This column was published on March 25 in Macedonian language at

The Macedonian Stock Exchange started operations on March 28, 1996. These days mark 25 years since the first day of trading. Ivan Shteriev, who has been part of its team since its inception, writes about the first days of the MSE.

The 1990s, from a pan-European perspective, were a period of euphoria, optimism and hope for a better future. Socialism, both with and without a human face, completely and suddenly collapsed like a tower of sand. Francis Fukuyama declared the end of history and Jeffrey Sachs propagated the need for shock therapy as a cure for sick planned economies. Liberalization in economic life has become the leading mantra, and privatization a sacred cow. Everyone, including the communists, became supporters of the market economy. The debates over whether the economic reforms of the former socialist states in Europe can and should be carried out without firstly creating efficient institutions, or whether the two processes should happen simultaneously, became a topic later. The IMF and the World Bank had set high reform targets that needed to be met quickly. Politicians’ success was measured by the number of companies they privatized or planned to privatize. In other words, the economic agenda of post-socialist societies in the 1990s was more than ambitious, and according to it and its advocates, building a new market economy, among other social benefits, inevitably led to the creation of an efficient capital market to redistribute financial surpluses and create optimal allocation of resources in the economy. This point of view was stimulated both by local, early naive enthusiasm and by foreign experts who flooded transition countries as part of numerous technical assistance programs from the West.

At that time, while Hungary and Poland, unlike today, were the champions of the new age, and the Soviet Union and its successor states were experiencing catharsis, decades of political and economic integration of the South Slavs collapsed completely. Privatization, as “the mother of all reforms”, began in former Yugoslavia, with so called Ante Markovic’s law in the late 1980s, was halted slightly due to turbulent political and military developments in the early 1990s and was finally legalized in the newly independent Macedonia continuing intensively from 1993 and henceforth. Privatization, in addition to substantially changing the ownership of capital, also meant the corporatization of transition economies in the sense that the leading business entities became joint stock companies. Hence, the creation of shares as transferable securities and the numerous shareholders as their owners opened the question of exchange of shares, i.e., their organized and centralized trading.

Macedonian economic affairs and the stock market

Historically, there had been no stock exchange in Macedonia, regardless of the political and economic environment. The data shows only an agricultural exchange in Skopje established in 1929, on the eve of the Great Depression. The pre-socialist Macedonian economy was predominantly agrarian, while the formation of larger businesses and the civil capitalist class, as is well known, was particularly slow. In addition, the prominent representatives of these social structures were often not from the domicile population whereas the servicing and financing of business needs and personal investments was done in other more developed financial centers in the region. Until the beginning of the Second World War, the number of joint stock companies and the local demand for establishing a stock exchange never grew to the level of considering an establishment of such an institution in Macedonia. In the Kingdom of Yugoslavia, stock exchanges existed in Belgrade, Zagreb and Ljubljana. It is there that the first new stock exchanges were formed in 1989 and 1990, in the era of creation of the so-called internal shares. This has happened after almost five decades of a socialist model of economy in which the stock market for ideological reasons could not be discussed.

Was the creation of our stock exchange late?

In those five or six years, from the formation of the first joint stock companies in the then still Socialist Republic of Macedonia until the establishment of the Macedonian Stock Exchange in 1996, the transfer of ownership of the shares is either not allowed (in the first phase of the so-called internal shares) or takes place in a non-transparent and decentralized manner, through bilateral agreements and endorsement. It is a period when the focus is primarily on implementing privatization and changing the economic order. Stocks are by-products of that process. The practical focus is not so much on the transfer of ownership of shares, i.e., the organization of trading (although of course there is interest in that as well, in order to acquire greater ownership in companies), but on controlling the shareholders’ registers which are the top business secrets. There are no serious initiatives for establishing an organized stock exchange in Macedonia, not even when stock exchanges are established in other republics, nor during the first few years of independence. In other countries in that period, the founders of the stock exchanges at the beginning of the transition were usually either the state (in some form) or other financial institutions (spontaneously or again encouraged by the state). In some transition countries, more than one stock exchange emerged in the initial unregulated environment, with various entities as founders, including individuals (such as the case of neighboring Bulgaria in the early 1990s, where this process was particularly spontaneous). In Macedonia, to our knowledge, during the first few years of the 1990s there was no private initiative to establish a stock exchange, and the state institutions were preoccupied with other political and economic priorities and the establishment of a stock exchange was not on their agenda. The voice for the need of establishing a stock exchange as a necessary institution in a market economy and as a place for organized shares trading mostly comes from the Privatization Agency and its predecessor the Development Fund.

Until 1994, there was no concrete initiative to establish a stock exchange, neither public nor private. That year, based on stronger perceptions that the new corporate domestic economy needs a functioning effective stock exchange, under the indirect auspices of the Privatization Agency, the first formal initiative was channeled by several legal entities, including a few private companies. A founding assembly was held, the governing bodies were elected and documents for obtaining a work permit were submitted to the Securities and Exchange Commission as a regulator in this segment – which was established a year earlier, in 1993. However, the SEC rejects the request for the establishment of this stock exchange, citing legal provisions that were adopted before the break-up of Yugoslavia (that the founders of the stock exchange can only be financial institutions) and which the Macedonian state undertook in the rapid formation of its new legal order. Whether this initiative had to end exactly in this way and how well was the coordination between the founders and the various institutions involved in this episode is a question to which, from a historical distance, different answers can be obtained. However, after this unsuccessful attempt, during 1995, the initiative to establish a stock exchange was transferred from the Privatization Agency to the Ministry of Finance. This project, at the state level, obtains serious technical assistance from Great Britain, through the UK Know-How Fund, and at the same time animates and convinces financial institutions, as the only possible founders of the stock market in the current legal framework, to enter this project, to invest their own capital and to enable the establishment of the first stock exchange in Macedonia.

The first bell

From this moment onwards things start accelerating rapidly. Several activities were happening in parallel. For one, foreign consultants come to Macedonia and start the project for establishing a stock exchange. They work simultaneously on several fronts – negotiating with potential founders of the stock exchange, creating a detailed legal framework for the functioning of the market as a whole and internal acts of the stock exchange, training and licensing of the first brokers and employees in the stock exchange, system design, trading rules and settlement of stock exchange transactions, etc. A local team is formed that works on the formation of the stock exchange. As a result of all these intensive activities, 19 domestic financial institutions (13 banks, 3 savings houses and 3 insurance companies) signed a Stock Exchange Agreement on September 13, 1995. The Stock Exchange was established as a non-profit joint stock company under the name Macedonian Stock Exchange AD Skopje, with a founding capital of 1 million German Marks. Previously, the Securities and Exchange Commission positively assessed the request for establishment of a stock exchange and issued a formal work permit in August of the same year. The founders of the Macedonian Stock Exchange were its first members. At the same time, by the end of 1995, the Commission organized trainings for future brokers and at the beginning of 1996 issued the first brokers licenses. At this stage the process also receives support from the German Agency for Technical Cooperation – GTZ.

On March 28, in a solemn atmosphere, the Macedonian Stock Exchange organized the first day of trading in its then business premises, at Mito Hadzivasilev Jasmin Street 20. It rearranged the large hall at the second floor of the headquarters of the company Automakedonija. The game of fate and the resulting tectonic social changes transformed that same hall, which in the previous system was the place of both numerous party and workers’ meetings, into the center of the most market-oriented institution of the new economic order. On March 28, two and a half decades ago, the newly arranged stock market hall was packed. In addition to brokers and employees of the Stock Exchange, many journalists, representatives of stock exchange members and shareholders, and other guests were present. Like rarely at any other event, several government ministers, the Governor of the National Bank, the Prime Minister and the President of the Republic were present at the same time. Exactly at 10 o’clock, President Kiro Gligorov, with his characteristic smile, with three blows on the bell marked the beginning of operations of the first stock exchange in Macedonian history. On that first day of trading, 25 transactions were concluded with 8 different securities and a total turnover of 1.1 million Denar.

A quarter of a century later

The past 25-year period is long enough to allow one to accurately identify several development stages of our stock market. At the beginning, it was ambitious and naive belief that building a new economic system based on market principles would automatically lead to the creation of an efficient and functional securities market in the Macedonian economy. After all, that is the reason why the stock market was formed. What followed was a rapid confrontation with the real transitional environment – privatization and consolidation of the initially created ownership structures through the stock exchange, completion and modernization of the legal, institutional and technical infrastructure on the market, followed by the stock market boom of 2005-2007 due to the unprecedented regional and global super liquidity and optimism. The global financial crisis of 2008 for the local capital market has resulted in a long lost decade of hibernation, and in the last three or four years we have again witnessed more intense market dynamics which, despite the current pandemic, have accelerated further last year.

Frankly speaking, a quarter of a century later we can conclude that the Macedonian Stock Exchange has become an important factor and integral part of our financial system. It performs its functions at a high level, starting from the basics for which it was established – the organized matching of supply and demand of securities in the Macedonian economy and market price discovery for these financial instruments. In the past two and a half decades, at MSE about 580 thousand transactions with more than 640 shares and over 30 bonds were concluded, with the total turnover so far being over 3.9 billion Euro. Furthermore, the MSE continuously provides and distributes information on securities trading and operations of the listed companies to the investors as well as the general public, takes care of improving the culture of transparent operation of issuers and the quality of their corporate governance, offers alternative investment opportunities in the economy and contributes to increasing financial literacy in society. The most challenging obstacle yet to be overcome is the fact that the MSE is not practically used by both the corporate and the public sector as a market mechanism for their financing, but it is a general anomaly of the economies and financial systems of all post-transition economies in the region and beyond. The lack of more serious operational and substantial problems in the market, the permanent quantitative and qualitative increase in the scope and level of services for brokers, issuers and investors, the high rating of the Macedonian Stock Exchange in the wider region (despite its objectively small size, and the initiation of and participation in many international projects, says enough about its performance so far. As for the future, the strategy of the Macedonian Stock Exchange is clearly formulated – maintaining and increasing the efficiency of the organized securities market in Macedonia, constantly expanding the range of products and services, extending the scope of integration with other similar institutions in the country and other regional markets due to greater synergies and introduction of modern technologies in the operations and maximum possible digitalization.

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