Recovery of the Czech capital market is on the agenda

The Czech capital market has been gradually solving many problems accumulated since its beginnings, just to gain the confidence of investors. So far, however, it is not offering too many new attractive opportunities. The capital market is not meeting its goal, which is allocation of resources and pricing.

According to the Czech liberal economists the Czech capital market can be revived by an expeditious privatization of state's share in energy, telecommunications, and financial sectors. Later on, according to their opinion, also the distribution utilities and banks should be privatized. The low level of trading with securities on the Czech capital market could be increased - according to the liberal economists - by introduction of further regulatory measures. These are: enforcement of law, transfer of transactions to markets where the exchange rate is created, and the already launched activity of the Commission for securities. Nonfunctional capital market remains to be the reason for a low share of external non-credit resources, and the share of loans represents disproportional interest burden. With a weakened exchange rate it is also more difficult to repay loans in foreign currencies. These loans increased mainly in 1995 when compared to the loans in Korunas.

The legislation is not helping the investors

Despite adopting amendments to laws what is still missing is their mutual link. Unclear is mainly the amendment of legal norms in connection with the new act on Commission for securities. For the capital market to be regulated adequately the Commission for securities has to have the power to issue rules and regulations related to regulation of the method of trading with securities on the approved public markets, and supervision over the legality and transparency of this market. It is also the issue of registration of issued securities, granting powers, monitoring and control of activities related to security market organizers, but also activities of companies dealing with clearing and settlement of transactions with securities. The Commission also gives its consent and monitors the activity of brokers, investment advisors and their deputies, as well as institutions governing or administering Funds. For foreign investors it is extremely important that the Commission is responsible for protecting investors making investments into securities, and for protection against unacceptable, dishonest and illegal activity related to trading with securities.

The Commission for securities regulating the capital market was established with a five years delay and still does not fit into the framework of the European law. In CR the dominating are security dealers and not the issuers and investors. According to experts a long-term strategic goal is to release new primary issues. Their sufficient number will confirm that the market is functioning under standard conditions and represents a true alternative to the bank capital.

A principal task is to make a review of the whole legislation related to capital market and to issue new licenses to entities operating on this market. According to an expert on the Czech capital market, Tomas Jezek, the limit for obligatory offer for repurchase of shares should be decreased from 50 to 30%, as it is recommended by the World Bank. Jezek insist also on higher protection of minority shareholders. Introduction of cumulative voting should also contribute to a proportional representation of minority shareholders. Similarly information on issuers should respect international accounting standards. It is also necessary to change the taxation system to at least make the investments on the capital market equal, confirms his words T.Jezek.

Slovak Trade FORUM