The Bulgarian financial system includes different regulatory structures. The Bulgarian National Bank (the BNB) is in charge of the banking system, whereas the Financial Supervision Commission (the FSC) is the main regulator of capital markets, investment intermediaries and investment companies (including insurance companies and pension funds).
The Bulgarian Stock Exchange (BSE-SOFIA) is the only functioning stock exchange in Bulgaria and it is also a public company listed on the stock exchange. The Central Depository JSC (the CD) is the institution that provides the settlement of corporate securities in book-entry form. The Central Depository is controlled by the Financial Supervision Commission, the Bulgarian National Bank and the Ministry of Finance.
Many laws and regulations were adopted in Bulgaria between the period of 1995-2014 that form the legal basis of the public offering and trade in financial instruments. It should be noted that the Bulgarian system is fully harmonized with the applicable European legislation.
In 2000, BSE-Sofia introduced the completely automated trading system RTS Plaza, the same year it launched the stock index SOFIX, and in 2003 the Stock Exchange set up an Internet-based application for on line access to the BSE – COBOS (Client Order-Book Online System). In June, 2007 BSE-Sofia was accepted as a full member of the Federation of European Stock Exchanges (FESE), in which only the regulated markets in the EU recognized by the European Commission are members. Since 2008, the Bulgarian Stock Exchange uses the T7® electronic trading platform, operated by Deutsche Boerse.
BSE’s regulated market consists of two markets – BSE Main Market (divided in several segments) and BaSE Alternative Market. These markets are segmented according to qualitative and quantitative criteria regarding the issuers and their emissions of financial instruments, including the financial instruments type, specific requirements regarding the issuer’s shareholder structure, their financial results, liquidity and information disclosure requirements.
In addition to the regulated market, BSE organizes as a multilateral trading facility the SME growth market BEAM, which enables the financing of small and medium companies in Bulgaria. The SME Growth Market beam provides companies with a number of advantages when compared to the requirements for issuers listed on the regulated market organised by the BSE- Sofia. The decreased requirements for companies are present both in the admission to trading process as well as in their subsequent life as listed companies. Some of the advantages includes: (i) raising funds of up to certain limits without the need of an approved prospectus by the Financial Supervision Commission for an initial public offering; (ii) publishing only annual and semi-annual financial reports to the public; (iii) shareholders in companies does not have an obligation to disclose their shareholdings after exceeding a certain threshold and /or their acquisitions of a certain percentage of the company’s voting shares, etc. However, the BEAM market is quite new and it is still expected to attract companies to be traded there.
Corporate governance of Bulgarian public companies is regulated both at the legislative level, as well as in the National Corporate Governance Code which is aligned with the OECD Principles of Corporate Governance and which applies the “comply or explain” principle. Public company must issue an annual corporate governance report on its compliance with the National Corporate Governance Code and provide information on the company’s diversity policy or explain the reasons for not maintaining one.
The applicable corporate governance law in Bulgaria sets out requirements regarding the remuneration and composition of management and supervisory bodies of a public company, the establishment of an independent audit committee, rules ensuring the protection of minority shareholders’ rights and others.
It should be noted that a number of circumstances, including the favorable tax regime in Bulgaria, the introduction of legal rules and practices from the European Union law in the field of regulation of the financial markets, the high regulatory and supervisory requirements to all market participants create conditions for sustainable and progressive development of the Bulgarian capital market.