2. Assessment and recommendations

The Romanian stock market, like many other European markets, has seen a pronounced decline in the number of listed companies in recent years. In spite of relatively favourable macroeconomic conditions and strong economic growth, the Romanian equity market has remained small and is characterised by a lack of dynamism. At the end of 2019, the stock market capitalisation in Romania represented only 0.5% of total European Union (EU) market capitalisation, less than a third of the country’s share in total EU GDP (1.6%). Since 2008, 16 companies have listed on the Main Market of the Bucharest Stock Exchange, compared to 45 delistings. The trend for the alternative SME-focused AeRO Market is similar, albeit less pronounced (Figure ‎2.1, Panel A; see also Chapter 4).

Although more capital was raised through initial public offerings (IPOs) in Romania in 2010-19 than during the previous decade, the figures remain low compared to regional peers. Since 2000, 18 Romanian companies have conducted IPOs, raising a total of EUR 1.3 billion (Figure ‎2.1, Panel B). This compares to, for example, 748 companies raising EUR 23 billion in Poland, or 14 companies raising EUR 1.6 billion in the Czech Republic. Between 2000 and 2019, the amount of capital raised through IPOs in Romania represented 0.24% of the total IPO amounts raised on EU public equity markets. The combination of a decreasing number of listed companies and the sluggish growth in total IPO proceeds has resulted in a situation where the Romanian stock market has increasingly been dominated by a small number of larger companies. The trend is similar when looking at equity market activity by already-listed companies in the form of secondary public offerings (SPOs) or follow-on offerings. No SPO took place between 1996 and 2008 and since 2008, 28 SPOs have been conducted for a total of EUR 1.9 billion, the lowest amount among European peer countries. With the exception of 2011 and 2016, which were largely driven by offerings by the state controlled energy company OMV Petrom, activity has been scant (Figure ‎2.1, Panel B). Participants and stakeholders in the Romanian equity markets have indicated that the process for share capital increases can be time-consuming and cumbersome.

While there is room for improving business dynamism in Romania generally, it would be incorrect to attribute the lacklustre activity on public equity markets solely to this broader issue. The equity market’s performance is partly a reflection of the state of the corporate sector in Romania more generally, but even when considering only the current universe of firms in Romania, the stock market appears to be performing significantly below its potential. As of 2018 there were 279 large unlisted companies in Romania, defined as firms with assets above EUR 89 million (USD 100 million) in 2019 real terms. Many of these firms are eligible for listing on the Bucharest Stock Exchange and exhibit solid financial performance that could significantly improve the profile of the equity market, although it bears mentioning that an important share is made up by subsidiaries of large multinational companies. The minimum criteria for listing on the Main Market of the Bucharest Stock Exchange (BVB) is to have equity or an anticipated market capitalisation of at least EUR 1 million, a free-float of at least 25% and a minimum of three years of financial reporting (see Chapter 4 for further details). Using shareholders’ equity as reported on the balance sheet as a proxy for anticipated market capitalisation, 91% of the large unlisted companies in Romania fulfil the equity size criteria. The average company age in the category is 17 years, indicating that many are mature firms. In 2018, the median asset size in the company category was EUR 166 million, with shareholders’ funds of EUR 59 million and sales of EUR 157 million. The median company was also profitable with a return on equity of 9.3%.

In terms of industries, over a third (37%) of companies in the large unlisted companies category are active in the manufacturing sector, followed by transportation, communications, electricity, gas and sanitary (25%), and wholesale trade (15%). This differs somewhat from the universe of currently listed companies, where manufacturing companies make up a much larger share. Transportation, communications, electricity, gas and sanitary make up only 10%, four-tenths of the share in large unlisted companies. The service and wholesale trade sectors are the third most common, each making up 9% of currently listed companies (Figure ‎2.2). If some of the large unlisted companies were to go public, the industry composition on the public markets could be diversified away from the current concentration in manufacturing.

Aside from fulfilling the minimum criteria, many large unlisted companies outperform the currently listed ones both in terms of size and profitability. Figure ‎2.3 shows a comparison of median values between the group of large unlisted companies and the Standard and Premium Tiers of the Main Market of the Bucharest Stock Exchange. The large unlisted company category has a larger median size and higher median profitability than the Standard Tier equivalent. However, companies listed on the Premium Tier have both higher median size and profitability than most large unlisted companies and those listed on the Standard Tier. The equity share in total assets is similar between large unlisted companies and the Premium Tier, whereas it is higher for the median Standard Tier company.

The fact that the equity market is under-developed in terms of size and growth rates poses a problem for Romanian institutional investors. As the assets under management of institutional investors grow, there needs to be a corresponding growth in the universe of investable securities for these investors. In order to enable this growth, a first step in improving conditions for stock market listings is to consider why these eligible companies have decided to stay private. Aside from the paramount issue of low market liquidity (addressed separately under the assessment Increasing secondary stock market liquidity), there are a number of relevant issues related to market infrastructure and governance that affect the performance of a stock market. For example, if the fees charged by the stock exchange for equity listings are excessive or their structure overly complex, they can constitute a barrier to go public. Table ‎2.1 compares the stock exchange fees associated with an IPO between the Bucharest Stock Exchange and regional peers. It does so both for a company with a market capitalisation of EUR 9 million – the median of companies listed on Standard Tier of the BVB as of November 2020 – and for one with a market capitalisation of EUR 59 million, the median large unlisted company’s shareholders’ funds. In terms of price competitiveness, the BVB performs rather well. Although it is the only exchange that charges a processing fee, the total listing fee for a company with an anticipated market capitalisation of EUR 9 million is EUR 3 360, the second-lowest after the Prague Stock Exchange. This ranking holds true for a larger company with a market capitalisation of EUR 59 million as well, and for larger companies the fees are significantly lower than the Budapest and Warsaw stock exchanges.

It is important to note that the largest costs associated with an IPO process are not exchange fees, but advisory costs and permanently higher post-listing costs in the form of investor relations staff, increased compliance requirements and so on. For example, in the United States, Japan and the People’s Republic of China, the largest direct costs, representing 60% of total IPO costs, are arrangement and underwriting fees (OECD, 2017[1]). Certain fees are fixed or have a high base level, meaning they can constitute a significant challenge for smaller companies wanting to tap public equity markets. To address this issue, certain countries (e.g. Italy and Hungary) provide government support financing to companies for which IPO costs are an impediment to using public equity markets.

Another important factor in the quality and performance of a stock market is the corporate governance standards. Numerous studies have found that higher corporate governance quality is associated with higher liquidity and better firm performance (Bhagat and Bolton, 2008[2]; Chung, Elder and Kim, 2010[3]), (IMF, 2016[4]). The G20/OECD Principles of Corporate Governance (henceforth the Principles) state that “[e]ffective corporate governance requires a sound legal, regulatory and institutional framework that market participants can rely on when they establish their private contractual relations” (OECD, 2015[5]). In order to increase efficiency and prevent overregulation, corporate governance regulation should also be flexible enough to be able to meet the needs of companies operating under significantly different circumstances, without compromising the focus on maintaining economic performance and market integrity (OECD, 2018[6]). Further, the Principles recognise that stock markets can and should work to enhance corporate governance practices. The Bucharest Stock Exchange adopted its current code of corporate governance in 2015 and it is encouraging that the exchange has recently launched an educational programme to promote better corporate governance together with a partner organisation (BVB, 2021[7]).

Despite efforts to improve corporate governance standards, Romania still scores low on a range of governance and regulatory indicators. Compared to a group of peer countries, Romania scores the lowest on protection of minority shareholders’ interests (93 out of 137 globally) (Figure ‎2.4, Panel B) and regulatory quality with respect to private sector development (Figure ‎2.4, Panel D), and the second lowest on corporate governance (66 out of 141 globally) (Figure ‎2.4, Panel A) and auditing and reporting standards (65 out of 141 globally) (Figure ‎2.4, Panel C). A corporate governance assessment conducted by the EBRD in 2016 found mixed results for Romania, noting that while performance was relatively solid in terms of shareholder rights and transparency and disclosure, there was room for improvement with regard to issues within the following three categories: structure and functioning of boards, internal control and stakeholders and institutions. In particular, there are inadequacies around board effectiveness and the functioning and independence of the audit committee. For example, while six out of the ten largest companies listed in Romania reported having an audit committee in place, only in one was it made up by a majority of independent members (EBRD, 2016[8]). This is contrary to many other countries. The OECD Corporate Governance Factbook shows that almost all (45 out of 50) jurisdictions covered require an audit committee by law or regulation, with the remaining recommending it in the corporate governance code (OECD, 2021[9]). This is in line with the Principles, which state that it is good practice to have an independent audit committee. Further, the EBRD notes that only two out of the six companies that do have an audit committee disclose the number of meetings per year, and that disclosure on the activity of the committee is very limited. In terms of board effectiveness, the Company Law does not recognise the board’s authority to approve a company’s budget. That authority is instead vested in the general shareholders’ meeting, which is an unusual practice and one which undermines the role of the board (EBRD, 2016[8]). In the case of listed SOEs, the board of directors decides on the budget for the next year which is then approved by the public supervisory authority in accordance with the legislation on corporate governance of public enterprises (GEO, 2011[10]).

State-owned enterprises (SOEs) in particular should be well-governed and set an example in terms of governance standards for the private sector. Without prejudice to the quality of Romania’s legal framework for corporate governance of SOEs, the European Commission (EC) notes that implementation and enforcement have been limited and that governance must be improved. The EC has noted this in several Romania country reports, deeming in the most recent one that no progress had been made towards this end. Simultaneously, SOEs’ operational and financial results have been deteriorating (EC, 2020[11]). This is particularly noteworthy given that SOEs play an important role on the Romanian equity market. Indeed, four of the five largest IPOs in the past two decades in Romania were SOE listings (see Chapter 4).

Even so, there is still a large potential to expand public equity markets by publicly listing minority stakes of financially significant SOEs. This could play an important role in improving the profile of the Romanian stock market, and would have the double benefit of significantly increasing the size of the market while also offering an opportunity to set high standards with regard to corporate governance and possibly improve financial performance. Of the 279 large unlisted companies described above, 42 have been identified as SOEs (defined as a company where the state owns at least 20%). Splitting the group of large unlisted companies into SOEs and non-SOEs, and replicating the analysis provided in Figure ‎2.3 shows that while the median SOE is slightly larger than the median non-SOE in terms of asset size, SOEs underperform rather significantly both in terms of sales and profitability (Figure ‎2.5). To the extent that SOEs provide services that the private sector will not, or is not suited to, due to an inherently low profitability in the specific industry, this is natural and not necessarily cause for concern. However, in the Romanian case the gap between SOEs and non-SOEs is very pronounced, and SOE performance has been deteriorating in recent years, as noted by the European Commission.

Still, in absolute terms the median SOE is both mature and profitable, with an age of 19 years and a return on equity of 6.4%. 38 out of the 42 identified companies fulfil the minimum equity value criteria to list on the Main Market of the BVB. A flagship listing which is bound to generate investor interest and significantly expand the equity market is the state-owned power producer Hidroelectrica. The process of floating a minority share of Hidroelectrica was well underway in 2020, but was put on hold after a parliamentary bill was passed in June 2020 prohibiting the listing of state-owned companies for a period of two years (Romanian Parliament, 2020[12]). A parliamentary initiative to abrogate the bill is pending, and the current ambition is to publicly list a minority share of the power producer when possible, ideally by 2022. Another good candidate for public listing is the Compania Naţională Aeroporturi Bucureşti (CNAB), which manages Romania’s largest airport, the Henri Coandă International Airport. Just like Hidroelectrica, CNAB would have significant positive impact on the profile and size of the stock market, and has long been a candidate for listing. In addition to benefitting the equity market, the company itself could also benefit significantly from having access to equity capital, especially in the wake of the COVID-19 crisis which has hit the travel industry particularly hard. This would also free up fiscal space for the central government, which has implemented substantial support programmes for airports around the country during the pandemic (see Chapter 3, Section 3.8).

There are also a number of SOEs that are already-listed, but that have low free-float ratios. A complementary measure to issuing minority shares in financially significant unlisted SOEs would therefore be to increase the free-float of currently listed SOEs by reducing the government’s holdings. Currently, 18 companies listed on the BVB are identified as SOEs. Of these, nine are listed on the Main Market (three on the Standard Tier and six on the Premium Tier) and nine on the AeRO Market (all on the Standard Tier). As shown in Table ‎2.2, the average free-float of currently listed SOEs on the Main Market is rather low at 30%. Increasing the free-float ratios of these companies would contribute to increasing stock market activity. Further, endeavours to move SOEs listed on the alternative AeRO Market to the Main Market instead would help grow the core segment. It would also carry the additional benefit of showing that movement from the alternative to the Main Market is a natural path as a company matures.

Another way of increasing the size of the investable universe in Romania would be to promote the establishment of a number of publicly listed investment companies that are actively focused on investing in unlisted companies. This would have the benefit of establishing a link between unlisted companies and the public equity market, allowing stock market participants to indirectly invest in a universe of companies that is currently unavailable to them. In particular, this would offer a good investment venue for investors who want to increase local investment but who are currently limited to investing abroad due to limited opportunities domestically. In addition, since investment companies by definition hold a portfolio of many different companies, they offer an easy and accessible way for retail investors to diversify their exposure and thus reduce their investment risk.

In order to promote the listing of unlisted companies, other markets have launched programmes/campaigns to provide companies with information, support, guidance and connections to potential investors. For example, the ELITE programme by the London Stock Exchange offers mentoring, advice and access to finance to help ambitious companies to improve access to more sophisticated skill-sets, networks and a diversified capital pool. Another example is the Hungarian mentoring programme run by the Budapest Stock Exchange that targets SMEs and is split into two stages. The first stage focuses on further improving and professionalising mentee company operations, by e.g. improving financial literacy, assisting in accessing international markets and providing training for raising third party financing independently. The second one focuses on helping companies prepare for listing on the stock exchange. A similar SME Pre-Listing pilot programme was implemented in 2018 in Slovenia as a collaboration between the EBRD and the Ljubljana Stock Exchange, focusing on preparing SMEs for IPOs or issuing bonds.

Finally, in terms of market infrastructure more generally, the establishment of a central clearing counterparty (CCP) is a welcome development. CCPs reduce counterparty risk and the cost of trade processing as well as contagion risks during financial instability. They can thus increase the trust in and efficiency of capital markets. The establishment of a CCP will also play an important role in developing a functioning derivatives market in Romania.

On 28 October 2021, Romania’s National Recovery and Resilience Plan following the COVID-19 crisis was approved by the EU Council. The plan includes a section specifically focusing on aid schemes for the private sector, which is targeted at companies that want to list publicly and diversify their financing sources (MFE, 2021[13]).

The Romanian equity market is characterised by a loss of firms and a general lack of activity. Strong equity markets enable innovative firms to access capital and play an important role in improving the productive capacity of the economy at large. They are also a means to give households an opportunity to share in corporate wealth creation. A well-functioning capital market landscape that can mobilise funds and allocate them productively will be particularly important in the recovery period following the COVID-19 crisis. A number of possible policy initiatives to improve the state of Romanian equity markets are outlined below.

The capital raising procedure should be reviewed from a regulatory perspective, both with regard to initial listings but also for secondary public offerings/follow-on offerings. The regulator may assess its internal processes, with a focus on simplifying procedures and shortening the time needed to raise equity capital. To the extent that advisory fees associated with listing represent a barrier to the further development of the equity markets, aside from measures such as alternative markets, the government may consider offering direct or indirect financial support to concerned companies. EU funds provided in the context of the Resilience and Recovery Plan could be used to this end. Frameworks for alternative listing arrangements, such as direct listings and special purpose acquisition companies, could also be considered. Developing a regulatory framework for investment vehicles such as REITs could support the developments of important sectors in the economy by providing access to market-based financing.

Corporate governance standards should be improved. Specifically, disclosure of the number of audit committee meetings and the activity during the meetings should be promoted. Further, listed SOEs should ensure equitable treatment of shareholders.

In order to expand the size of the currently limited investable universe, which is hampering the development of equity markets, the government may consider the listing of financially significant SOEs, along with increasing the low free-float ratios of currently listed SOEs. The power producer Hidroelectrica and the airport company CNAB are two important candidates for public listing. Given their size and the existing institutional investor interest, a minority listing of these companies could be an important catalyst for the Romanian stock market. It is crucial that the process is handled with great transparency in line with international best practices and that the rationale is clearly communicated. Further, in order to promote transparency as well as to set an example for the rest of the market, these companies should adhere to the highest corporate governance standards, with reference to both the G20/OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises. Efforts should also be made to move SOEs currently listed on the alternative AeRO Market to the Main Market.

In order to improve the general corporate knowledge of and interest in the capital market, several stakeholders could come together in a national public-private campaign to encourage companies to use market-based financing. The ASF and the stock exchange, in co-operation with business and financial market associations, should engage in a dedicated and targeted awareness campaign to inform corporate executives and other relevant actors about the many opportunities of market-based financing. The initiative could also help promote investments in the Romanian capital market by foreign investors. It could be built from the existing platform “Made in Romania”, which is managed by the stock exchange. This platform could be used for information exchange and for guiding companies in their journey to start using market-based financing. As a way to measure progress, an annual target number of new listings could be set.

In parallel to encouraging companies to go public, the government may consider supporting the establishment of publicly listed investment companies or funds that focus on investing in unlisted firms that are not yet ready to go public. This would make a wider range of securities available to prospective investors through the stock market. Having a professional investment firm as an owner could also help unlisted companies prepare for adhering to the standards that are associated with a possible subsequent public listing. Support to this end could include the creation of a platform to match investors with private companies (the agreement between the BVB and equity crowdfunding platform SeedBlink could be an example to build from), and/or financial incentives through tax credits for newly-established such investment companies in the first years. Importantly, because of its effect on the trust in and efficiency of capital markets, the completion of the establishment of a Central Clearing Counterparty (CCP) should be a priority. The private entities that are shareholders in the CCP should continue the process of finalising the documentation and the necessary steps for authorising the entity, and continue the collaboration with the ASF, which acknowledges the importance of the project.

Well-developed capital markets are highly dependent on active secondary markets where securities are exchanged frequently enabling an efficient price formation process (World Bank, 2019[14]). Empirical evidence suggests that there is a positive link between secondary market liquidity and the size of the stock market (Bayraktar, 2014[15]; Garcia and Liu, 1999[16]). Panel A of Figure ‎2.6 shows the market capitalisation to GDP and turnover ratios1 for Romania, its peer countries and the European Union. In general, there is a positive correlation between the size of the stock market and the liquidity. Romania shows the lowest level for both measures among peer countries.

Capital market development is also contingent on a well-functioning financial sector, including a deep and diversified institutional investor base which can both channel savings towards capital markets and contribute to stability and liquidity in the market (World Bank, 2019[14]; BIS, 2019[17]). In particular, given the nature of their investment horizon, pension funds provide a long-term supply of funds to the capital markets. However, as pension funds mostly follow buy-and-hold investment strategies, they may provide less liquidity to the market compared to mutual funds (Moleko and Ikhide, 2017[18]). Romanian institutional investors’ assets have the lowest share of GDP compared to peer countries (Figure ‎2.6, Panel B). Importantly, investment funds and insurance corporations’ assets amounted to just 1.1% and 2.1% of Romanian GDP. Another important observation concerning Romanian institutional investors is that they own just 15% Romanian company stocks, much lower than in other countries (see Figure 4.10 for more details).

A more detailed analysis of the Romanian stock market shows that both the Main and AeRO Markets are characterised by low levels of liquidity. Since 2015, the annual average turnover ratio was 7% in the main segment of the market, and less than half (3%) that level in the AeRO Market (Figure ‎2.7, Panel A). The overall turnover ratio of the stock market in 2020 was 8%, which is considerably lower than the levels in the European Union and peer countries. In the main segment of the stock market, the Premium Tier accounted for 77% of the total volume traded during the one-year period between May 2020 and April 2021, while in the AeRO Market, the Standard Tier accounted for 80% of the total trading volume (Figure ‎2.7, Panel B).

Liquidity on the BVB is mainly dominated by trades in a few individual stocks. By number of trades, the top ten traded stocks during the one-year period between May 2020 and April 2021 account for 62% of the total number of trades on the Main Market, and 70% on the AeRO Market. An important observation concerning the number of trades during that period is that 64% of the stocks traded on the Main Market had traded more than 1 000 times, while on the AeRO Market most of the stocks traded less than 100 times (Figure ‎2.8, Panel A). Based on 249 trading sessions in a year, 17 companies on the Main Market and 196 companies on the AeRO Market have traded less than one time in each session on average.

Low liquidity on the BVB, especially in the AeRO Market, is also driven by many inactive stocks. As of 29 April 2021, almost 58% of the stocks in the AeRO Market had not been traded in the past week (16% of the stocks in the Main Market) and 36 stocks (two stocks in the Main Market) had not been traded at all in the past year (Figure ‎2.8, Panel B). To a certain extent, this could be explained by the difference in free-float levels. The level of free-float together with the size of the company, are seen as preconditions for a stock to be liquid. Higher free-float levels, other than increasing the number of stocks available for trading, are generally associated with better shareholder protection, as dispersed ownership improves minority shareholders’ rights (World Bank and IFC, 2013[19]). In the Main Market of the BVB, the average free-float level of the stocks that did not trade in the past one week is almost half the free-float level of the stocks traded during the past one week, at 23% and 43%, respectively. Generally, higher free-float levels will lead to more frequent trading. In the main segment, the average free-float level of the Premium Tier is almost twice that of the Standard Tier and the number of trades in Premium Tier is seven times that of the Standard Tier.

Follow-on offerings are not only a key sources of new capital for companies but they also allow companies to increase the free-float levels whenever new shares are issued. Currently, Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market allows a simplified prospectus for secondary public offerings, and increases the threshold for issuing equity without a prospectus (EU, 2017[20]). While the prospectus remains a key document for investors as it provides with qualitative and comprehensive information, for secondary public offerings it could be burdensome since companies are already disclosing information to the market regularly. According to the EU regulation, issuances of securities of a total up to EUR 1 million – EUR 8 million are exempted from publishing a prospectus. Countries are given the option to adapt their national thresholds (ESMA, 2020[21]). This exemption has the potential to encourage both smaller company listings and secondary public offerings. However, Romania has not modified the threshold yet. In addition, Article 14 of the same legislation allows for a simplified disclosure regime for secondary issuances. The regulation states that a distinct simplified prospectus should be available for use in cases of secondary issuances and its content should be alleviated compared to the normal regime, taking into account the information already disclosed.

One possible reason for the inactivity in some stocks in the Romanian market is the passive retail accounts holding the shares given to citizens during the Mass Privatization Program in 1995-96. Most of these shares correspond to listed companies and around 9 million of these accounts in the records of the Central Securities Depository (CSD) are inactive and therefore not trading on the exchange. As of end 2018, the total value of these accounts amounts to approximately EUR 2.2 billion, corresponding to 7% of the BVB market capitalisation as of end 2018 (Fluent in Finante, 2021[22]; World Bank and IMF, 2018[23]). The lack of activity by the owners of these shares not only affects the liquidity in the market, but also brokers, the BVB and the CSD, who are missing an opportunity to earn income from otherwise possible transactions. Additionally, certain companies, in particular financial investment funds, claim to face problems in taking important decisions during general shareholder meetings as a result of inactive shareholders. In recent years, the BVB and the CSD have put forward awareness programmes to reach out to inactive shareholders, but the situation has not improved significantly (Wall-Street, 2021[24]).

The gap between the number of trades, turnover ratios and trading frequencies between the Main Market and the AeRO Market can partially be explained by the large informational gaps. The availability of market research for companies provides them with visibility to investors and helps generate more information that supports efficient capital markets as well as informed trading. However, there is evidence that at the European level, including country specific analysis from France, market research covering smaller companies has declined in recent years (AMF, 2020[25]). This is mainly the result of the regulatory changes introduced by MiFID II in 2018, aiming at separating research costs from execution costs (unbundling). The directive requires that the research cost be separated from trading commissions paid to brokers, which has substantially reduced asset managers’ demand for research. This regulatory change has had a particular impact on smaller listed companies (CFA Institute, 2019[26]). In February 2021, within the Capital Markets Recovery Package approved as a response to the COVID-19, the European Commission approved an exemption to the MiFID II framework to drop the unbundling rules for equity research on companies with a market capitalisation of less than EUR 1 billion during the preceding 36 months (EU, 2021[27]). This exemption aims at supporting liquidity and increasing the visibility of small and mid-cap companies during a time where financing may be needed. In Romania, out of 332 companies listed in the BVB at the end of 2020, almost 90% were concerned by the unbundling rules. A regional initiative by the EBRD has already been introduced to provide publicly available research on SMEs free of charge in six countries including Romania. However, only four companies in Romania will be covered by the programme (BVB, 2020[28]). In response to the research unbundling rules, many countries including Croatia, Hungary and Spain created mechanisms for providing research on smaller companies to the market at no cost. For example, in Hungary, the BSE subsidises the research activity of brokerage companies as part of market development (BSE, 2021[29]).2 In 2021, the BVB also launched a programme – BVB Research Hub – aimed at increasing research coverage for small to mid-cap companies. The programme currently covers 15 companies from the Main Market, with plans to increase coverage in the future (BVB Research Hub, 2021[30]).

In order to encourage intermediaries and raise awareness of liquidity in the market, the BVB organises an annual award ceremony to recognise the successes of capital market participants. In the ceremony, liquidity-related performances are acknowledged in the categories “the issuers with the largest increase in liquidity”, “the most active broker to increase liquidity”, and “the most traded share on BVB” (BVB, 2020[31]). Market-making is another mechanism that supports liquidity in stock exchanges. In 2020, the BVB introduced a pilot market-maker programme that further improves the already existing mechanism to enhance liquidity. With this programme, the BVB aims to increase the share of market making activity to at least 15% of the total trading activity, but there is no specific timeline proposed to achieve this target (BVB, 2019[32]). Currently, the Main Market of the BVB only has five active market-makers providing liquidity for 20 stocks, most of which belong to Romanian companies, and the MTS segment only has one  active market-maker supporting liquidity of 15 stocks, none of which is a Romanian company stock. Following the improvement of the market-making mechanism, a comparison between the turnover ratios of 2019 and 2020 shows that there has been an improvement in the liquidity of the Main Market of the Romanian stock exchange (see Figure ‎2.7), which could also be explained by the liquidity boost induced by the upgrade of Romania’s status from frontier to secondary emerging market in the FTSE Russell indices in September 2020.

Moreover, in an effort to make the market more accessible to investors, trading fees in Romania were decreased in 2014. The ASF decreased the fees on the buy side of the trades by 25%, and the BVB decreased its trading fees as well by approximately 15% (BVB, 2016[33]). Currently, the BVB charges 9.5 bps on the sell side and 3.5 bps on the buy side, and a fixed fee of RON 0.95 per executed order for regular trades on the equity market. Moreover, the Central Securities Depository (CSD) charges 0.85 bps for each side of the trade, which is applied on a net basis for clearing and settlement. Moreover, brokers also set up their own additional fees on a case-by-case basis. On top of that, the ASF charges another 6 bps fee for the buy side of each trade (BVB, 2018[34]). All taken into account, the total cost for buy and sell sides account for 11.3 bps, adding up to 22.6 bps for a full trade, and the fees charged by the ASF mentioned above (6 bps) made up 53% of total buy side fees. By the end of 2019, trading fees only accounted to a very small part (3%) of the ASF’s total income (ASF, 2020[35]). According to the OECD Corporate Governance Factbook 202, among 50 jurisdictions surveyed, more than two-thirds of regulators are funded fully or partially by fees from regulated entities, while 21% of regulators are fully financed by the government budget (OECD, 2021[9]). The OECD Best Practice Principles for Regulatory Policy 2014 recommend that the fees from regulated entities and the scope of activities subject to fees “should be in accordance with the policy objectives and fees guidance set by government” (OECD, 2014[36]). While the ASF receives the fee on trading to perform its activities regarding the supervision of trading systems, the supervisory authorities in many countries do not apply a fee on trading, including Romanian peer countries Hungary, Poland and the Czech Republic.

Moreover, fees charged in Romania for trading shares are higher than in Poland and Hungary. In particular, in the Warsaw Stock Exchange, a trading fee ranges between 1.0 bps and 2.9 bps of the traded value depending on the amount traded.3 In addition, a fixed amount of PLN 0.15 (EUR 0.034) is charged for every transaction and 0 35 bps of clearing fee on traded value is added, however total trading fee is capped at PLN 880 (EUR 191) regardless of the traded value (Warsaw Stock Exchange, 2019[37]; Interactive Brokers, 2021[38]). In the Budapest Stock Exchange a single trading fee of 1.5 bps with a minimum of HUF 70 (EUR 0.2) and a maximum of HUF 45 000 (EUR 125) is charged on the traded value (BSE, 2021[39]).

In Romania, capital gains earned by resident or non-resident individuals are subject to a 10% tax rate (Article 64 – (Romanian Parliament, 2015[40])). Regardless of a gain or loss for the entire year, the respective amount must be declared to the Romanian tax authorities (ANAF) by the 25 of May of the following year (Article 122/3 – (Romanian Parliament, 2015[40])). In a case where a Romanian broker is included in the transaction as an intermediary, the brokerage firm has the legal obligation to provide a report containing all gains or losses registered during the previous year from all sale transactions at the end of each tax year (Article 96/3 – (Romanian Parliament, 2015[40])). Although the reports taken from the intermediaries are beneficial to complete the declaration, market participants have indicated that the process is burdensome. This might discourage investors from investing in capital markets, and therefore result in lower liquidity. In most countries, for practical purposes, a fixed withholding tax is applied on intermediaries immediately upon the selling of securities. In Turkey, for instance, individuals using a domestic financial institution or bank as intermediaries, pay a 10% withholding tax on capital gains for certain5 portfolio investment income under a temporary act introduced in 2006 that is valid until 2025. This means the gains generated do not need to be declared in an income tax return (PwC, 2021[41]). In addition to the simplicity of the declaration and payment of the capital gains tax, market participants in Romania mentioned that fiscal incentives on capital gains tax could serve to encourage investors to trade more regularly in the secondary market.

The primary purpose of derivative markets is providing instruments for risk management for borrowers and investors. On top of that, derivative markets complement the development of capital markets, play a prominent role in price discovery and improve the liquidity of the underlying instruments. Moreover, a well-functioning derivative market can also facilitate the participation of foreign investors by allowing them to diversify their portfolios while managing some unwanted risks such as currency risk (Ilyna, 2004[42]). Up until 2018, the Sibiu Stock Exchange (SIBEX) was the market operator and administrator of the derivatives market in Romania. It was also the operator of a cash regulated market and an alternative trading system. Trading of derivative financial instruments within the regulated derivative market of the BVB was also possible between 2007 and 2013 (BVB, 2007[43]). However, in September 2013, BVB announced the termination of trading in derivatives following the maturing of existing derivatives (BVB, 2013[44]).

In January 2018, the BVB acquired SIBEX and following its acquisition, the BVB announced its intention to extend its operations by relaunching the derivatives market to contribute to increasing the liquidity of the local capital market, and in particular to reach its target of doubling the average daily trading value over a ten year period (BVB, 2019[45]). In order to do so, as a first step, in November 2019, the BVB, together with eight other shareholders, established a company that will have the role of a Central Counterparty and will provide clearing services for Romania’s capital and energy markets. The company has obtained authorisation to operate from the ASF and it is expected to become operational by the end of 2022 (BVB, 2019[46]). The first phase of the roadmap for the derivative market includes the launch of single stock futures, index futures and energy futures. Additionally, centralised clearing services for forward contracts will be also introduced on Romanian gas and electricity operator – OPCOM.

In the CEE region, the Budapest, Warsaw and Prague stock exchanges have derivative markets, with the Warsaw Stock Exchange dominating trading in the region. With the exception of the Warsaw exchange, these derivative markets suffer from low levels of liquidity and lack of international recognition (Vozianov, 2015[47]). In line with the situation in the CEE region, there are significant concerns about the functioning and depth of the derivate markets in emerging market economies. According to a survey by the Bank for International Settlement (BIS), there is a positive correlation between the degree of market participants’ concerns about derivatives market depth and liquidity in the spot market (BIS, 2019[17]). Moreover, evidence suggests that a lower level of financial development, less integration into the global economy, underdeveloped markets for underlying instruments including less issuance by non-residents in domestic markets, and weak/inadequate legal and market infrastructure, are issues that limit the development of local derivative markets (Upper and Valli, 2016[48]; Ilyna, 2004[42]).

Long-term investors can also use derivatives to manage their portfolio risk exposures. However, in many countries, pension regulations constrain investment in derivatives (IOPS, 2011[49]). In Romania, investment in derivatives is allowed only to the extent that it contributes to the reduction of investment risks exclusively by lowering the currency risk or interest rate risk (Romanian Parliament, 2020[50]; ASF, 2020[51]). At the end of 2020, derivatives were almost non-existent in the total value of the assets of the pension funds of Pillar II, and completely inexistent in the financial assets of Pillar III funds (ASF, 2021[52]). However, the share of foreign currency denominated assets in total assets of the Romanian privately managed funds is around 11.5%, most of which is denominated in euros (ASF, 2021[52]). While currency risks are managed in line with the pension funds’ risk management strategy, the limited usage of currency derivatives to hedge currency exposures could be a consequence of the lack of a well-functioning derivative market in Romania.

Currency derivatives become increasingly important when investors and corporations in the market are highly exposed to foreign currency risks. Romanian pension funds are still in a developing phase and it is expected that in the future a higher share of their assets under management will be allocated to foreign investments for portfolio diversification purposes, for which a well-functioning derivative markets would be needed. This has been the case with Chilean pension funds which increased progressively their foreign assets allocation, creating a natural demand for derivatives to manage foreign currency exposure, and played an important role in the rapid expansion of the Chilean derivative markets (BIS, 2013[53]). In addition, the increased use of derivatives by corporations also supported the development of the Chilean derivative market (IFC, 2012[54]). Similarly, in Romania, it is expected that there will be a greater demand for currency derivatives from non-financial companies as they are highly dependent on foreign currency financing (see Chapter 3, Section 3.5 for more details). In addition to supporting the risk management of domestic investors, developed currency derivative markets also create investment opportunities for foreign investors who do not want exposure to local currency risk. This will increase the attractiveness of investing in local currency instruments.

Other than the existence of well-functioning market-making mechanisms and derivative markets, measures that can further support the liquidity in the stock markets include improved trading and settlement infrastructure, securities lending and borrowing, and the wide availability of trade and price data (World Bank, 2019[55]). Currently, the BVB publishes pre trade and post-trade data publicly in line with the MiFID II transparency requirements on its website. Additionally, since 2014, there has been a broad transformation in legislative frameworks for capital markets, and short selling, trading on margin, and lending and borrowing techniques were made available to market participants in 2016 (BVB, 2019[32]). Still Romania has to take steps further to support development of the securities lending and borrowing. The necessity of established mechanisms for collateral management in securities lending and borrowing are stressed as further steps to be taken by the World Bank-IMF Financial Sector Assessment Program in 2018 (World Bank and IMF, 2018[23]). Collateral management is one important aspect not only for securities lending and borrowing operations but also for derivative transactions used to minimise credit exposures and, when developed enough, secures efficiently the resilience of the operations. Currently, in Europe, there exists an initiative that defines common rules for managing collateral called as the Single Collateral Management Rulebook for Europe (SCoRE). The initiative introduced in December 2017 will improve the efficiency of collateral management and harmonise applications in Europe. In May, July and August 2019 the Advisory Group on Market Infrastructures for Securities and Collateral (AMI-SeCo) endorsed the first set of AMI-SeCo Standards relating to three of the ten activities namely Triparty Collateral Management, Corporate Actions and Billing Processes (ECB, 2020[56]). Adaptation Plans have been provided by the majority of AMI-SeCo markets each of which have expressed strong support and commitment to the implementation of the standards. While Romania expressed commitment to provide adaptation plans, as of March 2021, no plans were provided to adapt the standards (ECB, 2021[57]).

In order to increase the liquidity of the BVB market and to attract new categories of retail investors, it is advisable to implement an open-end investment fund trading system through the BVB system. This can be done in a similar way to that offered by Euronext Fund Services which is a trading system at NAV.

Well-functioning primary capital markets are dependent on a certain level of activity in the secondary markets that facilitates efficient price discovery and increases the resilience of the market. The Romanian secondary public equity market is characterised by low levels of liquidity, driven by a large number of inactive stocks, in particular in the AeRO Market. Liquidity in the market is dominated by shares of a few large companies.

In order to support secondary market liquidity of small companies, the Romanian authorities may consider establishing a mechanism that provides independent quantitative research on smaller companies to market participants at no cost or by subsidising brokerage companies for providing research to the market. Alternatively, the authorities may consider supporting the recent programme launched by the stock exchange aimed at increasing research coverage of small to mid-cap companies. The BVB could also consider expanding the coverage of the programme to include companies from the AeRO Market. Another strategically important issue, that Romanian policy makers have begun to address, is the dissolution of the inactive shareholders linked to the privatisation programme of the 1990s in the stock market. Such an initiative would stimulate liquidity in the market. Authorities may also consider creating a country-wide campaign to reach out to investors for the liquidation of the shares. Within the campaign, a one-time capital gains tax exemption could be offered to encourage investors to go through the process of claiming their shares and selling them. Alternatively, investors could be offered to transfer their shares to an active account from where they can sell in the future. The government may also appoint a brokerage company to support investors through the process at a pre-set fee negotiated by the authorities.

The cost of trading in the stock market has already decreased significantly thanks to efforts by the stock exchange and the ASF. However, the ASF should consider whether there would be a market-wide benefit from reducing the trading fee it charges to the buy side to further ease the cost of trading and ultimately increase secondary market liquidity. Additionally, a burdensome payment and declaration process of the capital gains tax could be discouraging investors from participating in the capital markets to a certain extent. Therefore, a simplification of the capital gains tax declaration and payment methods may boost investors’ participation in the stock market. In addition, greater clarity with respect to the categories of tax-deductible and non-deductible expenses for financial firms would be beneficial to industry participants. Authorities may also consider introducing a withholding tax system for capital gains to facilitate the tax collection system. In addition, to make the stock market more attractive, providing a fiscal credit or a temporary tax exemption on capital gains in the secondary market could be considered.

The free-float level of the companies in the stock market is an essential component to ensure liquidity. The current low levels of free-float on the Romanian stock market and the limited number of companies with higher free-float levels pose a challenge to the overall liquidity of the market. In this respect, and in addition to efforts to bring large companies to the public equity markets, authorities may consider measures to increase the free-float levels of already-listed companies. One step could be assessing the regulatory and market conditions for follow-on offerings, and providing companies with support to partially or fully cover the cost of such offerings. To this end, EU funds provided in the context of the Romanian Recovery and Resilience Plan could be used. On top of this, in order to increase the number of financial instruments traded on the BVB, the exchange should consider introducing the possibility of trading open-ended investment funds (UCITS) through its systems, similar to the services provided by Euronext Fund Services.

Additionally, a well-functioning derivatives market enhances investors’ ability to hedge their risks, complements the development of capital markets and provides opportunities to increase the liquidity of the underlying instruments. In particular, having a well-functioning currency derivatives market would allow institutional investors to hedge their current and future investments and, importantly, would also increase the attractiveness of the Romanian market for foreign investors. The Romanian authorities and relevant private stakeholders should increase their efforts to develop a well-managed derivatives market in Romania, including developing oversight systems for the possible vulnerabilities that a derivatives market could create. Another important measure that would also support the development of securities lending and borrowing operations is if the Central Depository would increase its efforts in preparing adaptation plans for the AMI-SeCo Standards, to improve the efficiency of collateral management in Romania.

SMEs contribute substantially to economic growth and job creation in Romania. They account for more than nine out of ten enterprises, employ two-thirds of the workforce and generate 54% of total value added. Currently, SMEs’ productivity in Romania is still well below peer countries (see Chapter 3, Figure 3.9) and they face substantial challenges, particularly with regard to access to finance. A strong SME sector would not only boost long-term sustainable growth, but would also support the recovery from the COVID-19 crisis.

SMEs in Romania show low levels of capitalisation and a significant share of these companies are credit-constrained. The equity ratio6 in Romanian SMEs stands at 39%, which is significantly lower than the equity ratio of SMEs in Hungary (50%) and in the Czech Republic (46%). Within the universe of SMEs, Romania has almost twice the share of companies with negative equity7 compared to Hungary. Moreover, as shown in Panel B of Figure ‎2.9, according to a survey conducted by the IFC, around 16% of SMEs in Romania are credit constrained. They have either been rejected fully when applying for external financing, or were discouraged from applying due to unfavourable terms and conditions, including unfavourable interest rates and high collateral requirements among others. Another 19% were partially granted the credit they applied for and 65% of SMEs either had no difficulties accessing credit or did not need it. The share of firms not facing any constraint to access credit is significantly lower than in peer countries such as Poland (85%) and the Czech Republic (90%). Credit constraints certainly represent an obstacle to continue growing and investing. During the period from 2015 to 2019, around 64% of SMEs in Romania conducted investment activity, compared to 80% in the Czech Republic and 72% in Hungary.8

When it comes to their financing structure, SMEs are generally more dependent on internal financing and bank loans compared to larger firms. The higher risk profile of SMEs and the larger information asymmetries involved make them less suitable for external financing. This financing structure makes SMEs financially vulnerable, particularly in times of crisis when the availability of credit, especially bank loans, tends to contract rapidly leaving them with fewer financing options. In the investment survey conducted by the EIB, SMEs were asked what proportion of their investment was financed by different sources. Figure ‎2.10 shows an average of the responses for the 2015-19 period. In Romania, 77% of SME financing came from internal financing, significantly higher than the EU average of 63% (Panel A). With respect to external financing sources, bank lending is the most common source accounting for 42% of SME financing in Romania and other bank financing for another 21%. Leasing accounts for another 23% of external financing, the same as the EU level. Importantly, 7% of Romanian SMEs’ external funds are grants, which is significantly lower than Hungary (19%) and Poland (18%). Market-based financing sources, such as equity and bonds are negligible for SMEs in Romania and other peer countries. The only exception is Hungary, where equity financing represents 2% of external financing.

SMEs in Romania are much more dissatisfied with the conditions of external financing than in peer countries. Around 6% of firms are not satisfied with the amount they received, twice the EU average. Moreover, when it comes to borrowing costs and collateral used to access financing, 11% and 18% of firms are not satisfied respectively (Panel A of Figure ‎2.11). Additionally, the rejection rate of bank loans in Romania is high, with 12.5% of firms reporting a rejected loan application or loan offers whose conditions were deemed unacceptable. This number is significantly higher than in peer countries such as the Czech Republic (4.3%) and Poland (8.9%). One reason for the high rejection rate could be the relatively low level of loan guarantees for SMEs. Romania has a low outstanding loan guarantee relative to GDP and low number of SMEs benefiting from guarantees. By the end of 2019, Romania had outstanding guarantees to SME loans of only EUR 0.4 billion, which amounts to merely 0.2% of GDP, compared to Hungary (2.0%) and Poland (0.6%).9

SMEs financing has been long recognised as a barrier to growth and innovation. Following international experiences, Romania has already put in place some initiatives to provide SMEs with access to more sources of financing, including public equity as well as other forms of market-based financing such as corporate bonds. In 2015, the Bucharest Stock Exchange launched an alternative trading platform, the AeRO Market, that serves the financing needs of SMEs. The AeRO Market is composed of both an equity segment and a corporate bond segment. Compared to the Main Market, the AeRO Market has less demanding standards for issuers. For example, for the AeRO equity segment, companies are not required to submit quarterly reports and companies are only required to have a minimum free-float of 10%, compared to 25% for the main market. For the AeRO bond segment, there are no prospectus requirements and there is no minimum issue amount.

From the launch of the AeRO Market until the end of May 2021, 11 companies have issued shares through private placements on the MTF, raising a total of EUR 17.6 million. Another three companies chose to list their shares without raising any funds. During the first five years, the amount raised was negligible. In 2015 and 2016, only three companies issued shares, raising a total of EUR 0.5 million. In the following three years, there was only one listing (in 2019) and no capital was raised. Most of the issuances happened in 2020 and during the first half of 2021, when ten companies raised a total of EUR 17.1 million (Panel A of Figure ‎2.12). The industry composition of these firms shows that half of the listings correspond to technology firms, although they only account for 11% of total proceeds. At the same time, four consumer non-cyclicals companies raised a total of EUR 12 million, representing almost 70% of the total amount raised.

Up until now, no company has chosen to issue shares through initial public offerings on the AeRO Market, as the Capital Markets Law requires the preparation of a prospectus that has to be approved by the ASF. All companies listed on the AeRO Market either chose to directly10 list the shares without raising any funds or conduct private placements. Private placements can limit the pool of investors the listed company can reach compared to a listing conducted through an initial public offering. According to the EU legislation, public offerings of securities below EUR 8 million can be exempted from the obligation to publish a prospectus (EU, 2017[20]). Several countries in Europe such as Croatia, the Netherlands and France have taken advantage of this legislation and exempted companies from the obligation to publish a prospectus if the public offer is below EUR 5 million or EUR 8 million. In Romania, only issuances below EUR 1 million can be exempt from the prospectus requirement, which is a significantly lower threshold compared to other countries (ESMA, 2020[21]).

By the end of May 2021, the AeRO equity market had a total market capitalisation of EUR 334 million. In terms of size distribution, there were six companies listed with a market capitalisation between EUR 25-50 million, and one company with over EUR 50 million. Since the establishment of the AeRO Market, no company has graduated from it to the Main Market. As the AeRO Market targets SMEs that need financing for growth, it would also be natural for these SMEs to transfer to the main market after they have grown to reach a certain size.

The AeRO Market for corporate bonds has seen a much higher activity than the equity market. Since the launch of the market in 2015, there have been 36 bond issuances by 29 companies, raising a total of EUR 58 million (Panel A of Figure ‎2.13). Four companies have returned to the market several times to continue to raise funds. It is also important to point out that there have been six bond issuances conducted by companies listed on the AeRO equity market. Regarding the industry composition, technology and financial companies together account for over half of the total issuances both in terms of the number of issues and amount issued. Although only two issuances correspond to utility companies, they represent a quarter of the total amounts issued (Panel B of Figure ‎2.13).

In addition to the AeRO Market, the BVB has also signed a memorandum with Romania’s largest crowdfunding platform, SeedBlink, to support the financing of Romanian entrepreneurs. The memorandum stipulates that promising tech start-ups from SeedBlink’s portfolio will be offered help from the stock exchange to access the public equity market. The partnership is seeing as an incubator for new listings and a viable alternative to channel resources to innovative ventures. This is a welcome development that certainly will help modernise and develop the Romanian capital market, providing companies with access to multiple financing sources, helping them get listed on the stock exchange, and increasing the base of capital market investors (BVB, 2021[58]). Moreover, the Regulation on European Crowdfunding Service Providers for business will enter in force on 10 November 2021, building a unified framework for all European countries and enforcing cross-border passporting for crowdfunding. As a result, more crowdfunding activities are expected to take place both domestically and across borders.

Private equity (PE) is also an important tool for financing SMEs. It can not only provide financing for the company, but also bring expertise to improve management practices and operational efficiency. Private equity investments are playing an increasingly important role for companies in Romania. During the period 2007-19, private equity funds have invested a total of EUR 2.9 billion in Romanian companies, which accounts for 10.7% of the total investment in the CEE region, almost the same level as Romania’s share of GDP in the region (11.7%). In the last decade, PE investment in Romania has grown, reaching almost EUR 500 million in 2017 and fluctuating around this amount since then. However, Romania’s share of fundraising is only 1.1% in the CEE region, much less than its share in GDP. Divestment accounts for 7.0% of the total divestment in the CEE region.

Fundraising in Romania has been highly concentrated in the public sector and sovereign wealth funds, making up more than 60% of total funds raised (see Figure 6.5). Almost no funds have been raised from insurance corporations, funds of funds or pension funds, while in Europe, these three categories represent 45% of total funds raised. Moreover, difficulties to attract and incentivise private investors to the funds is the main cause of the lack of interest in private equity (MFE, 2015[59]). Meanwhile, the Joint European Resources for Micro to Medium Enterprises (JEREMIE) scheme, a joint initiative established by the European Commission in co-operation with the European Investment Bank and other financial institutions to deploy EU Structural Funds, has continued to be the crucial source of private equity. The Venture Capital (VC) fund Catalyst Romania II, which targets expansion stage information and communication technology and technology enabled services companies, was launched at the end of 2020. The fund has raised EUR 40 million, of which EUR 15 million has been committed by the European Investment Fund through JEREMIE Romania Reflows and EUR 25 million from other private investors.

The EU in response to the COVID-19 crisis has also implemented several initiatives to support SME financing. The funds provided by the EU in the context of the Romanian Recovery and Resilience Plan shall be used to increase private equity financing through a dedicated financial instrument to be implemented by the European Investment Fund by 2026. Another EU programme, centrally managed by the European Commission is the InvestEU Programme (Regulation EU 2021/523) that has, among other things, the role of facilitating investments in IPOs for SMEs that are seeking to raise growth capital. Under the InvestEU Fund, the SME IPO Fund will seek to support SMEs through channelling more private and public equity (EU, 2021[60]). Within the main features, the SME IPO Fund can take different structures (Intermediated Equity Investment, Fund-of-Funds, Special Purpose Vehicle), and can invest in SMEs at different IPO stages and across all EU member countries (EU, 2021[60]).

To promote fundraising for PE funds, a number of countries have established schemes to incentivise investors to invest in such funds. The United Kingdom’s Venture Capital Trust (VCT) scheme offers an upfront tax relief in the form of a grant of 30% of the investment sum as well as relief on gains for investors. The VCT scheme is a public traded private equity and has been actively used by investors since its introduction in 1995 through the legislation of the UK Finance Act 1995. During the last three years, an average of around GBP 700 million has been raised every year through this scheme (HMRC, 2021[61]), providing risk capital to smaller companies with growth potential.

Although PE investments in Romania have grown in recent years, the amount of venture capital investments in 2015-19 was merely EUR 31 million, accounting for 2.0% of total PE investments, which is relatively low compared to the CEE region level of 7.2% (Figure ‎2.15). Further, within venture capital investment, the seed stage investment only constitutes 1.5% of the total VC investment, which is much lower than in peer countries such as the Czech Republic (14%) and Poland (27%).

This lack of investment in venture capital, along with other deficiencies such as the lack of adequate links between business sectors and research institutes and insufficient public R&D funding, can be tied to the low R&D intensity in Romania. In 2019, Romania ranked last in the EU with total R&D expenditure accounting for no more than 0.5% of GDP (EC, 2020[11]). To boost innovation and economic growth, the Romanian Smart Specialisation Strategy (S3) for 2016-20 has identified four national S3 priorities including: 1) Bioeconomy; 2) Information and communication technology; 3) Space and security; 4) Energy, environment and climate change, eco-nano-technologies and advanced materials. Developing a research and innovation strategy for these industries will require support from market-based financing. Moreover, it requires more links between business sectors and research institutes.

The lack of specialised investment vehicles that invest in SMEs could also be a barrier to SME financing while preventing retail investors from accessing this segment. In this respect, the European Long-Term Investment Funds (ELTIFs) can be a suitable tool to bridge the gap between SMEs and retail investors. ELTIFs are closed-end funds that are required to invest at least 70% of their capital in eligible investment assets including SMEs with a market capitalisation below EUR 500 million listed on regulated markets or MTFs. ELTIFs are subject to strict disclosure requirements, which require ELTIFs to provide retail investors with a key information document in addition to a prospectus. Moreover, as retail investors can only invest up to 10% of their total portfolio in ELTIFs, and the framework for ELTIFs allows retail investors to redeem their investment earlier than the end of life of the ELTIF under certain conditions, it could be used as a vehicle for retail investors to invest in SMEs.

SMEs in Romania face significant barriers to access financing. Low capitalisation levels, significant credit constraints and limited sources of external financing have prevented them from grasping growth opportunities. Well-functioning public equity markets targeting SMEs, as well as private equity markets, can play an important role in supporting their growth.

A high degree of reliance on internal financing and bank loans could indicate that SME entrepreneurs lack knowledge about other sources of financing. One useful initiative could be establishing a co-operation between the stock exchange and the Chamber of Commerce and Industry of Romania (CCIR) to promote the use of market-based financing among SMEs. As the CCIR represents over 15 000 companies in the country, it could play a key role in reaching SMEs that have the potential to grow but lack the necessary financing. Within the scope of the national public-private campaign, experts from the stock exchange could offer seminars and training sessions on market-based financing to selected SMEs, especially those operating in the areas identified in the Romanian Smart Specialisation Strategy. Such programmes may help to increase awareness among SMEs about the benefits of market-based financing and relevant procedures.

Despite the establishment of the AeRO equity market in 2015, equity offerings have been limited and almost all offerings have been carried out as private placements. Regulation (EU 2017/1129) has granted EU member states the flexibility to waive the prospectus requirement if the issuance is below EUR 8 million. In Romania, the current threshold is only EUR 1 million, which is significantly lower than other member countries. In order to encourage SMEs to undertake public offerings to reach a larger pool of investors, the government may consider increasing this threshold. This could facilitate the use of public offerings and enable firms to reach a wider pool of investors. In addition, in order to support smaller companies in the process of being admitted to trading on the AeRO Market, the Romanian authorities may consider subsidising brokerage companies to help them prepare a relevant and accurate assessment of their financial prospects. In doing so, market trust and confidence can be increased for new AeRO Market issuers. Funds provided by the EU in the context of the Romanian Recovery and Resilience Plan could be used to this end.

Moreover, as the AeRO equity market grows, a number of companies have shown significant growth and could start planning, with the help of the stock exchange, for a future transfer to the Main Market. It is important to design a mechanism for the companies listed on the AeRO Market to eventually transfer to the main market and not stay listed on the alternative market indefinitely. Aside from helping position the AeRO Market as a marketplace for smaller companies, the prospect of graduating to the Main Market could also be seen as an incentive for some SMEs to list on this market.

Private equity, in particular venture capital and growth capital, can be an important source of alternative financing for SMEs. This is particularly important for growth companies that lack collateral or a stable stream of cash flows. The Romanian private equity industry lags behind those in peer countries, particularly in terms of fundraising. The government and a relevant industry association could join forces to increase the visibility of the Romanian private equity and venture capital market to traditional government agencies, funds-of-funds and other asset managers. To promote the development of the Romanian private equity market, the government may encourage fundraising by establishing a personal income tax benefit, such as the VCT scheme in the United Kingdom. Such a scheme would allow investors to deduct taxes when investing in private equity funds and encourage more participation from retail investors. In addition, the Romanian authorities could evaluate the possibility to support SMEs to take advantage of the financing available via the SME IPO Fund that will provide financing during the pre-IPO, IPO and post-IPO stages. For example, the authorities and/or business associations could group a number of SMEs in search of financing, provide support via information sessions and help these companies meet with fund managers. It is also worth considering that within the portfolio of unlisted SOEs, there are many companies that would benefit from having a private equity fund as an investor.

The Romanian Smart Specialisation Strategy (S3) has identified four clusters of specialisation with innovation potential that could contribute to the country’s transition towards a knowledge-based economy. These selected clusters should be given priority when it comes to support with market-based financing, co-operation programmes and growth strategies, as well as other financial support in the form of grants and research funding. Moreover, a collaboration programme could be established to create more links between the business sector and research institutions.

The framework for ELTIFs in Europe can be used as an investment vehicle to bridge the gap between retail investors and SMEs. The ELTIF regulation not only requires that ELTIF funds provide retail investors with a key information document in addition to the prospectus, it also grants retail investors more flexibility when selling assets to incentivise their participation. With the recent review of the ELTIFs framework, there is an opportunity to engage retail investors in investing in SMEs and further support SME financing in Romania.

Household savings play an important role in a country’s economic development process. Besides being an instrument to smooth households’ consumption over time, their savings can be an important source of capital that can be channelled to finance the real sector and can contribute to higher levels of investment, job creation and growth. In general, the level of household savings can be influenced by macroeconomic factors such as the fiscal environment or financial markets regulation, but also by income levels, individuals’ risk aversion and financial education, among others (Anghel and Străchinaru, 2020[62]).

Romanian households’ financial assets more than doubled from EUR 71 billion in 2010 to EUR 154 billion in 2019 (Figure ‎2.16, Panel B). It is worth noting that although the amount of currency and deposits holdings doubled during that period (EUR 57 billion in 2019), equity holdings remained almost unchanged with a modest 14% increase. Despite the growth in the absolute amount of financial assets, there is still a significant gap compared with peer countries and EU averages. In Romania, households’ financial assets amount to 70% of Romanian GDP. This number is the lowest among European peers, with the share ranging from 98% of GDP in Poland to 189% in Germany and 211% in the European Union as a whole (Figure ‎2.16, Panel A). Regarding the composition of these financial assets, currency and deposits account for 26% of GDP in Romania whereas in the European Union they account for 67% of GDP and in Germany and Austria for more than 70%.

In line with low levels of financial assets, Romanian households’ participation in the stock market is limited with equity representing 16% of GDP, investment fund shares only 2% and debt securities only 1%. In comparison, equity holdings account for more than 40% of GDP in Austria, the Czech Republic and Hungary, investment fund shares for more than 15% in Germany and Austria and, although the allocation to debt securities is relatively small on average in Europe in a global context, in some countries such as Hungary it represents a higher share (18% of GDP).

Some developing countries have developed innovative policies to allow more people to save. In Chile for example, a saving account separated from the mandatory savings (Pillar II) and the voluntary savings (Pillar III) was created. Every person with an account with a pension fund management company can open this saving account and is entitled to deposit any amount of money, on a regular basis or not, and can withdraw it at any point in time with a limit of 24 annual withdrawals. The person can choose one or a mix of the funds offered by the pension fund management company. The fees charged for the management of the savings vary between 0.16% and 0.95% of the balance in the account. The benefit of such an account is that the person choses between options of diversified portfolios managed at a greater scale in the same way the pension funds are invested. The number of accounts with a positive balance represented 13% of the number of accounts in the mandatory accounts in 2021 (Superintendencia de Pensiones, 2021[63]).

Aiming to increase the individual investor base, several countries have implemented individual savings accounts offering a favourable tax status. In recent years, Nordic European countries such as Sweden, Norway, Denmark and Finland introduced share savings accounts for listed shares and units in mutual funds that are either tax-free or taxed at a reduced rate on dividends and on capital gains. Similarly, in France, the Plan d’Epargne en Actions (PEA) is a saving instrument allowing households to invest in listed companies and collective investments with a deposit limit of EUR 150 000 and a tax exemption if there is no withdrawal during a minimum of five years. Moreover, in 2015, Russia introduced an individual investment account for private investors managed by brokers or management companies. The account holder can choose between a 13% tax deduction on its contributions to the account or a tax-free withdrawal on the account closure, with a minimum of three years. The singularity of this type of account is that the broker or management company can invest the clients’ contributions in stocks, government bonds and foreign securities traded on the Russian stock market (Devlet-Geldy and Armidonova, 2016[64]). By the end of 2019, 1.6 million of this type of account were active, with a total market value of RUB 67.7 trillion (Bank of Russia, 2020[65]).

The modest levels of household savings relative to GDP and in absolute terms can partly be explained by the limited levels of both financial literacy and financial inclusion of Romanian households. Notably, Romania’s GDP per capita accounted for less than EUR 10 000 in 2020, compared to EUR 22 400 in the European Union and more than EUR 34 000 in Germany and Austria. Although financial inclusion – measured as the percentage of the population with access to a bank account – increased from 45% in 2011 to 58% in 2017, Romania still lags behind its peers. The same ratio is 75% in Hungary, 81% in the Czech Republic and almost 100% in Germany and Austria (Figure ‎2.17, Panel A). When taking a closer look at financial inclusion according to the participation in the country’s labour force, individuals that are active in the labour force are more likely to have a bank account. However, the gaps between those two groups are smaller in countries such as Germany and Austria, compared to, for instance, the Czech Republic where 97% of adults in the labour force have a bank account, against 59% for those who are out of the labour force. Remarkably, in Romania only 65% of the labour force participants have a bank account.

In 2017, Romania transposed the EU Directive 92/2014 by passing the Law on Comparability of Payment Account Fees, Change of Payments Accounts and Access to Basic Payment Accounts (EU, 2014[66]; Romanian Parliament, 2017[67]). This legislation introduced zero fee accounts for financially vulnerable consumers, defined as those whose monthly income does not exceed the equivalent of 60% of the country’s population average gross earnings. In Romania, vulnerable consumers accounted for half of consumers in 2018 (World Bank and IMF, 2018[23]). In December 2020, the Romanian Association of Banks and the Romanian Institute for Evaluation conducted a study on a sample of 1 500 adults. The survey showed that 67% of Romanians use banking products and services, such as current accounts, cards, loans, deposits and make payments, compared to a 58% level of financial inclusion in 2017 (ARB and IRES, 2021[68]).

According to the Standard & Poor’s Ratings Services Global Financial Literacy Survey, Romania presents the lowest rate of financial literacy in the European Union, with 22% of the population being financially literate (Klapper, Lusardi and Oudheusden, 2016[69]). Financially literate individuals have the skills to make informed choices regarding saving, investing and borrowing. This survey measures four fundamental concepts for financial decision-making, namely basic numeracy, interest compounding, inflation and risk diversification. Indeed, low levels of financial literacy can have a detrimental impact on consumers that can end up borrowing more and saving less, but also being less likely to appropriately plan their financial security after retirement (Stango and Zinman, 2009[70]; Lusardi and Mitchell, 2014[71]).

Financial literacy can vary according to the level of education, age group or income levels. Figure ‎2.18 shows financial literacy levels in Romania and its European peers, first by income levels and second by age group. Overall, except for Hungary, adults living in the richest 60% of households show higher levels of financial literacy compared to the 40% in the poorest households. For example, in Germany, 73% of the richest households are financially literate, compared with 55% for the poorest households. As previously mentioned, Romania ranks last in terms of financial literacy with 25% of the richest households being financially literate, and only 17% of the poorest ones. Regarding differences across different age groups, the Czech Republic and Austria show very similar financial literacy rates among all groups. In Germany, adults between 35 and 54 ranked first, with a rate of 82%. In Romania, financial literacy is the lowest for adults aged 55 and above, with a rate of financial literacy of 19%.

In 2019, the OECD conducted a survey of financial literacy levels in South East Europe gathering information on each of the elements of financial literacy, namely knowledge, behaviour and attitude. Romania’s financial literacy score is 11.2 points out of a maximum of 21, with 3.5 out of 7 points in financial knowledge, five out of nine in financial behaviour and 2.7 out of 5 in financial attitude. Romania’s scores for financial behaviour and financial attitude are comparable to the rest of the region, but its score for financial knowledge is the lowest (OECD, 2020[72]). Specifically, concerning households’ financial attitude, when asked about the methods used for saving and investing in the last 12 months, overall, more than 50% of the respondents reported holding at least some of their savings in cash – in Romania cash is used by 53% of the respondents (Figure ‎2.19). Moreover, the only notable investment class throughout the region is real estate, with 7% of investments in Romania and more than 22% in Moldova. Other investment classes such as bonds, shares and crypto assets account for 4%, 3% and 2% respectively in Romania.

In July 2015, the Bucharest Stock Exchange launched the “Fluent in Finance” programme. In its initial phase the programme targeted companies interested in providing financial education to their employees, but the project was later extended to private individuals, students and to companies listed on BVB. By 2019, the programme had provided more than 250 seminars reaching more than 16 000 attendees. However only 32 of them were designed for private individual investors (BVB, 2019[73]). Moreover, in March 2018, 21 public and private institutions published the “Practical Manual for the Users of Financial Services”, containing for the first time a compendium of information accessible to the general public, in order to promote familiarisation with the concepts of banking, capital markets, insurance, pensions and leasing (ARB, 2018[74]).

In July 2018, the Ministry for Education and Research, the National Bank of Romania, the Ministry for Public Finance, the Financial Supervisory Authority and the Romanian Association of Banks concluded a collaboration agreement for joint activities in the field of financial education and elaboration of the National Strategy for Financial Education. The initiative is supported by the OECD through a Technical Assistance project implemented through the Constituency Program of the Ministry of Finance in the Netherlands (SNEF, 2021[75]). The financial education platform was launched in March 2021, representing a milestone in the development of the Strategy. This interactive platform encompasses a list of actors engaged in activities or projects aimed at developing the general public’s financial knowledge.

Well-functioning capital markets provide households with more saving opportunities and allow for diversification and better planning for retirement. However, one of the main obstacles to the expansion of the Romanian capital markets is the limited levels of household savings and their low allocation to capital market securities. Financial inclusion in Romania has improved considerably recently, but still lags behind peer countries.

In order to increase the portion of the population that has access to a bank account, co-operative banks could become a key partner in implementing a low-cost saving digital tool. Under the supervision of the National Bank of Romania, the central body of credit co-operatives – the Banca Centrala Co-operatista Creditco-op – can gain scale by implementing cost-saving digital tools, for example via mobile phone access to services, that could enable them to reach financially excluded households.

Although several programmes to improve financial literacy have already been established, further efforts are needed to reach levels of financial literacy that can help develop a retail investor base in Romania. For this purpose, the Romanian authorities may consider using the momentum from the National Strategy for Financial Education, developed with the support of the OECD, to reinforce co-operation among all relevant stakeholders. Within this framework, seminars and trainings designed specifically to private investors should be implemented, with the aim of raising awareness about the benefits of actively participating in the country’s capital markets. The Bucharest Stock Exchange should join this crucial initiative that will enable households to improve their understanding of and confidence in the Romanian capital market. In particular, the fact that the BVB recently established a co-operation programme with a crowdfunding platform, places it in a good position to attract more retail investors to its platforms.

Lastly, following the successful examples of several European countries that have introduced individual savings accounts offering a favourable tax treatment for individual investors, the authorities may consider designing a tax-exempt simplified individual savings account tailored to Romanian households. Either investment firms, pension fund management companies or asset management companies could offer this savings account that invests following similar investment rules as Pillar II funds at a low cost. This would not only increase household participation in the capital market but could also help pension fund management companies reach greater economies of scale.

Institutional investors play an important role in developing capital markets in many emerging and developing countries. Owing to the longer-term nature of their liabilities, traditional institutional investors are considered as long-term investors able to channel a significant amount of financing to the real sector for investment and growth. In Romania, asset under management by institutional investors accounted for EUR 28.5 billion by the end of 2020. Within institutional investors, the largest category is pension funds, including mandatory and voluntary funds, with EUR 16 billion in assets under management. Investment funds follow with EUR 8.7 billion in AUM, and insurance corporations ranked last with only EUR 3.8 billion (ASF, 2021[76]).

The pension system in Romania consists of three pillars. Pillar I is a pay-as-you-go system managed by the State. Pillar II is a mandatory funded and defined contribution pension scheme where each participant has its own individual account and is designed as a complement to Pillar I. Pillar III is a voluntary saving and defined contribution scheme. The multi-pillar system is new in Romania, since the voluntary savings scheme (Pillar III) was put in place in 2007 and the mandatory scheme (Pillar II) in 2008. Both Pillars II and III are privately managed by pension funds management companies. Women in Romania can currently retire at the age of 61 years and 9 months, but threshold will be gradually increased to 63 in 2030, and men at 65. They are entitled to receive a pension (Pillar I) if they have a minimum contribution of 15 years. However, since 2009, a minimum guaranteed social pension fully covered by the government also exists. Since 2018, around 800 000 people benefit from this minimum guaranteed pension which on average represents around EUR 32 a month.

At the start of the new pension system, 2% of the social contributions paid for those under 35 years old were channelled to the privately managed pension funds (Pillar II). For the employees between 35 and 45, this contribution was optional. The share of the social contributions going into Pillar II was supposed to increase gradually over an eight-year period by 0.5% until they reached 6% according to Law 411/2004 (Romanian Parliament, 2004[77]). However, Law 411/2004 has been modified and currently, the contribution is at 3.75% of the gross monthly income. Pillar III is a voluntary system managed and invested as Pillar II, but contributions are voluntary and are tax-deductible from the monthly average gross salary income. At inception, the maximum amount of the deduction was capped at the equivalent of EUR 200 in one fiscal year and today it stands at EUR 400. The voluntary pension funds’ assets are tax-exempt until the benefits are paid to the beneficiaries.

By the end of April 2021, there were seven pension management companies managing in total EUR 16.5 billion for the Pillar II and EUR 638 million for the Pillar III (Figure ‎2.20). The number of participants11 in Pillar II has grown from 3.2 million in 2008 to 3.9 million by the end of 2020. Despite the growth in assets under management, since March 2019, the share of members with no contributions in the last month represented over 45% of the total number of members of the system, above its historical average of 39%. Pillar III reached over 500 000 members by the end of April 2021 and only EUR 637 000 in assets under management, around 4% of the Pillar II AUM.

The tax treatment of retirement savings in Romania follows an Exempt-Exempt-Taxed (EET) model. Employee contributions are tax-deductible and investment returns are tax-exempt. Pension benefits paid out during retirement will be subject to a personal income tax rate of 10% above a certain level (EUR 460 in 2018). In OECD countries, the most common tax treatment of retirement savings exempts contributions and returns on investment from taxation while taxing pension benefits and withdrawals as income. It has been suggested that EET regimes encourage participation and contributions to retirement savings plans when personal income tax system is progressive (OECD, 2018[6]).

Pension funds in Romania follow an overall conservative investment strategy since the vast majority of their assets are invested in fixed income securities (Figure ‎2.21). At the end of April 2021, 65% of the assets were allocated to government securities, 2% to deposits and another 2% to supranational bonds. Companies’ shares make up the second largest investment asset class of the pension system in 2021. Pension funds have been increasingly allocating part of their investment to equity, starting in 2008 with just 6% of the assets invested in equity to reach 24% by the end of April 2021. On the contrary, the importance of corporate bonds in the portfolio allocation of pension funds has declined. The latest available information shows that they represent only 4% of the total pension funds’ assets in 2021. Investment in collective investment units is also modest.

Pension funds in Romania face investment limits that bound their investments. Pillar II and Pillar III funds are subject to the same limits and there are no different risk category funds defined by law or regulation. However, based on weighting assets according to their risk, pension funds are rated according to different risk profiles (Boon, 2016[79]). Funds are allowed to invest a maximum of 50% of their assets in equity and 30% in bonds issued by the private sector. Both limits for the entire Pillar II funds are far from binding. Not surprisingly, bills and bonds issued by the public administration is the only asset class with a limit that is closed to be reached. Notably, pension funds in Romania are allowed to invest a maximum of only 10% of their assets in private investment funds and only 3% in real estate.

The investment limits are currently not the main effective binding restriction for pension funds. The current regulation in place (ASF Norm No. 11/2011, chapter VII) requires pension funds to classify themselves under a set of pre-defined risk categories (low, medium and high risk) (ASF, 2011[80]). The regulation provides a formula (shown below) to assess the risk category by weighting the value of assets invested in a particular asset class by their corresponding risk weight. The riskier the asset according to the regulator, the lower the weight in the formula below.

Risk degree=100%-(Risk weighted assets)Total assets-Sum of assets in transit

Funds that have a risk degree less than or equal to 10% are considered low-risk pension funds; those with a risk degree greater than 10% and less than or equal to 25% are considered medium-risk; and those with risk degrees greater than 25% and less than or equal to 50% are considered high-risk funds. The current regulation establishes different risk weights to different assets classes. For example, deposits and government securities issued by Romania and EU investment grade countries are assigned a weighting of 100%; a weight of 75% is applied to reverse repo agreements; 25% to shares and rights traded on regulated markets in Romania or in EU/EEA member states. These weightings result in conservative asset allocations by pension funds. For example, a fund that invests only in listed equities and Romanian Governments bonds will be considered low risk only if it invests less than approximately 13% of its portfolio in shares (and thus 87% in government bonds) and medium risk only if it does not surpass one-third of the portfolio allocated to shares (i.e. two-thirds in government bonds). Notably, precious metals (e.g. gold) are assigned a weight of 25%. This means that a hypothetical portfolio holding 65% government bonds and 35% gold, a conservative allocation by any measure, would be classified in the highest possible risk category. There is also no distinction between different types of private equity. All private equity assets are assigned a weight of 0%, without distinguishing between investments in private equity funds that provide diversification (and professional management), and therefore lower risk, and the same amount of money invested directly in the unlisted shares of a single company. The actual risk profile of those two investments would differ significantly.

Despite the increasing amount invested in equity by pension funds in Romania, their participation in the stock market is still relatively modest compared to peer countries, which to an extent probably stems the risk weights that currently apply. For example, pension funds in Poland, Hungary and Austria hold a higher share of their assets in equity. In addition, Romanian pension funds do not invest in any other asset class that could help diversify their portfolios further. For example, pension funds in Germany and Austria hold a significant share of their assets in other assets, including private equity among others.

Pension management companies in Romania charge commissions and fees to beneficiaries in exchange for the management of their retirement savings. The current system charges two types of fees: the management commission, equivalent to 0.5% of each monthly contribution to the fund; and the management fee, a monthly deduction from the total net assets of the funds, varies from 0.02% to 0.07%. In addition, beneficiaries are subject to transfer penalties if they move to another fund before two years – between 3.5% and 5% of the assets in the account of the beneficiary. Panel B in Figure ‎2.22 shows an estimate of the effective annual charges different pension funds charge their clients. The effective annual charges have become less disperse across funds over time and in 2018 the seven active pension funds were charging almost the same amount.

In December 2018, the management commissions charged by pension fund management companies for the monthly contributions to the funds were significantly cut and were further modified in 2020. The reduction in fees has translated into lower revenues for pension management companies impacting negatively their results (EC, 2020[11]). However, these legal provisions were repealed in 2020.

Securities lending is an opportunity for long-term investors to gain an extra premium from their assets by providing liquidity to the market. In the process securities are lent to market participants for a variety of purposes. The borrower of the security pays a fee to the lender, typically monthly, and normally transfer a collateral to reduce the lender’s exposure to the borrower. The process could be delegated to an agent, a custodian in most cases, who carries the responsibility for recording details of the lent securities and ensures that risks are managed by pledging a collateral. According to ESMA, 90% of the equities lending in Europe is done via an agent, either large custodian banks or asset managers (ESMA, 2016[82]). Many funds as part of their efficient portfolio strategy lend securities and, by doing so, generate extra returns for their portfolios. Securities lending can also increase settlement efficiency in financial markets and plays an increasingly important role in addressing the demand for collateral in the system as regulators seek to improve market infrastructure and mitigate systemic risk.

The buy-and-hold nature of pension funds and other long-term investors place them as ideal candidates to lend the assets in their portfolio. This is particularly true for relatively small markets where the presence of large pension funds could result in less available securities for trade. The fact that pension funds do not rotate their portfolios frequently makes them liquidity takers instead of liquidity providers from a market perspective.

Investment funds in Romania are the third largest category of traditional institutional investors with almost EUR 9 billion of assets under management at the end of 2020 (Panel A of Figure ‎2.23). The industry experienced a rapid increase in assets under management in 2012, but ever since assets have barely increased at an average annual rate of 1.8%. More importantly, their relative size compared to peer countries is modest. For example, in Germany and Austria, investment funds assets account for over 50% of domestic GDP. In Hungary, Poland and the Czech Republic they account for between 12 and 19% of GDP, and in Romania, ranked lowest, only 4% of GDP (Panel B, Figure ‎2.23).

The asset allocation of investment funds in Romania does not differ much from that in other countries. Investment funds in Romania allocate 36% of their assets to debt securities, which is lower than what investment funds allocate to these securities in Poland, Germany and Austria, but still higher than in the Czech Republic and Hungary (Figure ‎2.24). Investment funds in Romania allocate 43% of their assets to equity, the highest share among peer countries. However, almost half of the equity investment by Romanian investment funds corresponds to the investments by Fondul Proprietatea,12 representing shares granted to people whose assets were expropriated by the communist regime (especially in cases when restitution in kind would not be possible).

The investment funds industry in Romania has developed around large banking groups. At the end of March 2021, the top 5 investment management companies were related to banks and they concentrated 93% of the total assets related to the investment fund industry. Another characteristic of the industry is the clear dominance of open-end funds (Figure ‎2.25, Panel A). Of the EUR 8.99 billion in assets under management, almost half correspond to 81 open-end funds that are mostly sold to retail investors. Closed-end funds are smaller in number (26) and in AUM. These types of funds are mostly targeted to qualified investors due to their illiquid nature representing only 4% of the industry assets. In Romania there are five financial investment companies that account for 24% of the assets and Fondul Proprietatea as a separate investment company that has a size equivalent to 25% of the total industry assets.

The largest category, open-end funds, is the one that invests the lowest share in equity (6%) and the highest share in debt securities (21%) and government instruments (52%) (Figure ‎2.25, Panel B). All other fund categories invest a much higher share in equity, both listed and unlisted. In the case of closed-end funds and financial investment companies, over 70% of their investments correspond to listed equity, and only 18% in the case of Fondul Proprietatea. Investments in corporate bonds are generally low. Open-end funds are the ones that allocate the highest share to corporate bonds with 18%, whereas closed-end funds and financial companies only invest 1.43% and 0.44% respectively.

European Union accession in 2007 led to the internationalisation of the insurance sector in Romania, which translated into increased competition and modifications in the supervisory and legal frameworks. In 2015, the Financial Supervisory Authority, in co-operation with the European Insurance and Occupational Pensions Authority, conducted an assessment of the Romanian insurance sector, in which they concluded that insurance companies were not adequately capitalised and that actions were needed to improve their solvency (ASF, 2015[83]). As a result, market exits and multiple remedial actions took place. The Romanian authorities established a resolution framework for the insurance sector inspired by the EU Bank Recovery and Resolution Directive (World Bank and IMF, 2018[23]). In 2016, the consolidation of the insurance corporations’ activities was stimulated by the introduction of the Solvency II European directive aiming at ensuring the integration and unitary functioning of the European insurance market. Following the introduction of the Solvency II regime, insurance companies received a capital injection of more than EUR 130 million by foreign shareholders strengthening their capital positions (Dina, 2018[84]).

In Romania, the property and motor third party liability insurance (MTPL) companies lead the insurance market. With the aim of stabilising the MTPL market, the Romanian Parliament enacted the MTPL Law (Legea 132/2017) introducing reference tariffs and more effective protection of the rights of MTPL policyholders (Romanian Parliament, 2017[85]; ASF, 2017[86]) In 2019, the ASF, together with the Ministry of Public Finance, proposed an amendment to the 2017 MTPL Law to fulfil European obligations under Directive 2009/138/EC and in Article 14 of Directive 2009/103/EC by, among others, eliminating the provisions limiting the administrative expenses and selling the insurance policy that may be included by the insurer in the premium calculation tariff (ASF, 2020[35]).

At the end of 2019, there were 28 insurance corporations in Romania, of which 15 were non-life insurance, seven life insurance and six composites (ASF, 2020[35]). The total assets of Romanian insurance corporations amounted to EUR 3.8 billion in 2020, accounting for less than 2% of Romania’s GDP, a modest increase from the 2017 amount of EUR 3.5 billion (Figure ‎2.26, Panel A). In terms of asset composition, insurance corporations allocate 55% of their assets to government bonds. Government bonds allocation is also high in Hungary, Poland and the Czech Republic, but in Austria and Germany, it represents less than 20%, and in the European Union it amounts to 26% of total asset allocation. Collective investment undertakings are the second largest category in Romania, representing 19% of the assets in 2020, still behind the European Union average at 36%.Furthermore, as Romanian insurance companies are part of international groups, the collective investment undertakings are generally observed in cross border funds rather than in the Romanian capital market. Moreover, insurance companies in Romania only allocate 6% of their assets to corporate bonds compared to, for example, 18% in the Czech Republic. Likewise, the equity allocation is modest with only 5%, compared to 13% of the assets in Poland (Figure ‎2.26, Panel B).

Romanian institutional investors could help drive the development of capital markets by providing the real sector with long-term capital to invest, innovate and grow. This has been the case in many other countries that have established funded pension systems. However, the system in Romania is still young and many challenges remain. In order to continue boosting the role of institutional investors in capital markets the authorities may consider the policy initiatives outlined below.

As the pension system in Romania matures, the regulator should consider developing a strategic approach to further develop the system. Both Pillars II and III of the pension system currently follow investment limits in different assets classes in order to ensure a balanced diversification of risks and have to apply a risk-weighted assets approach. These restrictions, combined with the very few available securities, will eventually make it harder for pension management companies to deliver an adequate return to their beneficiaries. Therefore, the regulator should consider revising the risk weighting methodology currently applicable to pension funds with a view to effectively increasing the investable universe of asset classes.

Moreover, the authorities should consider allowing pension funds to lend securities, with the aim of providing an extra return for beneficiaries and to support secondary market liquidity given the limited rotation of pension funds’ portfolios. Considering the social purpose of pension funds, securities lending will require the completion of the establishment of a Central Clearing Counterparty (CCP) and a well-functioning market that ensures harmonisation and integration of securities settlement, and collateral management as well as the proper execution of guarantees.

The voluntary saving system has not grown as expected and the balance in each account remains modest. Therefore, the government may consider increasing the fiscal deductibility of the annual contribution and indexing it to a relevant income measure in the country. Romania needs a fiscal system that encourages long-term savings, and fiscal incentives is one among many tools that the government can use to boost savings. In addition, the authorities may prioritise improving communications to the public aiming to increase knowledge and awareness of the need for a higher savings rate. The promotion of long-term investment products targeted to households could also be part of the national private-public campaign mentioned above. Occupational pension schemes should also be promoted within the scope of the national private-public campaign, since they represent another alternative to foster long-term savings.

The investment fund industry is still underdeveloped in Romania. Moreover, probably due to the lack of listed securities, investment funds allocate a small share of their assets to these instruments. Similarly, the insurance industry is still immature and further efforts are needed to continue expanding it beyond the property and motor third party liability insurance. The investments of insurance corporations are highly concentrated in government bonds. However, if the industry develops further, it can be expected that insurance companies will increasingly demand other long-term securities that can provide higher returns. Therefore, promoting the participation of more issuers in the capital market, either via listed equity or corporate bonds, could contribute to further developing the entire market. In addition, a simplification of the approval process for funds, for example by standardising some of the required documents, could further support the development of the industry.

Corporate access to credit is generally deficient in Romania and the problem is particularly pronounced for market-based financing. Firms are reliant on internal funds to finance their operations and investments. In terms of external financing, bank loans are the dominant form of credit. Even so, in 2018 bank loans to GDP was only 11.7%, about a third of the EU average. Lower still, market-based financing stood at 6.2% in the same year, representing one-eighth of the EU average (EC, 2020[11]). Compared to European peers – which are already heavily bank dependent in a global context – Romania is the country where bank loans make up the largest share in total debt financing, at 99% (Figure ‎2.27, Panel A). As Panel B of Figure ‎2.27 shows, the low access to debt financing does not translate into a higher share of equity financing for Romanian non-financial firms, but rather into trade credits and other account payables. Further, Romanian companies are dependent on foreign credit. At the end of 2019, loans from non-resident financial institutions were 20% higher than those from resident ones (see Chapter 3).

The general lack of credit access constitutes a barrier to corporate investment and economic growth, and the overreliance on bank loans compared to market-based financing is a potential impediment to corporate resilience and financial stability more generally. Owing to the pro cyclicality of bank financing, when recessions and financial crises coincide, the negative impact on GDP is three times larger in bank-dependent economies compared to economies more oriented towards market-based financing (Gambacorta, Yang and Tsatsaronis, 2014[87]).

The Romanian corporate bond market is still small. Total issuance between 2009 and 2019 amounted to only 0.01% of GDP, significantly lower than regional peers such as Hungary (0.3%) or Poland (0.5%). The Main Market of the BVB is dominated by financial companies, which make up over 90% of all total amount of issuance (see Chapter 5 for more details). The trend is the opposite for the more recently established, SME-focused AeRO Market. In addition, most corporate bonds are not listed on the local stock exchange, which also differs from peer countries where local listings are much more common. Foreign currency borrowing is common, with 94% of all Romanian non-financial corporate bonds issued either in EUR (54%) or USD (40%). This is significantly higher than regional peers, although mainly dominated by a number of large issuances on foreign stock exchanges. Domestic investors are not active in the Romanian corporate bond market, holding only 8% of the outstanding stock of non-financial corporate bonds. Finally, a benefit of bond markets is that bonds typically offer longer maturities compared to bank loans and are therefore better suited to finance longer-term investments. However, owing to the underdevelopment of the Romanian corporate bond market, in the two decades since 2000 there has not been a single Romanian corporate bond issuance with a maturity over ten years (see Chapter 5).

The lack of a well-functioning corporate bond market has not only led to significant restrictions in access to finance for substantial segments of the Romanian corporate sector, but has also resulted in a high exposure to Romanian Government securities among institutional investors. For example, at the end of April 2021 government bonds made up 65% of Pillar II pension funds’ portfolios whereas corporate bonds only represented 3.7% (ASF, 2021[88]). In addition, together with insurance companies Romanian pension funds have the lowest share of investment in domestic corporate bonds compared to peer countries. While pension funds and insurance corporations in Hungary, the Czech Republic, and Poland owned 3.5%, 4.2% and 6.6% of the outstanding stock of non-financial corporate bonds respectively at the end of the third quarter of 2020, the share in Romania is almost non-existent. However, Romanian investment funds own 4% of the outstanding stock of corporate bonds. Most of the holdings correspond to open-end funds which by the end March 2021 were allocating 20% of their assets to listed corporate bonds. Closed-end investment funds’ portfolio allocation was more conservative at 1.43% (ASF, 2021[76]).

Low levels of investment in corporate bonds by pension funds is partly a regulatory effect. Pension funds are allowed to invest a maximum of 30% of their assets under management in bonds issued by the private sector (OECD, 2020[78]). While the overall limit for pension funds to invest in corporate bonds in Romania is similar to its peer countries, in reality these investments remain modest, representing only around one-eighth of the maximum limit allowed by the end of April 2021. Pension funds in Romania are generally only allowed to invest in debt securities issued by companies in Romania, the EU or the European Economic Area (EEA) which have an investment grade credit rating from at least one of the main three rating agencies (or two investment grade ratings in the case that several agencies rate the bond). Non-investment grade bonds are allowed in their portfolios provided that the rating is no more than one notch below Romania’s sovereign rating and that it is no lower than one notch below investment grade from any of the main three rating agencies (ASF, 2011[80]). Pension funds are also allowed to hold unrated bonds (within certain limits) provided that the issuer’s shares are traded on a regulated market in Romania, the European Union or the European Economic Area. Unrated and non-investment grade bonds may not make up more than 3% of a fund’s portfolio.

Obtaining a credit rating for a bond issuance from the large international rating agencies can be unaffordable for many issuers in Romania, particularly for smaller issuers. This in turn restricts the investable universe for institutional investors and distances these companies from the possibility of market-based financing. Market participants have highlighted that the fixed cost associated with obtaining a credit rating is too high relative to the size of bonds envisioned by smaller issuers. This creates a barrier to access bond financing that ultimately reduces the available liquidity in the market. Under the existing regulatory framework, which only makes reference to the three major rating agencies, the scope for a domestic credit rating agency focused specifically on Romanian companies or a European rating agency is limited. Some markets, in the understanding that the domestic issuance is not targeted to foreign investors but rather to domestic investors, have established alternative credit rating systems. For example, in France the Banque de France provides a credit score on individual firms for a fee, through the FIBEN (Fichier bancaire des entreprises) system.

In addition to the limited number of securities available for investment, pension funds face further restrictions that reduce their investment options even further. As a measure to increase diversification, pension funds are not allowed to buy more than 5% (10%) of the total principal of a corporate bond issued by a single issuer (by a group of issuers), which, owing to the modest size of most Romanian bond issuances, limits the range of worthwhile investments.

An issue which may be contributing to the underdevelopment of the corporate bond market is the corporate bond issuance process. As an initial overview, Table ‎2.3 compares the fees charged by the Bucharest Stock Exchange with different regional peers. The fees are calculated both for a small bond issuance of EUR 3 million and for a large issuance of EUR 48 million, corresponding to the average size of corporate bonds on the Main Market of the BVB. Both have an assumed maturity of five years. While it is relatively expensive to issue small corporate bonds on the Main Market in Romania compared to Hungary and Poland, it should be noted that the alternative AeRO Market offers a more attractive fee structure for smaller companies. When looking at larger issuances, the BVB is competitive when it comes to fees charged by the exchange. The fees for a corporate bond with a principal of EUR 48 million and a maturity of five years are 112% of those charged by the Prague Stock Exchange, 52% of those charged by the Warsaw Stock Exchange and only 14% of those charged by the Budapest Stock Exchange.

However, as with equity, the main costs associated with listing a corporate bond are not necessarily the exchange fees. In a comparative study of debt markets in nine countries in South-Eastern and Central Europe, the EBRD provides a comparison of costs associated with issuing a bond which, in addition to issuance fees, also includes direct and indirect trading costs, costs for settlement and safekeeping as well as tax costs (EBRD, 2020[89]). Although the group of peer countries differs from Table ‎2.3, the results are similar. Romania ranks first of the nine countries in terms of cost effectiveness, with a value of 83 out of 100. However, when looking instead at issuance efficiency, a measure based on the time it takes to issue a bond, Romania ranks second to last with a score of 61 (Figure ‎2.28, Panel A). On average, it takes 70 days to issue a corporate bond in Romania, compared to five days in Bulgaria and 22 days in Montenegro. The most time-consuming part of the issuance process in Romania, with an average of 30 days, is the listing, i.e. agreement in principle and admission. Prospectus approval on average takes 25 days (Figure ‎2.28, Panel B). It should be noted that the ASF has a maximum ten-day deadline to approve prospectuses, but the EBRD report notes that this conflicts with market participants’ experiences of the actual time required for approval. According to the regulator, the delays in many cases occur when an issuer’s documentation does not meet the required standard and/or supplementary information is required. In addition, there is a requirement to hold an extraordinary general meeting in order to approve the prospectus to issue a corporate bond, which complicates the process and extends the issuance timeline.

Fiscal constraints on governments, in particular in developing countries, can make it difficult to provide public financing for large-scale infrastructure needs. As a result, the private sector often plays an important role in financing such projects. A commonly applied model for financing of these projects is public-private partnerships (PPP), in which risk is shared to varying degrees between the public and private sector. Due to their long-term nature, infrastructure projects are well-suited for bond financing. Importantly, infrastructure bonds issued through a PPP project could support the development of local currency bond markets as well as provide investment opportunities for institutional investors with long-term liabilities, such as pension funds and insurers. In general, as recommended in the OECD Principles for Public Governance of Public-Private Partnerships, policy makers should ensure that the public governance framework for PPPs is set and monitored at the highest political level, so that a whole of government approach ensures affordability, transparency and value for money (OECD, 2012[90]). In this respect, PPP projects need to be structured carefully to mitigate any possible drawbacks such as the typically higher private sector financing cost relative to governments’ own borrowing costs and issues with the quality of the services provided by the private sector. Therefore, contracts have to be designed to include sufficient tools securing both the quality and a reasonable cost (CEB, 2017[91]). In Romania, the quality and reliability of transport infrastructure is still inadequate, below peers countries and the EU average (EC, 2020[11]). Moreover, the country is also lacking investment in sustainable transport, energy and environmental infrastructure (i.e. in waste, wastewater and air pollution). Importantly, the European Commission has noted that insufficient levels of infrastructure investment in Romania constitutes a barrier for its economic convergence with EU levels. Currently, Romanian has a number of PPP projects in progress financed or projected to be financed through loans provided by international financing institutions or by commercial banks (CNP, 2021[92]).

The low levels of market-based financing in Romania are possibly also suggestive of a limited awareness among companies, especially SMEs, about alternative sources of financing and the possibility of external financing in general. In 2018, the BVB and the Romanian Ministry for the Business Environment signed a partnership for promoting financing opportunities through capital markets and organised a series of eight workshops where the BVB provided an overview of the opportunities that market-based financing can offer, both to companies that want to expand and to individual investors who want to use the stock exchange (BVB, 2018[93]). The BVB has also previously conducted workshops and engaged in activities targeting companies, although most of these were short-term programmes (BVB, 2017[94]), (BVB, 2014[95]). Several other countries also have initiatives in place to increase corporate financial literacy, such as the implementation of a national strategy with a committee overseeing the process, training sessions for entrepreneurs, business owners and managers, and the creation of a website where businesses are offered advisory services and networking opportunities.

Government bonds are used as a benchmark in the pricing of financial instruments, including corporate bonds. Empirical evidence suggests that jurisdictions with larger and more active government bond markets generally have more developed corporate bond markets (IOSCO, 2011[96]). However, government bond markets can only support the development of corporate bond markets if they can effectively provide a liquid benchmark yield curve, a transparent auction process, timely announcement of issuance schedules and user-friendly market statistics (BIS, 2006[97]). Romania has already taken many steps to develop a domestic government bond market by supporting advancement in the auction process, establishing a primary dealer mechanism and employing an efficient settlement system. In addition, in line with international best practices, Romania pursues medium-term debt management strategies by setting targets to manage the risks of the government debt stock. However, like in the Romanian corporate bond market, the liquidity in the secondary government bond market is low. Moreover, there is still room to increase the average maturities of the domestic government debt, which was only 4.2 years at the end of 2021 (RMF, 2021[98]). Further, as of December 2021 more than half of the outstanding Romanian Government debt stock was denominated in foreign currency, significantly more than peer countries.

Although government bonds represent a large share of Romanian pension funds’ portfolios, they only hold one-fifth of total local currency denominated government bonds. Instead, commercial banks are the main investors in local currency denominated Romanian Government bonds, holding around half of the outstanding stock of bonds according to statistics as of end of December 2021 (RMF, 2021[98]). As a comparison, government bond investments of the Czech and Polish banking sectors represent 32.4% (as of February 2021) and 46.3% (as of end 2020) of their respective domestic government bond stocks (MFCR, 2021[99]; PMF, 2021[100]). In terms of the banking sector balance sheet, general government debt securities amounted to 27% of the Romanian domestic banking sector’s total assets at the end of 2018. The corresponding shares were significantly lower in the European Union overall, the Czech Republic and Poland at 8%, 9% and 10%, respectively (ECB, 2021[101]).

The high holdings of government bonds by the Romanian banking sector contrast with its almost non-existent (0.02% as of end 2018) holdings of corporate bonds, which are significantly lower than peers countries and EU levels. The European Union’s domestic banking sector allocated a share equivalent to 0.7% of its cumulative total assets to non-financial corporate bonds at the end of 2018. The banking sectors in the Czech Republic and Poland each allocate around 1.2% (as of end 2018) of their assets to non-financial corporate bonds (ECB, 2021[101]).

To support the green transition, many regulators have come up with incentives to stimulate the market for corporate bonds. One notable example is Singapore. The Monetary Authority of Singapore has established a scheme that covers 100% of the costs (up to a cap of SGD 100 000) related to obtaining an external review or rating for bonds within an internationally recognised green, social or sustainability bond framework. The scheme is in place until mid-2023 and certain criteria related to size and maturity apply. Qualifying bonds must be issued and listed in Singapore (MAS, 2021[102]). Such a measure recognises the additional expenses that might be associated with issuing a green bond compared to a regular bond, and can therefore be helpful in the development of green corporate bond markets.

The Romanian corporate bond market is undersized, but could be further developed by addressing a number of inefficiencies. The general lack of access to market-based credit for many companies has left the Romanian economy over-reliant on bank financing – when available – and on foreign financing in particular. An expansion and deepening of the local bond market would be both an important step towards increasing the resilience of the corporate sector and a way to satisfy the existing demand from local institutional investors to invest in long-term local currency fixed income securities. A number of policy measures can be taken to this end.

Several market participants have raised concerns about the time required to issue a bond. A regulatory review should be undertaken with a view to streamlining the listing process. In order to prevent any delays in the approval of prospectuses, the ASF may consider expanding its staff to support companies in ensuring the documentation is submitted in the correct form. Further, the requirement to hold an extraordinary general meeting to issue a bond should be re-evaluated.

To increase activity in corporate fixed income markets, it is important to address the role of credit rating systems. It should be assessed whether any existing authority has the capacities and the required data to provide credit ratings to the market. Alternatively, subsidies for the establishment of a domestic rating agency could be considered. A third option is to simply provide financial support to smaller companies in obtaining credit ratings from an already established credit rating agency. Finally, the current pension fund regulatory framework only recognises credit ratings from the three major players. It should be adapted with a view to including more rating agencies that follow rigorous standards and use solid methodologies.

Investors and their investment policies play a key role in developing the domestic market. Currently, institutional investors’ participation in the corporate bond market is very limited. While traditional institutional investors are still at an early stage of development and remain small, diversification of their investments with increasing allocation to corporate bonds could generate increased demand for these instruments and encourage other issuers to make use of the market. This would enable a simultaneous development of institutional investors and corporate bond markets over time. In this respect, the Romanian authorities should encourage collective investment vehicles to create diversified products including non-financial corporate bonds. A special focus could be given to the instruments issued on the AeRO Market to support the financing of mid-sized companies through corporate bonds. Finally, promoting the investment in non-financial corporate bonds by the banking sector would also create additional demand.

To promote the development of the corporate bond market and to finance Romania’s large scale infrastructure needs, the authorities should consider financing these projects via corporate bonds. There are a number of projects in progress, but the financing model used has mostly been bank loans. Romanian authorities could design public-private partnerships where the private sector company or an entity created for the purpose of the execution of the project could issue corporate bonds to fund the investment. This would support an increase in corporate bond activity in Romania, while providing longer-term investment opportunities to institutional investors.

As a combined measure to stimulate the market for corporate bonds and to facilitate Romania’s green transition, the government should consider providing incentives for issuers of green bonds such as covering the cost related to obtaining an external review or rating for bonds within an internationally recognised green, social or sustainability bond framework. Such a measure recognises the additional expenses that might be associated with issuing a green bond compared to a regular bond, and can therefore be helpful in the development of green corporate bond markets.

One important step to support the development of the corporate bond market is to ensure a well-functioning government bond market. Therefore, it is crucial that Romanian Government debt managers continue to employ strategies to build a liquid local currency benchmark yield curve while also increasing the average maturity of government bonds.

In line with the objectives stated in the Romanian National Recovery and Resilience Plan to create opportunities for businesses to diversify their financing sources, authorities could consider allocating part of the funds received from the EU to further develop the corporate bond market. In this respect, EU funds could be used to finance the above recommendations to support smaller companies to obtain credit ratings, subsidise the establishment of a domestic rating agency, and/or incentivise the issuance of green bonds.


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← 1. The turnover ratio is measured as the total value of shares traded over market capitalisation.

← 2. Find more information about the Hungarian programme, please see: https://www.bse.hu/Issuers/bse-research/BSE-market-development-programme-for-companies-with-small-and-medium-capitalisation.

← 3. The amount traded is split into three segments: the first trading segment is above PLN 2 million and the corresponding fee is 1 bps; the second trading segment goes between PLN 100 000 to PLN 2 million and the corresponding fee is 2.4 bps; and the third segment is up to PLN 100 000 with a corresponding fee of 2.9 bps.

← 4. Converted using the exchange rate that retrieved from Thomson Reuters as of 30.09.2021 for PLN/EUR 0.2167, and HUF/EUR 0.002779.

← 5. Capital gains derived from listed equities acquired after 1 January 2006 or from Turkish local government bonds issued after 1 January 2006.

← 6. Equity ratio is measured as equity over total assets.

← 7. Companies with negative equity are defined as companies with total liabilities greater than total assets.

← 8. The investment data is based on EIB Investment Survey statistics.

← 9. The data for outstanding guarantees of SME loans is from EIF (2020) and the GDP data is from IMF statistics.

← 10. A direct listing is referred to as a technical listing in the BVB documents.

← 11. Members with payment of contributions in current month.

← 12. Fondul Proprietatea was set up by the Romanian state on 28 December 2005 to indemnify persons whose assets had been expropriated by the communist regime (especially in cases when restitution in kind would not be possible) by granting them shares in Fondul Proprietatea proportionate to their loss. Until the appointment of a selected administration, the fund was been managed provisionally by the Ministry of Finance through the Board of Supervisors. Following a tender selection process, on 9 June a Selection Commission selected Franklin Templeton Investment Management Ltd as the manager of the fund.

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