The Prague Post
September 7th, 2008
Endowment Fund     Business Listings ONLINE      Reservations      Classifieds    Subscriptions
Prague accommodation

Home » Archives » Banking & Finance

An alternative no longer

RM-System to become full-fledged stock exchange

By Michael Heitmann
Staff Writer, The Prague Post
June 11th, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
The RM-System's Jiří Vodička says the off-exchange market's transition will be complete within months.
enlarge
The RM-System is growing up, whether it wants to or not.
Fifteen years have passed since the inception of the RM-System as a market for trading securities. During that time, it has positioned itself as an alternative to the mighty Prague Stock Exchange (BCPP) for small and medium investors looking to swap and sell their assets.
Now, the RM-System is pushing through its adolescence to adulthood, poised to become a full-fledged, official stock market.
This transition is less than voluntary: Although the Czech Securities Commission has authorized the RM-System’s activities, its position as an off-market exchange now conflicts with new European Union financial market regulations.
“Due to a new legal framework, the off-exchange market has to become a stock exchange,” said Jiří Vodička, the RM-System’s strategy and marketing director. “The transformation will be complete within a couple of months. The number of traded securities won’t decrease, but we’ll actually add new certificates and foreign shares,” he added.
The transformation comes as small investors become savvier at using stock markets than ever before, Vodička said.
“The last initial public offerings in the Czech Republic, like AAA Auto and NWR [New World Resources] show that shares are taking a center stage for small and medium investors,” he said.
Companies like these could attract more attention among individual investors in the future by offering their shares not only on the BCPP or in London or Warsaw, but also on the RM-System, Vodička said.
BCPP spokesman Jiří Kovařík was unimpressed by Vodička’s plans.
“We don’t see the RM-System as major competition because the stock exchange accounts for 99.5 percent of all shares trading [in the Czech Republic] and the RM-System only for 0.5 percent,” he said.
Currently, an investor in the Czech Republic has three options: Go through a broker to the established Prague Stock Exchange, deal directly on the RM-System or — far less common — deal privately off-market with other investors.
The RM-System differs from the BCPP by its automated, over-the-counter system that enables traders to simulate market-making by placing separate buy and sell orders.
“Investors can offer their securities for sale, or place buy orders for shares, certificates and bonds,” Vodička said. “The RM-System then makes sure that the buyer gets shares at the best possible price and takes care of the transfer of shares and money between buyer and seller.”
This contrasts with common practice on many mature stock exchanges such as the BCPP or the Nasdaq, where only qualified, official market makers have full access to all selling and buying options.
Past purpose
After establishing itself as a full exchange, the RM-System plans to target small and midsize companies. The exchange can deal with smaller initial public offering volumes and offers lower costs than big stock exchanges, which cater to the institutional investors like banks, insurance companies and funds, Vodička said.
Such optimism will face challenges from critics who question whether the exchange has any remaining utility for the country.
“From my viewpoint, the RM-System fulfilled a historical role, but it is not needed anymore,” said Martin Kodýdek, sales director of the broker Patria Direct. “One organized securities market is adequate in a small country like the Czech Republic. And that market is the Prague Stock Exchange.”
“Public offerings on the BCPP have good liquidity and trading volume and that cannot always be said about securities traded on the RM-System,” he added.
The origins of the RM-System are closely linked to the mass voucher privatization scheme, which formed the centerpiece of the government’s economic reform program in the early and mid-1990s. Led by President Václav Klaus, who was then the finance minister, state assets were privatized by giving Czech citizens vouchers that they could then exchange for company shares.
It was hoped that millions would start trading on the RM-System to make money, and some 3.5 million have done so over the past 15 years. But many more were more eager to entrust dubious investment funds with their shares than to take action themselves.

Michael Heitmann can be reached at mheitmann@praguepost.com


Other articles in Banking & Finance (11/06/2008):

Browse the Current Issue

If you enjoyed this article, why don't you subscribe to the print version!
We accept secure online transactions provided by PayPal and Moneybookers

Be the first to add a comment!


Full Name: *
City: *
E-mail: **
This comment can be published in the print version of The Prague Post
Enter the text on the right:
 visual captcha
Comment: *
* Required field. In order to be approved for display, comments must have a first and last name and a city.
** E-mails are required and will only be used for internal purposes.

Most visited in Business Listings

Hotel booking
The Prague Post Online contains a selection of articles that have been printed in
The Prague Post, a weekly newspaper published in the Czech Republic.
To subscribe to the print paper, click here.
Unauthorized reproduction is strictly prohibited.