Reports on Observance of Standards and Codes

Bulgaria and the IMF

Bulgaria ROSC
I.  Overview
II.  Data Dissemination
III.  Fiscal Transparency
IV.  Transparency of Monetary Policy
V.  Banking Supervision
VI.  System of Deposit Insurance
VII.  Insurance Supervision
VIII.  Securities Market Supervision

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VIII.  Securities Market Supervision1

Prepared by a staff team from the International Monetary Fund on the basis of information provided by the Bulgarian authorities.

Prepared in August 1999 and reissued in March 2000

1.  The following considers the financial policy transparency practices of Bulgaria in securities market supervision. The first two sections cover the broad principles underlying the IMF Code of Good Practices on Transparency in Monetary and Financial Policies (available on the IMF web site at The Code identifies desirable transparency practices for securities market regulators. Following the Code, this chapter reviews and comments on: clarity of roles, responsibilities and objectives of the Securities and Stock Exchanges Commission; the processes for formulating and reporting supervisory decisions by the SSEC; public availability of information on supervision policies; and accountability and assurances of integrity by the SSEC. The last section provides a summary of the authorities’ views on the extent to which domestic practices are consistent with existing international standards.


2.  Transparency by the SSEC, particularly in clarifying its objectives, should contribute to policy effectiveness by enabling financial market participants to assess better the context of supervisory policies, thereby reducing uncertainty in the decision making of market participants. Moreover, by enabling market participants and the general public to understand and evaluate financial policies, transparency is likely to be conducive to good policymaking. This can help to promote financial as well as systemic stability. Transparent descriptions of the policy formulation process provide the public with an understanding of the rules of the game. The release of adequate information to the public on the supervisory activities of the SSEC provides an additional mechanism for enhancing the credibility of their actions. There may also be circumstances when public accountability of decisions by the SSEC can reduce the potential for moral hazard.

A.  Description of Practice

Clarity of roles, responsibilities, and objectives

3.  The securities markets are regulated by the SSEC, which was created under the Law on Securities, Stock Exchanges, and Investment Companies (SSEICA) of 1995, which was last amended in 1999. This Act, together with the 1997 Regulation on the Structure and Activities of the Securities and Stock Exchanges Commission, defines the framework of the agency. According to this framework, the SSEC has the following responsibilities: it (i) issues and revokes the licenses of stock exchanges and over-the-counter securities markets (currently the Bulgarian Stock Exchange-Sofia Ltd. (BSE)) and the OTC market) and of investment companies and intermediaries; (ii) supervises securities market activities with a view to ensuring strict compliance with statutory requirements; (iii) approves prospectuses for public offerings of securities; (iv) approves tender offers for the purchase or exchange of shares accounting for more than 25 percent of voting power; (v) registers public companies; (vi) keeps public registries of stock exchanges, investment intermediaries, investment companies, public companies, and other issuers of securities; and (vii) determines requirements for securities brokers, formulates procedures for their licensing, and keeps a registry of licensed brokers.

4.  To achieve transparency, the SSEC publicly releases information about its roles, responsibilities, and objectives. The SSEC’s broad objectives—to promote market and systemic stability; competitive and fair markets; client protection; and enforcement of laws and regulations—are defined in the SSEICA. They have been disclosed in public statements by officials before the Legislature; in official government publications (the State Gazette) and the official monthly bulletin and the Commission’s Annual Reports; by press releases; and through the Commission’s recently developed web site. While not prioritized in the legislation, the SSEICA states that the Commission’s primary roles are “ensuring the protection of investors and encouraging the development of the securities markets.”

5.  The autonomy of the SSEC is defined in the procedures for appointment, term of office, and any general criteria for removal of the heads and members of the SSEC in the SSEICA. The Commission comprises a Chairman, Vice-Chairman, and five members who are appointed for a five-year term by the Council of Ministers on the recommendation of the Ministry of Finance. Commission members can be dismissed by the COM on the recommendation of the Ministry of Finance only under conditions that are clearly defined in the law. That is, a commissioner shall be removed if he/she commits a flagrant violation of the SSEICA, or is convicted by a court of a deliberate crime, or becomes incapacitated for more than six months. In such cases, or where a commissioner resigns or dies, he/she shall be replaced by a person appointed by the COM for the remaining period of the term. The terms of appointment and dismissal have been publicly disclosed in official government publications and reports, through the media and the web site. There have been no changes in these procedures since the SSEC was established in 1995. Officials and staff are legally protected in the exercise of their duties. These protections are publicly disclosed in the Official Bulletin, through the media and a special order issued by the Chairman of the SSEC. The names of involved SSEC staff are written in the order from the Chairman to perform inspections so that the recipients are aware of the purpose of the inspection, the names of those who will perform it, and the authorization to perform it.

6.  The Commission’s relationship with the other financial agencies has been publicly disclosed in legislation; publication in official organs; the media; the web site; and, in particular, in the SSEICA and the Regulation on the Structure and Activities of the SSEC. The Commission prepares and presents to the COM an annual report on its activities. In addition, it conducts joint inspections with the BNB of banks that are licensed to act as investment intermediaries. Any state official is obliged under the SSEICA to assist the Commission in the exercise of its supervisory functions.

7.  Currently, draft legislation to improve the whole legislative framework for the capital market in Bulgaria is under active discussion between the SSEC and a broad spectrum of interested parties, including the Association of Licensed Investment Intermediaries (ALII), the BSE, the Association of Commercial Banks, the Privatization Agency, the Central Depositary, ministries, and other government institutions. Advice is also being provided by the European Commission and the Securities and Exchange Commission in the United States.

Open process for formulating and reporting policy decisions

8.  To promote transparency, the SSEC’s policy rules and regulations are in the public domain. The regulatory framework and its operating procedures and regulations have been publicly disclosed in legislation, official documents, public appearances before the legislature, and through the media, the web site, and the BSE’s Rule-Book. The BSE’s Rule-Book provides for: the types of trading floors, the terms and procedures for dealing on them; the terms and procedures for admitting members and their temporary or permanent removal from the floor; the terms and procedures for admitting stock exchange brokers and for supervising their activities; the terms and procedures for admitting securities for trading and for temporarily or permanently suspending them from trading; the type of trades and manner of conducting trading; the kinds of services offered and their prices; the terms and conditions for imposing sanctions on members of the exchange and on stock exchange brokers. The SSEICA was substantially amended in 1998 when the definition of a public company and its registration with the SSEC was introduced and the OTC market established by law. The Commission publishes its resolutions in the official bulletin of the Commission, via the Internet page, and in the Commission’s Public Register. In addition, the SSEC’s regulations for financial reporting by financial institutions have been publicly disclosed in legislation (the SSEICA), in the State Gazette, and in the Official Bulletin. Finally, the SSEC discloses the structure of its fees through the Tariff for Fees Collected by the SSEC for Activities Carried out and Documents Issued.

9.  Information on the SSEC’s progress toward achieving its objectives and any significant changes in its policies are disseminated widely. The SSEC issues periodic reports of its activities, and also uses the Official Bulletin, the media, and the web site to disclose information on its achievements. The periodic reports are published within seven days after their filing with the Commission, as stipulated in the SSEICA. In addition, significant changes in financial policies are publicly disclosed and explained immediately after the decision is taken through official publications (such as the State Gazette, the Official Bulletin, and the Commission’s Annual Report), the media, and the web site. Consequently, the announcements appear as needed and are not made according to a set schedule.

10.  There is no presumption in favor of public consultation for proposed substantive technical changes to the structure of financial regulations. Nevertheless, changes in legislation, such as those currently under consideration, are the subject of broad public discussion. That discussion is not, however, conducted within a set time.

11.  The SSEC does not have formal procedures for sharing information with other domestic or foreign financial agencies. Instead, official letters from the Commission are commonly used for this purpose.

Public availability of information on policies

12.  The Commission provides information consistent with its jurisdictional responsibilities on a monthly and annual basis, makes available the texts of regulations and other generally applicable directives and guidelines, and disseminates data and research by its staff. In particular, the SSEC, as required under the SSEICA, issues periodic reports (the Monthly Bulletin that contains information on decisions taken, licenses granted/rejected, administrative measures imposed, data on market developments and market participants, analyses and articles) that appear within one month of the end of the reporting period and are provided free or at a nominal charge. To this end, the SSEC maintains a public information service, including a web site (

13.  The Commission does not release its balance sheet on a pre-announced schedule. Data on market transactions are provided by the BSE. As the SSEC, like other financial agencies in Bulgaria, is not permitted to provide financial support, it does not release information about such support.

14.  Senior officials are ready to explain the SSEC’s objectives and performance to the public, and there is a presumption in favor of releasing the text of public statements in the Bulletin and other publications, the media, and the web site, and through participation in seminars, discussions, and conferences. The frequency of appearances by senior SSEC officials depends on the frequency of changes and developments in the securities markets’ legal framework.

Accountability and assurances of integrity

15.  Under the 1991 Constitution, officials of every state body and official or public organization, and citizens are required to submit data and documents that relate to their work to parliamentary committees. Senior SSEC officials are currently participating in sessions of the Parliamentary Economic Standing Committee in connection with the discussions that relate to changing the securities legislation. They also appear before Parliament to explain policy objectives and describe the SSEC’s progress toward achieving them. Officials appear before the Parliament, not according to a set schedule but as needed.

16.  The Rules on the Structure and the Activities of the Commission (adopted by the COM and published in the State Gazette) define the structure of the Commission’s administrative department and provide guidelines for the Commission’s activities. However, the SSEC currently has no formal internal governance and internal audit procedures. The Chairman agrees that these responsibilities will need to be formalized and disclosed as the SSEC increases in size.

17.  Financial data submitted by the SSEC to the MOF are reported to the National Audit Office (NAO) which by law is required to audit these data. The availability of these data in the NAO is considered to constitute publication. Thus, information on the expenses and operating revenues of the SSEC are not made directly available to the public. The SSEC is currently consulting the Institute of Certified Public Accountants and private firms prior to adopting the practice of releasing audited financial statements, which will be required under the draft securities law.

18.  There are standards to govern the conduct of the SSEC’s public officials and staff that are designed to establish fiduciary obligations and to prevent the exploitation of conflicts of interest. These standards are publicly disclosed in the State Gazette, the Official Bulletin, through the media and the web site. These standards require that the Chairman, Vice Chairman, and members of the Commission may not hold any other paid position during the term of their office, nor receive remuneration under contract, except in the case of research or lecturing. Members of the Commission are also obliged to keep confidential any trade secrets they have learned of in fulfilling their functions. Senior officials of the SSEC cannot be members of the Board of Directors of privatization funds.

B.  IMF Staff Commentary

19.  Securities legislation, ordinances, and regulations have been drafted with care to ensure transparency, which is essential to facilitating the market discipline that is a fundamental regulator of the securities markets. While the formal achievements in these markets and their regulatory apparatus are impressive, the Chairman of the SSEC points out that it is difficult to achieve transparency in practice. The problem arises, he believes, because the management of companies in Bulgaria needs greater training and experience. In addition, some issuers and public companies do not provide data as required. This omission makes it difficult for the Commission to report accurate data on market valuation and transactions on a timely basis.

20.  The IMF staff identified a number of areas for improvement:

  • With regard to articulating the roles, responsibilities, and objectives of the SSEC, the agency should create a mission statement, and make formal provision to consult and exchange information, on a reciprocal basis, with the BNB, the Insurance Surveillance Directorate, and other relevant national and international financial agencies. The mission statement and the information sharing protocols should be publicly disclosed.
  • To ensure public availability of information on financial policies, the Commission should release its financial statements directly to the public (for example, in its annual report) in addition to providing them to the National Audit Office. In fact, it is planning to do so under the new securities law that is currently under consideration in the National Assembly. In addition, as many people in Bulgaria do not have ready access to the internet, on which the Bulgarian Stock Exchange relies to communicate aggregate market data, the SSEC itself needs to find some alternative means to communicate these data.
  • With regard to accountability and assurances of its integrity, the SSEC needs to develop and publicly release procedures for its internal governance.

C.  Approach to International Standards and Cooperation2

21.  Bulgaria has been a member of the International Organization of Securities Commissions3 since 1997, and has adopted practically all of its Objectives and Principles of Securities Regulation. Bulgaria’s existing and proposed legislation in the area of securities market regulations follows IOSCO’s general principles and disclosure standards.

22.  Bulgaria is currently updating its regulatory framework to make it correspond even better to IOSCO and European Union standards. The new draft Law on Public Offerings of Securities, prepared by the SSEC, reflects to a large extent the principal requirements of the European legislation (Acquis Communitaire) on the regulation of capital markets, which in turn is based on the IOSCO standards. This new law would substantially revise and tighten existing legislation and extend it to new areas, such as OTC markets and portfolio management. It would also, for the first time, regulate public offerings of securities issued by nonresidents and residents, with a view to harmonizing Bulgarian legislation with international principles and treating residents and nonresidents equally. The new draft law is in line with the European legislation especially with regard to the scope of the rights and activities of the SSEC, the secondary securities markets, the activities of the investment intermediaries, information disclosure and collective investment schemes. This law is expected to be approved by Parliament by end-1999. Once this law is passed Bulgaria’s law will be consistent with 29 of IOSCO’s 30 principles (only Principle 6 on self regulation will be different in that Bulgaria’s law envisages dual regulation—by the self-regulating body and the overseeing body—in certain areas).

23.  The SSEC has not yet entered into any agreements on collaboration with foreign regulators. It nevertheless cooperates with them on a voluntary basis to develop adequate legislation in the sphere of capital markets by providing information (which is publicly available) if requested by foreign regulators. Formal collaboration agreements with other countries may be undertaken in the future. The SSEC also actively participates in various international fora with a view to improving cooperation with foreign regulators. In a July 1999 Southeastern Europe regulatory commission conference Bulgaria signed a memorandum of understanding on setting up a framework for sharing information.

24.  On pending changes in the area of securities markets, the SSEC is currently drafting the secondary legislation in anticipation of the eventual passage of the Securities Law. A draft law on mortgage backed securities is also under preparation. Moreover, the Stock Exchange and the Association of Licensed Intermediaries are working on setting up an electronic OTC market, and they also intend to make the official market electronic.


1 Prepared by Mr. Kähkönen and Mr. Feyzioğlu (both European I Department) and a team from the Monetary and Exchange Affairs Department of the IMF led by Mr. Coats, in consultation with the Bulgarian authorities. This report is primarily based on a self-assessment in the form a questionnaire on Good Transparency Practices for Financial Policies by Financial Agencies completed by the Securities and Stock Exchanges Commission, and a separate short descriptive self-assessment by the Bulgarian authorities. In preparing the report IMF staff also held discussions with SSEC management, a primary broker and trader in the securities markets, and experts in two international accounting firms operating in Bulgaria. The staff also consulted the Law on Banks, Law on Securities, Stock Exchanges, and Investment Companies and the Regulation on the Structure and Activities of the Securities and Stock Exchanges Commission.

2 This represents a summary of the authorities’ description of practices in this area. No attempt has been made to provide an independent assessment of observance of standards in this area.

3 For more information on these standards see the IOSCO’s web site at


VII. Insurance Supervision         Bulgaria ROSC