Montenegro: Shares Stranglehold

Montenegro, still tip-toeing into capitalism, has created a highly peculiar stock market in which shareholders are forced to deal with a small band of brokers with close friends in government.

The privatisation of state industry has left the country awash with shares that were handed out free to all adult citizens. But the only way to sell them is through four brokerage houses, which look set to make a fortune.

Rules announced on March 4 forbid shareholders from disposing of holdings in any way other than through these favoured brokers. They cannot hand them over as a gift, even to members of their own family. Anyone who wanted to leave shares worth between 200 and 300 euros to a grandchild would be obliged to pay the brokers 13 or 18 euros.

The authors of the privatisation law and the legislation regulating the share trade are also members of state bodies such as the privatisation council, which issues licences to brokers. The same people also occupy prominent positions within the stock exchange boards and brokerages.

The system bears little resemblance to Western stock exchanges where thousands of brokers compete to offer service.

The Montenegrin NEX stock exchange was founded by three brokers, Monte Adria, CG and Holder. Another broker, ONIS, has a license to trade. The country's other stock exchange was founded by the state banks.

Both these exchanges along with the brokerages and their regulatory bodies are managed by people whose career started ten years ago at the University of the Economy in Podgorica. The then-assistant lecturers and professors, Veselin Vukotic, Petar Ivanovic, Sasa Popovic and Veselin Kascelan are currently managing institutions which played an important role in Montenegro's economic transition.

Vukotic, who is deputy president of the privatisation council and president of the shares commission, the body that crafted the regulation forbidding external dealings, denied at a press conference that there was any conflict of interest in his role. He insisted that the share trade legislation was designed to help citizens obtain a proper value for their holdings instead of trading them in "for a bottle of beer, as happened in Czechoslovakia and Russia".

Brokers have set the cost of their services at between 10 and 15 euros per transaction, with an additional three euros for the first deal.

It was in March last year that the Montenegrin government distributed free shares in the 123 or so privatised state companies. Around 400,000 citizens became shareholders with an overall holding of some 1.5 billion euros.

Because of the prevailing economic hardship, tens of thousands of Montenegrins are now clamoring to sell these shares without bothering too much about what they fetch or worrying about potential dividends.

For sale contracts bigger than 2.500 euros, the brokers' commission will be 0.5 per cent. Forty per cent of this would go to the stock exchange.

Even more shares will flood the market soon with the privatisation of Telekom, worth nearly 100 million euros. From this the brokers stand to gain about half a million euros.

A Podgorica-based NGO called Transition Centre has urged the constitutional court to review the share trade legislation. The court has so far rejected similar demands. Nebojsa Medojevic, a director of the NGO, claims the law breaches the constitution. "No one has the right to force the citizens to trade through brokers if they don't want to," he said. "Instead of competing for clients this legislation granted brokers a monopoly."

The argument cuts little ice with shareholders who want to get their hands on the cash now and worry about the morality later.

Zoran Radulovic is a journalist with the Montenegrin weekly Monitor.