THE IMPLEMENTATION OFTHE WHITE PAPER ON CORPORATE

GOVERNANCE IN SE EUROPE

Progress to date in Bulgaria

Institutional Framework – Achievements and Challenges

The legal framework is largely brought into line with the relevant EU acquis.

The institutions required are in place are effectively functioning.

Registration of ownership and transactions with securities are fast and reliable.

Wide network of brokerage services

Supervisory body to monitor the accounting and auditing profession.

Regulatory Authorities - Achievements and Challenges

FSC’s powers have been enhanced and broadened (2000) - licensing, monitoring, compulsory measures, fines, requiring information, investigations

FSC is independent Law enforcement and implementation

relay mostly on the market regulator Most of the measures initiated by the

FSC may be appealed in court Professional Arbitration for BSE

Increase the expertise and the capacity of courts

Increase the role of BSE as regulator

Implementing and enforcing the new legal rules in an effective and balanced way

The Private Sector – Achievements and Challenges

All public companies are required (2003) to have CG programmes

Best international practices of CG based on OECD Principles

Annual reports on the implementation

All public companies are required to have investor relations officer

The bulk of companies have gone public in an administrative way

Many public companies don’t posses the appropriate profile

Companies with an essentially public profile are not public or are on their way to abandon this status

Public status is considered as a burden rather than as an opportunity

To a large extent the sector remains still uncommitted to the CG reform

CG Training – Achievements and Challenges

Over the past years many international donors have assisted the FSC under different programmes and projects

There have been training programmes for accountants and auditors

Ad hoc training by non-government organizations under international projects

Training for board members and judges needs to be further enhanced.

Training for accountants and auditors in the field of CG

Corporate governance curricula are usually not available at universities

Minority Rights Protection - Achievements and Challenges

Overall improvement (2002) Shareholders’ approval of major and

related party transactions Redemption rights in case of

reorganization Tender offers regulation was developed

providing for fair price Tradable pre-emptive rights Proxy voting Clear rules with respect to dividends Free transferability of shares

Minority rights in state owned companies

Efficient protection in case of major and related party transactions

Significant role for the institutional investors

Board’s Duties – Achievements and Challenges

Elaborated legal rules regarding boards’ duties of care and loyalty

One third of the members are required to be independent directors

Criteria for independence are set forth in the Securities Law

Access to information

Real MoB independence Committees for some of

the essential functions Remuneration linked to the

performance (shares)

Accounting Reform – Achievements and Challenges

New Accountancy Law (2003, IAS)

New Independent Financial Audit Law (ISA, EU VIII-Directive)

Organized training by the Ministry of Finance and the (ICPAB)

Financial reporting and auditing procedures are in a period of transition

More extensive training for practicing accountants, auditors, tax authorities and market regulators.

New educational curricula in a different philosophy

Regulation

Disclosure – Achievements and Challenges

Far-reaching upgrade in the legal framework (end of 2003)

The content of prospectuses and periodic disclosure reports are harmonized with the best international standards

Disclosure requirements for significant events

Broad definition of price-sensitive information plus a non-exclusive list of events, typically considered as material

Efficient communication by CP institutions

Efficient communication by companies

Greater role of the media

Stakeholders’ Rights – Achievements and Challenges

Labour Law Social Insurance Law Representation in the GM Guarantee Fund Insolvency legal framework has

been revised and improved several times

Amendments to the Civil Procedure Code

Amendments to the Registered Pledges Law

Effective communications with relevant stakeholders

Stakeholder policies should be established

Effective redress mechanisms for employees (arbitration or specialised courts)

Trading on the BSE – Sofia (shares)

1999 2000 2001 2002 2003

Official Market

Nbr of Listed Issues 33 30 30 31 35

Turnover (mil. BGN) 12.3 8.6 4.4 14.4 60.9

Market Capitalization (mil. BGN) 219.1 283.5 195.0 252.9 986.7

Unofficial Market

Nbr of Listed Issues 828 478 369 325 303

Turnover (mil. BGN) 38.1 23.6 37.8 69.6 120.0

Market Capitalization (mil. BGN) 1154.0 1003.0 909.0 1122.3 1742.0

Total

Nbr of Listed Issues 861 508 399 356 338

Turnover \ Capitalization (%) 3.7 2.5 3.8 6.1 6.6

Capitalization \ GDP (%) 6.9 5.7 3.7 4.3 7.9

Block Trading (mil. BGN) 82.6 91.1 114.9 244.7 151.2

SOFIX Index 2000-2003

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Trading on the BSE – Sofia (bonds)

   1999 2000  2001 2002 2003

Corporate Bonds – Official Market

Nbr. of Listed Issues 1 3 3 3 7

Nominal Value (mil. BGN) 0.3 4.1 4.1 13.7 44.7

Turnover (mil. BGN) 0.0 3.3 0.8 2.5 41.5

Corporate Bonds – Unofficial Market

Nbr. of Listed Issues 0 0 4 6 10

Nominal Value (mil. BGN) 0.0 0.0 10.6 28.1 61.1

Turnover (mil. BGN) 0.0 0.0 0.3 17.1 26.0

Municipal Bonds

Nbr. of Listed Issues 0 0 0 1 2

Nominal Value (mil. BGN) 0.0 0.0 0.0 3.0 4.0

Turnover (mil. BGN) 0.0 0.0 0.0 0.0 0.0

The Broad Picture - Achievements and Challenges

The majority of the recommendations have been implemented in the legal and institutional framework

All aspects of the CG reform have been touched

Signs that the capital market has responded in a positive way to the CG reform

CG reform effort is not yet completed

Certain aspects are in an advanced phase, while others are at an early stage

Some significant changes have been adopted very recently (2002, 2003)

The effectiveness of enforcing the new legal rules remains a major challenge

Educational efforts are needed