S.A. (SNP) and Banca Româna pentru Dezvoltare – Groupe Societe Generale (BRD). Also, it is worth mentioning that further the co-operation between WBAG and BSE, on March 14, 2005, the two exchanges have launched a new country index – the ROTX – which reflects the market evolution of the most liquid BSE listed stocks.

Generally, for every national exchange, the total market capitalization and its percentage in GDP represent the most relevant indicators for the place the respective capital market is taking within the economic and financial system of a country. At BSE, the market cap has recorded a significant increase in 2005, exceeding at the end of December the 15 bln. Euro threshold, and by this, representing 26% of the country’s last year GDP. In 2005, the BSE market cap growth rate was by +70% higher, as compared to the same indicator in other regional exchanges.

Similar to the previous years, the main driving engine of the BSE total market cap growth was, in 2005, the upward trend of the market prices of the broad majority of the listed stock and less to the financing through the Exchange mechanisms or to new listings. However, in 2005 some of the listed companies have taken the advantage to be traded on the BSE market and have succeeded in increasing their share capital by new issues, conducted through the market mechanisms.

Also, new five issuers have been listed at BSE: SSIF Broker S.A. Cluj-Napoca (BRK), Vrancart Adjud (VNC), Flamingo International Bucharest (FLA), Socep Constanta (SOCP) and Biofarm Bucharest (BIO). It is worth mentioning that the first three companies have been listed at BSE, after successfully conducting IPOs, while the last two ones were previously on BER market. Cumulatively, the market cap of the five new listings exceeds 600 mln. RON, representing almost 1% of the total market cap. The small weight of the new five listings in 2005, is owed mainly to the fact that the stock market in Romania, as in other emerging market, is highly concentrated: the BSE listed 10 “blue chips” represent about 90% of the total market cap.

The total value of the BSE trades in 2005 was over 2.1 bln. Euro, which is four times higher than the one registered only one year before. Though, many of the stocks traded on BSE are characterized by a low free float, the ratio between the market turnover and the average market cap has raised to over 16%, thus gaining 5 basis points as against the previous year.

The large majority of BSE 2005 trades have been effected on the Regular market segment. Over 90% of the total value of BSE turnover have been achieved on this market segment, functioning on an order driven mechanism, the Deal trades, representing in 2005 only 6% (10% in 2004). This is, mainly, on the one hand, a result of the important increase the retail sector (resident individuals) has registered, and the BSE steady strategy to encourage, by its fees policy the Regular market or by resizing the ticks, for the orders entered into the BSE electronic system, on the other.

The resident individuals segment keeps being the most active investing category on BSE

The trading session of December 6, 2005 has marked an all-time high for the number of BSE trades: over 10.000. Only few days prior to that date, the statistics published on the BSE website (www.bvb.ro ) showed that the same figure (10.000) was excedeed as concerns the number of resident individual investors, who during November 2005 have made at least one buy trade at BSE.

These are only two figures showing that in 2005, the resident individuals have represented the most active investing category. On a simple addition of the amounts of trades effected by the Romanian investors, both individual and corporations, during the whole year 2005, one can see that they register over 70% of the total BSE buy trades, which means that they are the main beneficiaries of the gains recorded in 2005, by investing on the Romanian capital market.

Apart from these statistics, the year 2005 has, even more, highlighted the qualitative improvements that took place at the investors level. The investors became more demanding as regards the market timely and continuous disclosure, submitted by the listed issuers, and have developed more sophisticated analysis tools to determine both the capital market, and the other financial market segments movements, as well as the impact of macro-economic factors.

The total bonds value, traded on BSE in 2005, has increased to over 107 mln. RON (approx. 30 mln Euro), meaning a doubling of the 2004 same indicator. Though an over 100% growth of the bonds traded value can be considered big enough, one must admit that bonds market has registered a lower rate as compared to the stocks market and even decreased by over 400%, if compared to 2003. The potential of the fixed-income instruments remains however a large one, particularly if at the financial system level, the stability expectations on the long-term interest rates will be consolidated; this consolidation will encourage corporations to issue rather fixed interest rate bonds than floating rate ones, which are momentarily overpowering.

BSE bonds market
Trading en premiere the pre-emptive rights at BSE was a success

In 2005, the investors had the opportunity to trade, for the first time on the Romanian capital market, the first series of pre-emptive rights. These financial instruments, which have an important role in the corporate finance process, have also contributed to the investment diversification opportunities for the general public. Rights’ trading offer the shareholders of a listed company, who, from various reasons, are not willing to subscribe in a capital increase process, the possibility to take advantage of this financial asset associated to his/her shareholding by selling it on the stock market. Thus, the pre-emptive rights issuing corporation it is taking better chances to register an integral or more consistent subscription for the newly issued shares meant for the increase of its share capital.

Even if, so far, only two companies have made pre-emptive rights issues – Impact Bucharest (IMP) and Petrom Bucharest (SNP) – the trades, effected on BSE, have pointed out not only the interest shown to these securities, but also the need for versatility on the range of financial instruments on the Exchange market.

For the stock market, the year 2005 has been one of historical highs: the market cap, the number of active investors, the market indices, the total turnover and the number of trades/session. As shown by the market evolution in 2005, the most dynamic factor for the trading activity was the investors increasing demand for the securities issued by the Romanian companies, listed at BSE. In this context, it is foreseeable that in the near future, a positive answer from the securities offer side will exist by, at first, admission to trading at BSE of new listings, which in fact may represent the main pillar of the stock market growth in the years to come.

The merger BSE-BER is the first opportunity to bring new listings on BSE. The creation of a unique regulated market will, undoubtedly, convince a part of the companies, lately traded on BER, to prefer their trading on a regulated market rather than a possible trading on a future ATS. By consequence, the total number of companies to be traded on BSE will, most probably, exceed 100, against the only 64 actually listed.

Also, the last years have revealed a change of attitude of both Romanian companies and their management, which start thinking the development of their activities, regionally. The implementation of some significant economic projects, regionally developed, is imposing an adequate funding which might conduct to the promotion, on the Romanian capital market, of important IPOs.

However, the most consistent influence on the stock market in 2006, it is expected to be exerted by the companies where the Romanian state is still holding important stakes, for which the sale on the capital market represents, possibly, the best way to start or finalize their privatization process. According to some official allegations, there are chances that in 2006 companies like Romtelecom, C.E.C. (Savings Bank), Transelectrica or Transgaz to be listed and traded on BSE, by previously conducting IPOs. Also, in the first half of 2006 the shares issued by the company “Fondul Proprietatea” (a company created to offer, the 1948 nationalized ownership, economic repairs) are expected to be traded at BSE.

Should all these expectations come true, it is reasonable to think that at the end of 2006, the total BSE market capitalization will be situated in the upper level of the interval 20-25 bln. Euro. The achievement of such a level will have a signficant influence on the growth rate of the market liquidity, growth which could also be incentivized by the continuous positive evolutions of the country’s economic growth, the population income, the disinflation process or the banking system interest rates, estimated for 2006.

Year	No. of Trading Sessions	No. of Trades	No. of Shares Traded (volume)	Turnover (EUR)	Capitalization (EUR)	No. of Companies with Listed Shares	No. of New Companies	No. of Delisted Companies
1995	5	379	42,761	N/A	N/A	9	9	0
1996	84	17,768	1,141,648	N/A	N/A	17	8	0
1997	207	609,651	593,893,605	N/A	N/A	76	59	0
1998	255	512,705	986,804,827	N/A	N/A	126	50	0
1999	253	415,045	1,057,558,616	84,067,123.50	313,001,203.00	127	15	14
2000	251	496,887	1,806,587,265	93,244,168.02	450,512,639.00	114	1	14
2001	247	357,577	2,277,454,017	148,544,838.94	1,361,079,746.00	65	3	52
2002	247	689,184	4,085,123,289	222,426,577.20	2,646,438,376.00	65	1	1
2003	241	440,084	4,106,381,895	268,641,352.35	2,991,017,082.27	62	0	3
2004	253	644,839	13,007,587,776	598,072,158.14	8,818,832,158.26	60	3	5
2005	247	1,159,060	16,934,865,957	2,152,052,959.75	15,311,354,557.93	64	5	1
2006	244*	1,410,984*	13,265,133,857*	2,694,332,675.79*	21,164,807,089.66*	58*	2*	0*

Year	No. of Trading Sessions	No. of Trades	No. of Bonds Traded (volume)	Turnover (EUR)	No. of Bonds Issuers	No. of new Listings of Bond Issues
2001	17	5	45	172.83	2	2
2002	247	10	59,050	238,704.88	4	2
2003	241	39	187,870	4,556,257.24	10	8
2004	253	1,116	530,466	71,266,812.93	22	16
2005	247	362	199,304	29,776,176.53	19	6
2006	244*	477*	2,984,217*	119,994,952.53*	19*	5*

Year	BET (EUR)		ROTX (EUR)		BET-C (EUR)
Year	points	Year end change (%)	points	Year end change (%)	points	Year end change (%)
1999	822.74	N/A	N/A	N/A	678.53	N/A
2000	767.40	-6.73	N/A	N/A	563.09	-17.01
2001	893.60	16.45	N/A	N/A	450.24	-20.04
2002	1,608.47	80.00	N/A	N/A	836.84	85.86
2003	1,788.40	11.19	N/A	N/A	895.83	7.05
2004	3,781.83	111.46	N/A	N/A	1,918.28	114.13
2005	6,034.49	59.57	11,041.43	N/A	2,803.81	46.16
2006	7,837.40*	29.88*	14,506.10*	31.38*	3,797.18*	35.43*

Year	BET-FI (EUR)
Year	points	Year end change (%)
2000	1,085.29	N/A
2001	1,991.33	83.48
2002	3,632.25	82.40
2003	4,110.15	13.16
2004	9,330.57	127.01
2005	27,157.19	191.06
2006	35,803.77*	31.84*

Note
* = This information is updated at 14.12.2006
N/A = Not applicable
- = Not available