ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
GEORGIAN STOCK EXCHANGE
We look with hope on year 2010 and
believe that it will become a turning point in
development of the Georgian securities
market.
George Loladze
Chairman of the Supervisory Board
2009 was quite a busy year both with significant
events and problems. No surprise, the global
financial crises affected Georgian Stock Exchange
activities as well. However, despite the sharp
decline in trading volumes, GSE stably plays
significant role of the only organized securities
market in Georgia. Though, the legislative
changes of 2008, along with some positive
features, stimulated rising of “grey” securities
market in Georgia, the large investors and issuers
still prefer to operate at the Georgian Stock
Exchange.
HISTORY AND DEVELOPMENT
Equity securities first appeared in Georgia in 1991
after the declaration of independence that
signaled the beginning of market-oriented reforms.
A vast majority of the newly established joint-stock
companies were owned by a rather small number
of private shareholders and trading in these
shares was relatively inactive. With the launching
of the Mass Privatization Program in 1994,
approximately 1,300 state-owned enterprises were
organized as joint-stock companies, creating
about half a million individual private shareholders.
However, during a five-year period (1994-1999),
the lack of an appropriate legal framework and
organized market infrastructure seriously impeded
the secondary trading of these shares and any
over-the-counter market activity was nearly
nonexistent.
The Georgian Stock Exchange (GSE) was
founded in 1999 by a group of Georgian securities
market professionals, leading banks, investment
and insurance companies. Today it is the only
organized securities market in Georgia. Designed
and established with the assistance of the United
States Agency for International Development
(USAID) and operating within the legal framework
of corporate and securities laws drafted with the
assistance of American and German experts, the
GSE can assert that it is designed and operated
to comply with “global best practices” and offers
an attractive investment environment to foreign
investors.
To promote the concept of self-regulation, the GSE
membership adopted new rules. After approval of
these rules by the National Securities Commission
of Georgia, the GSE was officially recognized as a
self-regulatory organization (SRO) and received a
stock exchange license in January 2000.
The GSE utilizes an automated trading facility.
Thousands of securities can be traded by its
members from the workstations at the GSE floor
or remotely from their offices. The GSE adopted
the platform employed by the Russian trading
system (RTS) in Moscow. However, RTS - as an
excellent informational-communication system -
was significantly modified to ensure those
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As mentioned above, 2009 was remarkable by
significant events for GSE. First of all, the decision
of GSE shareholders on considering strategic
partnership options with the world-leading stock
exchanges shall be mentioned. This became not
just a general line of GSE development strategy
but certain practical steps were taken in the
direction of NASDAQ-OMX.
Another important event of 2009 for the whole
financial sector of Georgia was decision of the
Georgian Parliament to move regulation of all
requirements outlined under the GSE trading rules
reflected the peculiarities of Georgian securities
market.
Official trading at the GSE began in March 2000.
The number of companies admitted for trading at
the GSE trading system increased gradually and
by the end of 2004 reached 277. Practically all of
these companies are former state owned and
operated companies transformed into joint-stock
companies and then privatized. The growing but
still low trade volumes reflect the nascent stage of
the Georgian capital market and the level of
development of the Georgian economy.
In 2002, as a result of active cooperation with the
National Securities Commission and the Ministry
of State Property Management, the Special
Privatization Auctions commenced at the GSE. In
2003 the GSE started trading government
securities.
2004, was a landmark year for the GSE, due to
the unprecedented increase in basic trading
figures compared with previous years, reflecting
the overall revitalization of the economy in the
wake of the “Rose Revolution” of 2003.
In the end of November, 2006 Bank of Georgia
(GSE:BOG), the company listed at the GSE since
2001, concluded successful IPO at the London
Stock Exchange Main Market and through
issuance of GDRs raised circa US$160 ml. The
bank is the first Georgian company ever and the
second bank from the CIS since 1999 listed on the
London Stock Exchange.
In 2007 the remote trading system was practically
implemented at the GSE and number of
brokerage companies started remote trading
operations from their offices via internet and VPN
technology. Number of trading days increased
from two to three days a week.
In 2008 significant amendments were made in
Georgian legislation, GSE Charter and Rules
ensuring GSE demutualization, stock-exchange
membership for various licensed financial
institutions, including remote membership for
respective foreign entities.
financial services under auspices of the National
Bank of Georgia (NBG). We strongly believe that
in cooperation with NBG it will be possible to
implement significant reforms and innovations at
the Georgian capital market.
Based on all the aforementioned, we look with
hope on year 2010 and believe that it will become
a turning point in development of the Georgian
securities market.
In August 2009 the decision on GSE capital
increase was taken by GSE General Meeting of
Shareholders with purpose of attraction of
NASDAQ-OMX as a strategic partner.
FUTURE OUTLOOK
Based on the significant interest of a leading
European stock exchange operator, as well as of
the various financial investors, significant changes
in GSE ownership structure is anticipated,
entailing, among other, attraction of required
investments for further development of the GSE.
Also, in 2010 the GSE plans to:
1. Make important changes in its trading system
and trading rules so as to increase the efficiency
of trading and increase the liquidity of the market:
• Intensify the trading process. In particular, the
trading sessions will be conducted on daily basis
and/or time period of the trading sessions will be
extended;
• Further improve remote trading system for
brokerage companies;
• Establish electronic links between securities
market participants (stock exchange, central
depository, brokerage companies, banks,
securities registrars)
• Increase the efficiency of the government
securities trading on the stock exchange;
• Introduce partially guaranteed trading of
securities;
• Introducing of price quotation both in local and
foreign currencies.
2. Launch a new web-site for the GSE, which
along with traditional statistics will provide
corporate reports database for the companies
who are admitted to the trading system. In
addition, the creation and publication of a
company database will allow companies to
publish their annual, semi-annual and current
reports which are required by law and thus
improve disclosure standards and corporate
transparency;
3. Introduce the Georgian Stock Exchange Index.