Broker Exodus: One Third Of Brokerage Firms Closed Since 2008

The halving of the trading volume on the stock market after the peak year 2007, as well as the slashing of trading fees in the competition over a dwindling number of customers, have caused quite a serious decline of brokerage firm revenue.

So that the number of brokerage firms active on the Bucharest Stock Exchange fell to 51, after ten companies and a number of banks decided to exit a business that was no longer profitable in the past two years.

Most such firms on the market have been posting operating losses and have been living off sales of the shares they owned in the Bucharest Stock Exchange (BVB.RO), the bourse’s operator. These shares, however, have fallen as well over the last few months to an all-time low.

Under the circumstances, many decided the business was no longer worth the effort.

Active International, one of the top companies on the Bucharest Stock Exchange in its first years in operation, announced it would close. ING and UniCredit, some of the big names on the stock market over the last few years, withdrew as a result of decision made by the management of the two groups.

Delta Valori Mobiliare, HTI Valori Mobiliare and STK Trading are yet more examples of brokerage firms that closed in the last two years because their shareholders no longer wanted to pay to keep them going.

Then there are also the companies closed by the market watchdog, the National Securities Commission (CNVM), because of the more and more frequent scandals on the capital market.

GM Invest, one of the influential brokerage firms, could be closed by the CNVM because it failed to produce a series of documents to show who exactly controls it. The majority shareholder is Comac Limited, a firm registered in Cyprus, which is involved the Petromservice bankruptcy case. The same case saw businessman Sorin Ovidiu Vantu prosecuted for money laundering and embezzling. Part of the Petromservice money was directed to GM Investment, according to the indictment.

City Investment, the brokerage firm of Catalin Chelu, and WBS Romania, a company involved in the affair of the fugitive broker Cristian Sima, too, were closed by the CNVM because of the irregularities the commission found upon investigation.

The stockbroker exodus resembles the 1998-2002 period when tens of brokerage firms closed, with only 75 left out of almost 200. Dozens of brokerage houses had been established in the nineties, whose sole business was collecting the coupons distributed to the people in Romania during the mass privatization programs. When the business fizzled, most of those brokers vanished.

The 75 brokerage firms that survived lived off the regional investment funds (SIF) and the few companies listed in the nineties and early 2000’s, such as OMV Petrom (SNP.RO), BRD (BRD.RO) and Banca Transilvania (TLV.RO) for years.

The lack of new companies on the stock market had been hardly felt until 2007 as long as the existing shares kept rising. After the crash of 2008, brokers have been fiercely trying to poach each other’s clients because they have nothing to attract new investors with. The floatation of Fondul Proprietatea (FP.RO) did not make much of a difference either, as the initial trading increase effect waned after less than a year.

Brokerage firms are partly to blame for their current situation, too, because most of them relied on the government to keep them busy by floating the companies it owns. On the other hand, the listing of private companies, the bread and butter of the capital market, has been almost non-existent in the past decade.

(English version by Loredana Fratila-Cristescu)

Brokerage firms that left the market in the last two years

Source: Bucharest Stock Exchange