Kyrgyz Brokers Dream Of a Trading Frenzy

THEY have seen the news clips of smoothly analytical brokers and the frenzy of traders on the New York Stock Exchange floor.

They believe that the American stockbroker is "a well-trained professional who thinks only about the stock exchange and has no time for anything else."

"It is our dream to work like that," says Zhamal Dootayulu, one of eight young Kyrgyz brokers lounging at their desks around the otherwise empty floor of the Kyrgyz Stock Exchange.

This is probably the world's newest stock exchange, a key building block in transforming this new country's formerly Soviet economy into a functioning free market. It opened in May. Four companies are listed. There is even a kind of simplified mutual fund.

It isn't the Big Board in Manhattan, but when the average Bishkek resident wants to buy or sell shares of one of these companies, he or she can walk right onto the battered wooden trading floor of the stock exchange and execute a deal, no matter how humble. As many as 200 to 300 people at a time have crowded into the former conference hall.

Volumes are not large. The biggest trading day in recent months was 47,000 Kyrgyz soms in total volume - about $4,500. A slow recent day traded 700 soms - $67.

But the action is getting bigger. Within a year, says Paul Jones, a Price Waterhouse adviser to the exchange, the exchange will have a senior board with about 30 companies listed and a junior board with 30 to 50 companies. At that point, a substantial portion of this new nation's economy in effect will be trading in the open market. That market will have helped in raising needed capital for those companies.

Kyrgyzstan became an independent country in 1991, after the breakup of the Soviet Union. The government owned everything. Last year, the government privatized about 600 formerly state-owned companies. It gave coupons to Kyrgyzstan citizens - the number adjusted for age and years of work - that could be redeemed for ownership shares in the firms.

Coupons not trusted

Coupons have been a learning experience for many Kyrgyzstanis, who little understood their value at first. "People didn't trust coupons. They thought they were just paper," says Ulan Ryskeldiev, president of the stock exchange. And they were just paper, for people who lacked a way to eventually convert them to cash, he says.

The stock exchange was initially formed a year ago as a place to trade coupons in an efficient, civilized way. Coupon-trading is still the major business here.

Coupons brought private ownership to people, usually the employees of former collectives. Some pay dividends. But they bring no new cash to the enterprises. The next step was the stock market, created by 11 initial investors who each bought a seat for $5,000 apiece.

"The stock exchange here is a fundamental requirement for the free-enterprise system to work," says Mr. Jones of Price Waterhouse. "Having these shares [in companies] is of little value unless there's a secondary market" where they can be traded or sold.

At its current trading volume, the Kyrgyz Stock Exchange is not financially self-supporting. It is largely supported by money from the United States Agency for International Development, which has contracted Price Waterhouse to help guide the privatization of Kyrgyz industry. Ten Price Waterhouse employees currently work at the stock exchange, overseen by a miniature version of the American Securities and Exchange Commission (SEC).

Successes and set backs

Players in this young market have already had some success stories and some cold showers.

A share in the Bakai sugar plant cost 30 to 35 soms in late July, but some bookkeeping errors made it into local newspaper articles and a month later shares trade at 10 to 15 soms.

But the Edelweiss stocking company, which broke off from a large state monopoly in 1991, has held very stable at a price nine times the nominal price of the initial issue. The company issued its first stock well before the stock exchange opened, and it paid 40 percent dividends over the past year (figured from the market price).

The Kyrgyz brokers here are slowed down largely by lack of supply, not demand. They have buyers ready to snatch up Edelweiss and Gormolzavod dairy stock, but no willing sellers. Many stocks are owned by the employees of the enterprises themselves.

"I have real clients who want to buy Gormolzavod [at 30 percent higher prices than a month earlier], but none who want to sell at real prices," says Nariman Havaza, a young, Price Waterhouse trained broker.

The Kyrgyz Stock Exchange is slowly trying to win investor confidence with a regulatory agency modeled on the American SEC, an independent registrar of stock ownership, to avoid the scams that have plagued Russian investors, and full financial disclosure from all listed companies.

Exchange President Ryskeldiev wants to create a "civilized place that is open, transparent, with professional work, all done legally and under state regulatory control."

As trust and familiarity grows, he says, Kyrgyz investors will begin buying and selling in their brokers' offices around the country - instead of walking personally onto the exchange floor.