INVESTORS GET PROTECTION AGAINST FRAUDS
The Commission for Financial Supervision is discussing schemes for compensation of investors in risk situations. This is in accordance with the requirements of Directive 97/9 of the European Commission (EC) on the protection of consumers in respect of distance contracts, which is a part of Chapter 3 (Free Granting of Services) of the agreement for joining the EU.The directive recommends the establishment of a fund that would compensate investors in certain risky situations. Bulgarian law-makers are those to decide exactly how the money in the compensation fund will be gathered, how the fund will be operating, and in what instances the losses suffered by an investor would be covered by it. The fund's setting up will be regulated by a special legislative act, effective as of January 1, 2005. The fund's money will compensate losses, suffеred by investors as a result of investment intermediaries' poor quality services. This provides an opportunity for settling the investors' claims without lawsuits. But if the investment intermediary closes a deal by mistake - i.e. buys or sells at a price, at which the client was not willing to trade, the loss shall not be covered by the fund. In case a member of the exchange misappropriates investor's money, the loss is compensated by the fund. According to experts, no frauds have been commited by investment intermediaries in Bulgaria so far, with the exception of the case regarding Platza Investment AD (the former First Sofia Commodities AD), whose operation was banned by the Commission for Financial Supervision in June. The company was trading in futures. This paper has not been included as a security in the Public Offering of Securities Act so far, although it is regarded as such all over the world. Two options for collecting money in the fund are being discussed - through a fixed fee, or through a certain percentage of the investment intermediary's turnover.There are still doubts if the fund should be state-run, partly supported by the Treasury, or entirely private. The question remains why the State, and more precisely the tax-payers, should be setting aside money for compensating someone's foolishness or imprudence. According to experts of the Commission for Financial Supervision, the fund will guarantee the security of small investors. However, practice has shown that these structures are mainly used by large-scale investors, as in most cases swindlers do not stake on small amounts. Therefore, the amount up to which the loser could be compensated by the fund is quite high. In the beginning of 2005 the fund will be able to compensate investors for deals up to EUR6,000. As of the beginning of 2007 the ceiling will be EUR12,000, and as of 2008 the amount of the guaranteed investment will become EUR15,000. The Bulgarian Government has guaranteed a three-year period during which the amount of insured investments in securities will reach EUR20,000, as the practice in the EU is. This requirement will be introduced as of the beginning of 2011.On the other hand, according to investment intermediaries, such a fund is not necessary because the requirement for a certain capital-to-assets ratio of the intermediaries provides sufficient guarantees to investors. Currently, amendments to the Ordinance on Liquidity and Capital-to-Assets Ratio are under draft. According to the EU requirements, by the end of 2005 the minimum capital of intermediaries applying for a full licence should reach BGN1MN, up from the presently required BGN250,000. Other participants in the market retort that this indicator does not guarantee the conscientiousness of the investment intermediary, but only its financial stability.