The Bulgarian Stock Exchange's (BSE) adoption of a new trading platform is a milestone in the bourse's development. The Xetra system will directly open the BSE to many more investors, upgrade its technology and facilitate the introduction of more sophisticated instruments.
"Today our capital market entered the EU," Finance Minister Plamen Oresharski announced as the BSE launched Xetra on June 16. Xetra is the trading system used by Deutsche Boerse, the owner and operator of the Frankfurt Stock Exchange, one of the world's largest bourses. Xetra is also used as a platform by stock exchanges in Vienna, Ireland and Budapest, amongst others, and is set to be installed in Shanghai. The BSE had previously used the Russian Trading System (RTS), which is based on technology used by New York's Nasdaq.
The benefits of adopting Xetra are manifold. It will give those institutions using the system direct access to the BSE, which will open easy share purchases on the bourse to a considerably larger range of investors. It should also increase visibility. Over the medium to long term, it is hoped that it will help raise the BSE's liquidity from its currently relatively low levels. There are also likely to be technical benefits derived from using Deutsche Boerse's reliable and fast platform, which has been tried and tested on Frankfurt's capital market, known for its efficiency.
Frank Gerstenschläger, a member of Deutsche Boerse's executive board, has said that adopting Xetra will "increase the international competitiveness of the Bulgarian market". For Bulgarian institutional investors, meanwhile, the opportunity to trade the 17,000 instruments that are listed on Xetra has opened up.
Finally, Xetra is seen as essential to meeting the BSE's goal of introducing more sophisticated instruments such as derivatives and futures.
"Adopting a more advanced and sophisticated trading system is a positive move," Krassimir Tahchiev, head of research at First Financial Brokerage House (FFBH) told OBG. "Definitely, Xetra is a much better trading platform and overcomes soome of the deficiencies of the RTS, most notably, the price manipulation."
The adoption of the platform is particularly significant given last year's interest from several foreign exchanges in taking over or merging with the BSE. Deutsche Boerse emerged as the front runner, with the Hellenic, Warsaw and Vienna exchanges and Scandinavian capital market OMX also tipped as potential buyers. Early in 2007 the expectation was that a deal could be wrapped up by the end of the year, possibly even in the first half. But the BSE's management, seeing a strongly-performing market and an array of attractive suitors, elected to "take time to decide the best option," Chairman Viktor Papazov told OBG at the time.
In late October, the BSE sealed the deal with Deutsche Boerse to bring in Xetra, stopping well short of a takeover - for the time being at least.
The first week of the new platform's operation was not without teething problems, but these seem likely to be overcome in the near future. Ten brokerages were not able to access the system on day one, though this was not due to problems at the BSE end, according to the bourse's Executive Director, Bistra Ilkova. Several media outlets were unable to connect to the BSE database, and there was some confusion over time differences, as Xetra operates on Frankfurt time, which is one hour behind Sofia's. Some graphics issues were also reported in the local press.
Trading was initially slow, as brokers had expected, and on June 17, the two main indices dropped very slightly. The Sofix, which indexes the 19 most liquid stocks on the exchange, fell 0.47% to 1288.64 points, and the BG40, which lists the 40 most liquid, lost 0.07% to close at 326.02. Svetozar Abrashev, a broker at FFBH, reassured local press saying, "There is no particular trend these days, everybody is getting used to the new trading system and people are more cautious."
While the slippage continued to June 30, with the Sofix standing at 1154.9 and the BG40 closing at 306.48, this is more likely to be due to falls in individual stocks and a bearish trend in global bourses than a lack of confidence in Xetra.
According to Tahchiev, the major complaint market participants have raised about the new system is its alphanumeric tickers often bearing no relation to company names, a relatively minor issue that should ease as traders become acquainted with Xetra.
Despite subdued recent trading, some stocks have attracted attention of investors. Two examples are Holding Patishta, which has declared an interest in taking over the crucial but stalled Trakiya Motorway project, and the Kremikovtsi steel mill, which is the subject of takeover speculation. Both have performed strongly. Furthermore, the sale by the government of 75% stakes in two tobacco factories owned by state tobacco firm Bulgartabak, which is expected to fetch around$30.6m, should provide a welcome injection of liquidity later this month.
Despite some initial difficulties, the consensus among brokers is that the adoption of Xetra is a positive and necessary step for the BSE. If successful, further cooperation between the Bulgarian capital market and Deutsche Boerse could be on the cards in the future.
