1. THE IMPLEMENTATION OF THE WHITE PAPER ON CORPORATE GOVERNANCE IN SE EUROPE Progress to date in Bulgaria

2. Institutional Framework – Achievements and Challenges The legal framework is largely brought into line with the relevant EU acquis. The institutions required are in place are effectively functioning. Registration of ownership and transactions with securities are fast and reliable. Wide network of brokerage services Supervisory body to monitor the accounting and auditing profession.

3. Regulatory Authorities - Achievements and Challenges FSC’s powers have been enhanced and broadened (2000) - licensing, monitoring, compulsory measures, fines, requiring information, investigations FSC is independent Law enforcement and implementation relay mostly on the market regulator Most of the measures initiated by the FSC may be appealed in court Professional Arbitration for BSE Increase the expertise and the capacity of courts Increase the role of BSE as regulator Implementing and enforcing the new legal rules in an effective and balanced way

4. The Private Sector – Achievements and Challenges All public companies are required (2003) to have CG programmes Best international practices of CG based on OECD Principles Annual reports on the implementation All public companies are required to have investor relations officer The bulk of companies have gone public in an administrative way Many public companies don’t posses the appropriate profile Companies with an essentially public profile are not public or are on their way to abandon this status Public status is considered as a burden rather than as an opportunity To a large extent the sector remains still uncommitted to the CG reform

5. CG Training – Achievements and Challenges Over the past years many international donors have assisted the FSC under different programmes and projects There have been training programmes for accountants and auditors Ad hoc training by non- government organizations under international projects Training for board members and judges needs to be further enhanced. Training for accountants and auditors in the field of CG Corporate governance curricula are usually not available at universities

6. Minority Rights Protection - Achievements and Challenges Overall improvement (2002) Shareholders’ approval of major and related party transactions Redemption rights in case of reorganization Tender offers regulation was developed providing for fair price Tradable pre-emptive rights Proxy voting Clear rules with respect to dividends Free transferability of shares Minority rights in state owned companies Efficient protection in case of major and related party transactions Significant role for the institutional investors

7. Board’s Duties – Achievements and Challenges Elaborated legal rules regarding boards’ duties of care and loyalty One third of the members are required to be independent directors Criteria for independence are set forth in the Securities Law Access to information Real MoB independence Committees for some of the essential functions Remuneration linked to the performance (shares)

8. Accounting Reform – Achievements and Challenges New Accountancy Law (2003, IAS) New Independent Financial Audit Law (ISA, EU VIII-Directive) Organized training by the Ministry of Finance and the (ICPAB) Financial reporting and auditing procedures are in a period of transition More extensive training for practicing accountants, auditors, tax authorities and market regulators. New educational curricula in a different philosophy Regulation

9. Disclosure – Achievements and Challenges Far-reaching upgrade in the legal framework (end of 2003) The content of prospectuses and periodic disclosure reports are harmonized with the best international standards Disclosure requirements for significant events Broad definition of price-sensitive information plus a non-exclusive list of events, typically considered as material Efficient communication by CP institutions Efficient communication by companies Greater role of the media

10. Stakeholders’ Rights – Achievements and Challenges Labour Law Social Insurance Law Representation in the GM Guarantee Fund Insolvency legal framework has been revised and improved several times Amendments to the Civil Procedure Code Amendments to the Registered Pledges Law Effective communications with relevant stakeholders Stakeholder policies should be established Effective redress mechanisms for employees (arbitration or specialised courts)

11. Trading on the BSE – Sofia (shares) 19992000200120022003 Official Market Nbr of Listed Issues3330 3135 Turnover (mil. BGN)12.38.64.414.460.9 Market Capitalization (mil. BGN)219.1283.5195.0252.9986.7 Unofficial Market Nbr of Listed Issues828478369325303 Turnover (mil. BGN)38.123.637.869.6120.0 Market Capitalization (mil. BGN)1154.01003.0909.01122.31742.0 Total Nbr of Listed Issues861508399356338 Turnover \ Capitalization (%)3.72.53.86.16.6 Capitalization \ GDP (%)6.95.73.74.37.9 Block Trading (mil. BGN)82.691.1114.9244.7151.2

12. SOFIX Index 2000-2003

13. Trading on the BSE – Sofia (bonds) 19992000 200120022003 Corporate Bonds – Official Market Nbr. of Listed Issues13337 Nominal Value (mil. BGN)0.34.1 13.744.7 Turnover (mil. BGN)0.03.30.82.541.5 Corporate Bonds – Unofficial Market Nbr. of Listed Issues004610 Nominal Value (mil. BGN)0.0 10.628.161.1 Turnover (mil. BGN)0.0 0.317.126.0 Municipal Bonds Nbr. of Listed Issues00012 Nominal Value (mil. BGN)0.0 3.04.0 Turnover (mil. BGN)0.0

14. The Broad Picture - Achievements and Challenges The majority of the recommendations have been implemented in the legal and institutional framework All aspects of the CG reform have been touched Signs that the capital market has responded in a positive way to the CG reform CG reform effort is not yet completed Certain aspects are in an advanced phase, while others are at an early stage Some significant changes have been adopted very recently (2002, 2003) The effectiveness of enforcing the new legal rules remains a major challenge Educational efforts are needed