2011年-世界发展银行全球_Capital_Market_Integration_and_MiFID_Implementation___The_Bulgarian_Experience_36页_859kb

Summary: Capital Market Integration and MiFID Implementation in Bulgaria

Core Content

This report analyzes the implementation of the Markets in Financial Instruments Directive (MiFID) in Bulgaria, focusing on its impact on the capital market and the broader financial sector. It also evaluates the level of integration of the Bulgarian capital market with the European market and provides recommendations for enhancing market development and integration.

Main Points

MiFID Implementation in Bulgaria

• Bulgaria joined the EU and implemented MiFID in November 2007, during the onset of the global financial crisis.
• MiFID introduced key changes, including the passport system, which allows intermediaries to operate across the EU under a local license.
• It also promoted a more competitive environment for trading venues, enabling shares listed on the Regulated Market (RM) to be traded anywhere in Europe.
• The home supervisor (Financial Supervision Commission, FSC) plays a crucial role in overseeing the implementation.

Impact on the Bulgarian Capital Market

• The financial crisis significantly reduced market capitalization, which dropped from 51% of GDP in 2007 to 15.3% in 2010.
• Liquidity in the market also declined, with annual trading amounts representing only 5% of market capitalization in 2010.
• Despite the introduction of MiFID, the Bulgarian Stock Exchange (BSE) remains the only trading venue in the country, similar to most EU member states.
• Foreign interest in the Bulgarian capital market has been modest, with most trading still occurring domestically.

Market Structure and Participants

• There are 80 licensed investment intermediaries in Bulgaria, with 25 affiliated with major banking groups.
• Non-bank intermediaries are mostly small firms, averaging 3 employees.
• The BSE is the central depository and operates in two segments: Official (A and B) and Unofficial (A and B).
• The unofficial market dominates in terms of market capitalization and trading volume, with Segment B growing in importance.

Bond Market

• The corporate bond market in Bulgaria is small and underdeveloped, with limited secondary trading.
• The government bond market also remains small, at 6.5% of GDP in 2010.
• There is no liquid yield curve, which hinders the development of other debt market segments.

International Integration

• Pre-crisis, foreign direct investment (FDI) and foreign borrowing were significant, reaching 100% of GDP cumulatively.
• However, foreign portfolio investments into the Bulgarian equity market have been declining, especially post-crisis.
• Bulgarian pension funds have shown increased interest in investing abroad due to the new regulatory framework.

Market Integration and Correlation

• Before the crisis, the Bulgarian equity market was relatively independent from European markets.
• During the crisis, market integration increased, with R² (the proportion of price variation explained by European market movements) rising to over 50%.
• The β (price responsiveness) of the Bulgarian market to the FTSE 100 was 1.9, indicating high sensitivity to European market shocks.

Challenges and Opportunities

• MiFID implementation has not significantly transformed the structure or market share of local trading venues.
• The small size of Bulgarian companies has limited the interest of pan-European venues, which have focused on blue chip stocks.
• The BSE remains the main trading venue, and foreign investment firms have shown limited interest in the Bulgarian market.
• However, foreign banks have played a significant role in facilitating access to foreign markets and providing investment banking services.

Key Recommendations

• MoF should lead the strategic sale of the BSE and central depository to a major international exchange. This would enhance visibility and competition for local firms.
• The FSC should maintain foresight and adapt its regulatory framework to support market development and integration.
• The FSC should optimize compliance and client handling functions to reduce transactional costs and improve the business environment.
• The FSC should lessen barriers for investment firms to operate abroad, such as reducing administrative burdens and considering tied agents for foreign trading.

Conclusion

MiFID implementation in Bulgaria has had a modest impact on the development of the capital market. While the directive aimed to promote market integration and transparency, the small size of the market and limited interest from pan-European venues have constrained its effectiveness. The BSE continues to be the dominant trading venue, and foreign integration has been limited, primarily in the form of FDI and foreign banking services. To fully realize the benefits of MiFID, strategic integration with larger European markets and regulatory reforms are essential.