Non-Transparency Scares Investors Off Georgian Stock Exchange
26 January, 2012
Non-Transparency Scares Investors Off Georgian Stock Exchange

87% of Georgian Stock Exchange is non-transparent, which undermines development of Georgian stock exchange market and scares investors off.

According to the research of Georgian Investment Group (GIG), a broker company operating at Georgian Stock Exchange (GSE), which analyzed the GSE’s annual trade in 2011, OTC [over-the-counter] market made 87% of the entire GSE past year, while price-making of OTC transactions remains obscure that creates setbacks to GSE development.

Out of GEL 19 344 259 of total GSE turnover, GEL 16 840

554 comes with the OTC deals and only GEL 2 503 705 with the trade room. Moreover, the OTC exceeds the open trade by 7.5 and 6.7 times from the stocks and money turnover points of view respectively.

“Figures indicate that Georgian stock market development remains at a low level and the key reason, among other things, is existing rules; especially fixing of prices through the OTC”, the GIG research reads.

Non-transparency remains the lingering problem of GSE since 2008, when the new liberalized law on stock market entered into effect and  allowed the OTC trade been forbidden before, while the trade rules leave at the traders’ discretion whether or not fix prices during the trade or only afterwards. As a consequence, almost 90% of trade moved to the OTC and prices got non-transparent: share prices  may change by 15, 19, sometimes 64- fold per day on the same shares that makes some market analysts incline to think that economic crime including even money laundering may stand behind such strange price-making.

One of the conspicuous samples confusing the GIG experts in 2011 was divesture of 41. 5% of JSC United Telecommunication Company 15-fold cheaper than it was sold 5 years ago before privatization.  The questioned portion was sold for GEL 6 000 331 in July of 2011 while the similar package was sold for GEL 89 722 692 in December of 2006, before the company was privatized in the same year. GIG cannot explain this price-making since details of this transaction are confidential.

However the prize for the most amazing OTC price-making of the year goes to JSC Word Printing Enterprise. About 25.68% of the company was sold through three trades in one day with the price gap going as high as 64.22 points. The price went from GEL 1. 30 to GEL 83.4879 per share that day.

“This is the reason why investors have no desire to buy stocks in Georgia, just imagine your frustration when  you buy something for GEL 83 and find out later that another person bought similar thing for GEL 1.30 on the same day,” Ditrikh Muller, a GIG analyst, told Georgian Journal. “Investors are confused when they learn such price gaps, I cannot explain why this happens, and this is the reason we lack petty portfolio investors so desperately.”

However this fixing scares strategic investors [those who acquire control packages] too. They cannot make prognosis whether or not they can make profit in future through shares acquired cheaper today. This kind of rules of game kills internal capital market development and makes Georgia dependent on Foreign Direct Investments (FDIs) alone while in all successful countries internal capital market-based investments overweight the FDIs by several times, Levan Surguladze, Head of head of the investment bank Caucasus Financial Service, explains.

“The key argument of the OTC initiators was that it does operate abroad, but they adopted the OTC only after stock exchanges were very well-developed and not like the way we did here. GSE was just developing and the OTC killed it in the bud,” he said.

Muller doubts money laundering fears behind strange OTC deals and assures that unlike Georgia the oversea OTC market is regulated for traders fix prices at the very onset of the trade in electronic format visible to everyone and if the price making becomes unreasonably high or low the stock exchange halts the trade that day, and regulatory body starts investigation if unreasonable trade repeats.

“But nothing like this happens in Georgia for prices are fixed post factum here,” Muller said.

Surguladze rules out money laundering fears but presumes that companies can easily manipulate by OTC fixing to hide their profit and elude due taxes.

Any public reporting and indication on suspicious deals including media coverage may lay ground to investigations, Giorgi Loladze, Head of GSE, said. But not a single case was raised since 2008 although GSE official data [with all the suspicious fixing prices] are submitted at the National Bank of Georgia (NBG) each week and GIG has been pointing on shocking price fluctuations in its each weekly market reviews.

The NBG believes the OTC transactions are transparent.

“Either a broker company or an independent securities’ registry participate in each trade and the law obliges them to fix the concluded deal no later than the next working day at GSE,” The NBG commented.

However brokers and registries cannot insure transparency Surguladze counters, because they do not participate in the trade but fix the already agreed prices.

“The fixing price-making is non-transparent because its participant sides agree the price between them and disclose the price only afterward that hampers other traders to participate in the price-making process and insure fair market price. The more traders participate in the process the more transparent the price is,” he said.

Of economic crime fears the NBG said that brokers and registries are responsible to report at Financial Monitoring Service if they discover any [money laundering] suspect. Not such a reporting was public as yet.

Print
Other Stories
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
Georgia second among the fastest growing tourist destinations in Europe
Georgia is among the fastest growing tourist destinations in Europe. The data is published by the UN World Tourism Organization.
Bitmain launches world digital mining summit in Tbilisi, Georgia
Bitmain CEO Jihan Wu and Roger Ver, CEO of Bitcoin.com Head Speaker List featuring Circle, DEX.top and Genesis Mining when Digital Mining Leaders Convene In Tbilisi on September 21-23
GAZELLE FINANCE GEORGIA AND TBC BANK HELP THE WESTERN REGIONAL CENTER OF MODERN MEDICAL TECHNOLOGIES EXPAND ACCESS TO QUALITY HEALTHCARE SERVICES IN KUTAISI, GEORGIA
TBC Bank and Gazelle Finance have teamed-up to support Medical City, a leading healthcare provider in the western region of Georgia to launch the Western Regional Center Of Modern Medical Technologies.
PHOTO OF THE DAY

Exchange Rates
GEL Exchange Rate
Convertor
15.01.2019
16.01.2019
USD
1
USD
2.6650
2.6644
EUR
1
EUR
3.0546
3.0449
GBP
1
GBP
3.4227
3.4203
RUB
100
RUB
3.9631
3.9687
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.6644
EUR
1
EUR
3.0449
GBP
1
GBP
3.4203
RUB
100
RUB
3.9687
January 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31