. Last Updated: 07/27/2016

Budapest Exchange Plans Major Update

BUDAPEST -- Hungary, the pioneer among Eastern Bloc states in reviving its bourse, now finds its securities laws outdated and is planning a drastic overhaul to remain competitive into the next century.

"Budapest has a central position and if the economic situation around us continues to improve we can become increasingly profitable," said Istvan Molnar, head of the legal division of the Securities and Exchange Supervision.

Molnar is helping to draft a new Securities Act which he said should be submitted to Parliament in April or May.

The Budapest Stock Exchange, or BSE, along with its main rivals in Warsaw and Prague, has seen a surge of investor interest this year as emerging markets in Eastern Europe have become magnets for foreign capital.

The BSE, which marks its sixth anniversary in June, has hit a succession of record highs. Daily turnover has risen to about $10 million a day, from a little over $1 million a day in 1995.

But along with the higher turnover comes growing concern about whether the practices and regulations of the BSE adequately protect investors and meet modern standards.

The BSE, though it is open all morning for brokers to bargain, still restricts trading to shares in a limited number of companies for a fixed period -- 25 minutes -- a day.

And at midday, after trading ends, guards haul bags of securities to trucks for shipment to vaults -- a practice which, bourse officials acknowledge, invites theft, fraud or loss.

The limited trading curtails the usefulness of BSE quotes as a reference point for Hungarian shares listed abroad, especially in London, where much of the dealing in Hungarian stocks takes place, one London-based analyst said.

And lack of a delivery-versus-payment settlement system in Budapest curbs foreign interest. "A lot of U.S. houses can't [trade in Budapest] because of house rules," the analyst added.

The bourse, the government and the securities industry acknowledge an overhaul is overdue, but the brokers are worried that the changes may increase their costs.

"The regulators fear that the regulations don't provide protection for the investors," said Csaba Lantos, director for fund management at the Budapest branch of Creditanstalt Securities Ltd and a member of the bourse council.

"Of course we [as brokers] are on the opposite side because it creates a lot of costs in future and I cannot see where we will generate this additional revenue. These cost increases can create some bankruptcies in the industry."

Fallout from the reforms would seem to be inevitable, but officials and analysts say changes are essential to bring Hungarian regulations into line with EU norms. Talks on Hungary's entry into the EU may begin in 1998, six months after the conclusion of an EU intergovernmental conference.