The Bulgarian Stock Exchange’s (BSE) switch to the Xetra trading platform of the Deutsche Boerse in June was supposed to bring in a host of new opportunities for growth. Instead it has become the latest in a string of broker grievances that have finally bubbled to the surface in the form of a motion to sack the BSE board at the bourse’s annual shareholder meeting on June 30.

The shareholders rejected the motion, but it goes to show the depth of the rift between brokers and management of the bourse.

Not that the brokers are against the platform itself, which is expected to raise the profile of the stocks traded on BSE and give investors from other bourses, also using Xetra, easier access trading with shares in Bulgarian listed companies. The Bulgarian Association of Licensed Investment Intermediaries (BALII), which filed the proposal to fire bourse chairperson Viktor Papazov and chief executive Bistra Ilkova, said that its motion was triggered by the fact that “decisions and the means to achieve them are made and carried out by the bourse management behind an information wall,” as quoted by Kapital weekly.

BALII’s statement stopped short of making a direct reference to Xetra, saying instead that the “style and management methods of the BSE over the past year been marked by a clear isolation of the opinions of professionals in the business concerning trends that are crucial for the development of the market”.

BSE struck the deal with Deutsche Boerse in September 2007 and sealed the agreement on October 30 the same year. At that time, the Bulgarian bourse chose Xetra over the offer made by Nordic Exchange OMX, which offered a more flexible solution than its competitor, but came at a higher price, according to media reports. The exact figures were never made public though, with Papazov rebuffing enquiries with the often-used line that the offers were confidential and could not be disclosed without the prior approval of the bidders. The value of the contract is yet to be made public, although bourse officials have since said that the annual fees paid to Deutsche Boerse would depend on the number of transactions done on BSE. The lack of transparency and the rushed implementation of Xetra, whose timely launch was uncertain until the last moment, have done little to persuade brokers that the bourse was headed in the right direction.

“The reason [for the motion] is our sincere concern for the future of the bourse – 85 per cent of BSE’s revenues come from fees and commissions on turnover. It is clear, even for the most biased ones, that turnover is falling now, not in the distant future. Moreover, in 2007 all the commission fee revenues went to the BSE, but now, as we have heard from the BSE management, the fees owed to Deutsche Boerse for the use of Xetra are also based on turnover,” the chairperson of BALII’s management board, Radoslav Rachev, told investor.bg website in an interview.

The switch to Xetra allowed BSE to cut some of its costs, yet the management of the bourse made no move in that direction, argued the association, which pools 35 brokerage houses as its members. There were no moves to find new sources of revenue either, according to Rachev. “It would be a good thing for the BSE management to focus on expanding markets and seek new revenue streams. This is what the BSE strategy envisions and we have already said we support that goal,” he said, as quoted by investor.bg.

As long as the BSE management has the support of the Finance Ministry, which is the largest single shareholder with 44 per cent of the bourse’s shares, brokerage houses stand little chance of being heard. With the Government deciding last year to shelve its plans to sell its stake for an indefinite period of time, brokers are not expecting a change of attitude any time soon.

“We heard it in the statements of the bourse’s top managers – we were told that we own around 13 per cent of the bourse’s equity. We are not claiming otherwise. But what Papazov and Ilkova are ignoring is the fact that those same minority shareholders are responsible for almost half of the bourse’s turnover over the past two years and, as a consequence, half of BSE’s revenues. Clearly, for as long as the BSE management thinks that the only market operator in Bulgaria is a straightforward joint stock company that exists with the sole goal of maximising its revenue, it will be hard to find common ground,” Ralchev said, as quoted by investor.bg.