It is now more difficult to check how many shares you hold because of a shift last year from individual to global accounts.
The system of trading shares on the stock exchange changed from individual accounts (holding a separate account for each client of a brokerage firm) to global accounts (a joint account for several clients of a brokerage firm).
Basically an investor can only go to their broker, who supplies the statement of account. This provides information on the shares held in the account, but the investor cannot check if the broker tells the truth or not.
Brokerages are thoroughly checked by the Financial Supervisory Authority (ASF), but even so cases of clients being cheated can appear. Such was the case of runaway broker Cristian Sima, who disappeared in October 2012 after several of his clients wanted to recoup their money and could not.
Up until the introduction of global trading accounts in 2012, investors could check with the Central Depository that the statement of account issued by the broker reflected the actual share holdings in the portfolio.
But since 2012, when global accounts were extended to all shares on the Bucharest bourse, the Central Depository can no longer see who holds the shares or who trades them because bourse transactions are done from one global account that includes several clients of one brokerage.
“When trading was done through individual accounts, the Central Depository could see for instance that one person holds 10 shares and another holds a further 10 shares. Now, through global accounts, at the end of the day one only checks that the 20 shares reported by the broker as being in the global account are in fact in the account,” says Adriana Tanasoiu, general manager of the Central Depository.
“The only times when companies provide their shareholding structure is when General Meetings of Shareholders are held,” she adds.
In Romania there are 9 million registered shareholders, according to data from the Central Depository, the institution that handles the safekeeping of investor shares in local stock-exchange listed companies.
But most of them are inactive investors, so-called “coupon holders,” who became shareholders following the two mass privatizations in the ‘90s and who never traded on the stock exchange. Their shares are held with the Central Depository and these shares can only be sold after their holder asks that they be transferred to the brokerage. A shareholder can ask for a statement of accounts with the Central Depository, based on their ID, which allows them to see if the shares are in their account or not.
But there are around 83,000 investors who have accounts opened with brokerages, through which they sell or buy shares, according to the statistics of the Investors Compensation Fund (FCI).
Less than 10,000 of them are active investors, who frequently trade on the bourse and monitor their accounts carefully. The rest opened accounts and bought shares during the boom period of the bourse (2005-2007). Afterwards the bourse fell and many held on to their shares, hoping the share prices would recover and that they would be able to recoup their money. These shares are kept with brokerages.
In order to check if the shares are in the trading account and if the statement of accounts issued by the broker is accurate, an investor can resort to the Financial Supervisory Authority. If the investor has suspicions that the broker does not report the holdings accurately, they can submit a complaint to the ASF and the authority runs a check on the broker.
“After the shift to global accounts, responsibility has moved to brokers. Things are the same on external markets. The brokerage or the custodian bank are responsible for what happens in the client’s account. That is why investors have to make an informed choice of a broker or a bank they work with and they trust,” Tanasoiu also says.
Cases of share theft were quite frequent in Romania the ‘90s. Back then there were several shareholder registers, so nobody knew exactly where their shares were kept.
After all shareholder registers were brought together and one single institution was created – the Central Depository – the risks of an investor’s shares being “stolen” lessened and theft cases became much rarer. But they did not altogether disappear.
The case of Ana Maria Mihaescu, head of the IFC mission in Romania, who was the victim of a theft of shares worth RON900,000 based on a fake ID, proves that security of personal data is extremely weak and that anyone who has information and a fake ID can ask the Central Depository for statements of accounts, can sell shares on the bourse and conduct banking operations.
Even though such cases are rare, the authorities should take measures to protect investors better.
(English version by Daniela Stoican)