Broker Companies Step Back
12 September, 2013
Broker Companies Step Back
An annual survey of Georgian Stock Exchange, performed by a broker company Georgian Investment Group+ for September-to-September analysis of 2012-2013 concludes that Georgian Stock Market still employs the vicious practice of speculative deals as the Authorities linger with the reforms. GIG+ warns that the number of broker companies which observes transparency of financial transactions at stock market significantly dwindled away due to pseudo-libertarian reforms of securities market and will simply disappear starting from the next year if the administration does
not immediately attend to the urgent need in legislative changes.
“The civilized method of stock transactions concluded at the GSE room is abolished following the pseudo-libertarian reforms of 2008. Now transactions are concluded in a non-transparent, non-public environment through the so called “fixing” method bypassing GSE and broker companies. However, a year has passed (since the power shift) and the incumbent authorities are in no hurry to replace this malicious legacy which is nothing than a swindle and a legal means of money laundering,” Davit Aslanishvili, co-founder of GIG+, said in the interview to Georgian Journal.
According to Giorgi Loladze, Head of GSE, the current law, which was liberalized during the rule of ex-power, deprived GSE of its key axis by admitting the OTC (Over-The-Counter) trade or “fixing” at GSE since 2008 (when the law was enforced) that ruined the GSE completely as 99% of trade went into the OTC shadow. Consequently, the price-making process became non-transparent; it traded shares by 40-60 times higher the price per one day without punishment and control on the part of the central bank and enjoying huge profits. And this practice did not wane since the power shift, the GIG+ research shows. As a result, broker companies are out of game, on the road to extinction.
The number of broker companies exceeded 40 after reforms in 2000 when through USAID assistance the Georgian Stock Exchange was formed using the best international practice. However, broker companies are an integral part of open auctions as the liberalized law allowed OTC trade and mandated registries to register the OTC deals. The volume of open auctions plummeted and the broker companies’ activity dropped. As a result, assets’ hand-over became easy and non-transparent and the ex-power managed to get its hands in the private property and businesses illegally.
On the other hand, broker companies were excluded from auctions and secondary trade of the state securities. What is more, banks were admitted exclusively creating another channel of income for brokerage business. Meantime, the volume of financial resources attracted through state securities amounted to GEL 1.3 billion and hence banks attained a monopolistic part of this pie. Nobody can now predict how reasonably and at what profit margin the state securities are disbursed. Against the backdrop of infringing their activity and income volume, the demand on required capital to brokers was increased to GEL 500 thousand, whereas micro-finance organizations which enjoy much higher profits are required to hold only GEL 250 thousand. “So, there is no other way than to quit the market. There are only seven broker companies operating on the market at the moment and four of them are the bank-affiliated companies. It means only three independent brokers operate in fact and they too will quit soon. All this makes me think that someone still is lobbying banks so as to enable the banks to acquire the entire stock market. And this mission will be fulfilled soon, I guess,” Aslanishvili elaborated.
Lia Eliava, a financial market analyst, believes the reason of stock market failure is the underdeveloped Georgian economy and no reforms can alleviate the situation until the economy reaches due level.

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