New stock exchange rules possible

VILNIUS – The National Stock Exchange of Lithuania's plan to liberalize listing requirements could help it become more active. The question is how much more active.

Last week the NSEL announced it had submitted a proposal to the Lithuanian Securities Commission to ease some of the requirements for getting companies listed on the Official List, the stock exchange's most restricted board. The Securities Commission within a few weeks is expected to decide whether to approve the plan, and, with the possible sale of shares of large privatized companies like Lietuvos Telekomas and Mazeikiu Nafta on the horizon, it seems likely that it will.

One of the NSEL's goals in changing the Official List rules is to attract larger companies. One way to accomplish that, said the NSEL, is to increase the market capitalization requirements, which it wants to raise from 4 million litas ($1 million) to 10 million litas.

Liberalizing the rules will make it possible for two-thirds of the stock exchange's Current List companies to join the Official List, which currently has only six members, said Saulius Malinauskas, director of the NSEL's listing department.

"We would like to get big companies on our Official List. There's not enough liquidity in our market for the moment," Malinauskas said.

Other items the NSEL wants changed are profitability requirements. Currently, explained Dalius Simenas, spokesman for the Lithuanian Securities Commission, companies have to maintain profitability for three years to be listed on the Official List.

"This, according to stock exchange people, was quite an obstacle," Simenas said. The NSEL wants to lower that requirement to one year.

The Securities Commission has read the NSEL proposal and sent it back to the stock exchange with some amendments, which the stock exchange must consider. Then the draft will go back to the Securities Commission for final approval.

How effective the proposed changes will be at increasing the market's liquidity is a matter for debate.

"I don't think that it will have a big influence on trading turnovers," said Gedrius Steponkus, director of brokerage company Jungtine Maklerio Kontora .

"Of course, the liberalization of any rules is okay in Lithuania, because too much is already regulated. But I don't see real benefits," he said.

Steponkus thinks other changes – like scrapping the regulation that forces brokers to hang on to all their financial assets for no less than one year – would help more.

"Large-asset brokerage companies cannot freely sell their assets. I would suggest letting brokerage companies trade freely. I think that this would enhance trade on the exchange, maybe only by three to five percent, but still it would be a good thing," he said.

The other change Steponkus suggested deals with privatization. The NSEL wants the country's State Property Fund to allow shares of privatized companies to be sold on the exchange, instead of to private strategic investors.

"That's a bad situation," said Steponkus. "That should be changed but it's difficult to get a result. People who are advising the privatization process do not know what the capital market is."

Some even suggest that corruption is behind the State Property Fund's reluctance to sell shares of privatized enterprises on the NSEL.

However, as it stands now, it is likely that shares of Lietuvos Telekomas should be sold this spring when the next round of the telecommunications company's privatization happens.

"There haven't been any decisions made, but the State Property Fund said that it is quite probable that part of that issue will be traded on the stock exchange," said Simenas.