Czech Republic: capital market review by World Bank

By World Bank

Examining the potency of capital markets is an invaluable workout for any kingdom, as a well-functioning capital marketplace can give a contribution considerably to higher source mobilization and eventually to a greater development functionality. The Czech Republic applied significant reforms within the early Nineteen Nineties and accomplished striking fiscal effects. besides the fact that, macroeconomic functionality all started faltering in 1996. even supposing the reforms contributed to the Czech economy's early successes, the regulatory framework for organisations and fiscal associations contained a number of flaws that constrained the aptitude earnings from privatization and lowered the general potency of the economic system. The vulnerable defense of minority shareholder rights and the absence of alternative very important parts of inner governance proved to be one other vital crisis to sound administration and lively restructuring. Weaknesses within the exterior mechanisms of governance additionally opened room for abuse via huge shareholders and bosses. This document makes a close evaluation of the regulatory and institutional framework within the significant sectors of the Czech capital marketplace, identifies the deficiencies that also stay, and gives innovations for extra advancements.

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The perception of widespread fraud was reflected in the high discounts on the prices of fund sharesbetween 30 and 60 percent for most funds, and above 90 percent in the case of funds converted into holding companies (a device used by several investment funds to escape regulatory control altogether). Corporate governance did not improve as expected, despite greater ownership concentration, because of the absence of other important elements of a sound governance framework. For one, investment funds did not perform well their governance role, due to the lack of incentives to maximize the value of their portfolios (not to mention the lack of resources and skills).

The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries.

Improve Pricing Rules. The measures that would improve pricing and other related rules would include: (i) replacing historical pricing by forward pricing; (ii) granting some leeway for managers to price securities issued by enterprises in bankruptcy or not traded, subject to approval by the depository and the auditors; (iii) ensuring that there is single pricing of open funds' shares, when the shares are also traded in secondary markets, by de-listing or mandating that the shares be negotiated at NAV Page xvi minus/plus a margin; (iv) shortening the maximum period of redemption, or accruing interest on NAV to compensate for the delay.

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