Better days are ahead for the Montenegrin capital market, believes the newly appointed president of the Capital Market Commission of Montenegro (KTKCG), Željko Drinčić. He bases his expectations on the fact that KTK has given a license to work to a new investment company in the past few days, while the procedure for giving consent for the establishment of a new Montenegrin open investment fund, as well as the registration of a fund from abroad, is in progress.
– The announcements we have through daily contacts are positive, and investors’ reactions to everything that is being done in the Commission are also so that in the coming period we can expect new investment companies as well as new funds, which would be significant from the aspect of further development of the capital market. In addition to all of the above, solving accumulated problems from the past, stronger controls and sanctioning of all those who do not work according to the law, harmonization of regulatory frameworks with the EU, an active role of the state, especially in the segment of institutions on the market, i.e. stock exchange and the Central Clearing Depository Company (CKDD), I am sure that the capital market is waiting for brighter and better days – said Drinčić for Portal RTCG.
We remind you that on December 29, 2022, the Parliament of Montenegro appointed a new convocation of the Commission for the Capital Market of Montenegro.
The newly appointed president of the commission, Željko Drinčić, says that as someone who has been present on the capital market for more than 20 years, he was already familiar with the state of the market, but also with the state of KTK. For Portal, RTCG assesses that the capital market has been characterized by a number of accumulated problems in recent years, and as some of them he cites large illiquidity and problems in the fund industry.
Considering that the KTK is by law an independent regulatory body that is self-financed, Drinčić states that among the first steps of the new convocation was the reduction of costs, and to that end, as he said, they also sold part of the fleet.
– Since the financial plan for 2023 was adopted in October 2022, we did not have much room for maneuver in that part, except to accept it as such and to focus on the expenditure side. Already in the first days, numerous steps were taken in order to reduce various costs, including the sale of part of the fleet. A detailed analysis of the balance sheet was made, with a special focus on the claims of the Commission, since we determined that a significant part is, unfortunately, uncollectible. Work on collecting claims from debtors who are still active on the market has brought positive results from the aspect of liquidity, and we plan to carry out the mentioned activities in the future – said Drinčić.
Irregularities among market participants, some investment companies, but also in the fund industry have also been found, he says.
– Controls of all participants in the capital market were carried out in November and December 2022, so that the new convocation of the Commission already at the first sessions got acquainted with the results of the controls and noted a whole series of minor or major deficiencies for which removal was ordered, with further supervision and permanent monitoring in accordance with legal regulations. Irregularities were noted in some investment companies, but also in the fund industry – said the president of the KTK.
Difficult functioning of funds
He assesses that the funds created in mass voucher privatization, with the exception of a few, function in rather difficult conditions.
– Today, we do not have any pension fund in Montenegro. The number of investment companies that trade on the domestic stock exchange has significantly decreased – specified Drinčić.
The president of the KTK also states that Montenegroberza AD Podgorica functions with difficulties and that it is managed by minority shareholders (the largest of which is from abroad), since the majority owner is prevented from exercising ownership rights due to court decisions on blocking assets.
– At one of the last sessions (December 2022), the previous convocation of the Commission approved the new Price List and Rules of Montenegro Stock Exchange AD Podgorica. Amendments to these acts met with the reaction of other participants in the capital market, primarily issuers. Only a few months after its adoption, the Montenegro Stock Exchange requested certain changes to the Rules. The current convocation of the Commission has recognized the importance of this topic and is actively monitoring its implementation, as well as the potential effects that the aforementioned acts may have on the further development of the market, leaving room for a more active role of the state in achieving the common goal – restoring trust in capital market institutions – said Drinčić.
He notes that In the previous period, the Commission drafted the texts of laws that directly regulate the capital market, namely: the Law on Investment Funds with a Public Offer, the Law on Alternative Investment Funds and the Law on Pension Funds, and initiated changes related to the Law on the Capital Market.
– The procedure regarding the aforementioned laws has been accelerated since January of this year with more specific cooperation with the relevant ministries and the Secretariat for Legislation. The preparation of applications for projects financed by the European Union is underway, which would give additional quality to the legal solutions themselves. The Commission takes an active part in the discussion regarding the amendments to the Law on Business Companies, and through cooperation with the Central Bank of Montenegro, we will participate in the drafting of the Law on Digital Assets. In this way, we are trying to contribute to the creation of a more modern and better regulatory environment for the development of the capital market – said Drinčić.
He also notes that In a very short period of time, software was created that unifies all the registers that the Commission maintains in accordance with the legal legislation and announces that in the coming days a part of the registers will be publicly available on the Commission’s website.
The commission Is a member of the International Organization of Securities Commissions (IOSCO), so Drinčić states that in the coming period, he will step up activities in the area of international cooperation, not only in terms of legal regulations, technical and financial assistance from the European Union, but, as said, to make special efforts in the part of familiarizing international partners with all the activities that the Commission carries out in order to make the capital market of Montenegro as attractive as possible for potential investors, funds, etc.
Significant participation of the state in the capital market
He points out that the decision of the Government of Montenegro from 2022 on the purchase of the shares of Port of Bar significantly contributed to the increase in liquidity on the market, so he is encouraged in this sense by the other announcements of the representatives of the Government on the continuation of the active participation of the state in the capital market. He says that the Commission will contribute to this by providing a high level of supervisory and regulatory role.
Drinčić expects that the cooperation of the Ministry of Finance, the Government of Montenegro and the Commission for the Capital Market, which, as he said, was intensified this year to mutual satisfaction, will gain its full meaning by including the other two market subjects – Montenegro Stock Exchange and CKDD in the focus of attention .
He believes that the Idea of issuing debt securities on the domestic market would be mentioned more and more often, in order to provide alternative models of financing the needs of the state, which until now was dominantly focused only on the banking sector, in conditions of healthy competition in terms of sources of funds, would provide greater market liquidity of capital and an improved overall investment environment.
– It is a fact that deposits in banks have been growing significantly in the last few years, that interest on deposits is lower than yields on government bonds and that the state borrows as such on the international capital market. All of the above gives a clear signal that if the state creates technical, tax and other conditions for restoring confidence in the capital market, it can count on the possibility of raising money through domestic bonds. The latest example of this is the issue of Croatian domestic bonds, where the state collected EUR 1.8 billion instead of the originally planned EUR 1 billion – says Drinčić for Portal RTCG.
He points out that In this and the following years, the Commission will work rapidly on proposing new and amending existing laws and by-laws under their jurisdiction, on intensive international cooperation and gathering know-how from abroad with the aim of harmonizing with the European Union.
– Detailed and more numerous controls of all participants in the capital market will be carried out with the aim of not only having quantity and statistics, but also quality that will instill confidence in the domestic and international public to invest in Montenegro. We will pay special attention to the part related to attracting new participants both in the fund industry, investment companies, and new technologies primarily through blockchain and digital assets – said Drinčić.
One of the defined goals of the Commission is the education of participants in the capital market, as well as citizens.
– In this sense, the Commission will organize workshops related to education in the coming period, i.e. Improving the financial literacy of the youngest, during March and April of the current year, and in October and November for high school students and students. As before, the Commission is working on holding trainings and licensing brokers, investment advisors and investment managers of investment funds, with the fact that we plan to innovate and harmonize the mentioned process in accordance with modern trends. Accession to the European Union requires the active role of all segments of society, so the Commission takes a significant part in the work on closing Chapter 2 (Freedom of Movement of Workers), Chapter 4 (Freedom of Movement of Capital), Chapter 6 (Corporate Law), Chapter 9 (Financial Services ) and Chapter 17 (Economic and Monetary Policy). Recently, some institutions have been carrying out certain activities related to education related to corporate governance. I believe that the Commission for the Capital Market is an umbrella institution whose obligation is to deal with the mentioned issues, which it will do in the near future in cooperation with ministries, the University of Montenegro, etc. This is supported by the fact that the European Union has recognized the Commission as a body in charge of regulation in that area – said Drinčić.
He also notes that the Commission in the new convocation is open to cooperation with all current and potential participants in the market, which, he said, is evidenced by numerous established contacts, as well as meetings held with state authorities, issuers, associations of minority shareholders, investment companies and companies for managing investment funds.
– We will try to contribute to preserving the stability of the domestic financial system in accordance with the legal powers of the Commission – concluded Drinčić.