Estonia offers high liquidity and transparency

Helo Meigas
Chair of the Management Board, Tallinn Stock Exchange

The Tallinn Stock Exchange (TALSE), which has been operational for 15 months, has shown a considerable increase in trading activity. In the environment of rising prices, the transparency and low costs of the market have increased investor confidence, which is certainly one of the important factors behind the rising volumes

Objectives at establishment

One of the biggest problems of emerging markets which have only recently started operation is the lack of liquidity and transparency. This is why the founders of the exchange decided to start a continuous market from the beginning in order to overcome the difficulties of establishment and to put stringent information disclosure and listing requirements in place. The Tallinn Stock Exchange started its work on 31 May 1996, founded by the initiative from the market participants as a limited liability company. At establishment it had 23 shareholders including banks, brokerage houses, the Ministry of Finance of the Republic of Estonia and the Central Bank.

Decentralised electronic trading

In Estonia a good basis for establishing a stock exchange was the Estonian Central Depository for Securities, which keeps the electronic register for securities and is doing delivery-versus-payment T+3 settlement with clearing funds through the Bank of Estonia. The high level of communication lines and technological development in Estonia supported the idea for the establishment of a decentralised electronic trading system. The decision between an order-driven or quote-driven market was made after analysing the trading practices of the market participants before the opening of the stock exchange. As a young market, it was dominated by institutional trading, with a fairly low level of private investor activity. Market-making as a trading model was chosen as the main module, together with the possibility to effect transactions through a public order book with less liquid securities.

Sources of liquidity

The 15 months of operation of the Tallinn Stock Exchange have shown a remarkable growth of trading activity. As of August 1997 there are 23 members of whom ten have registered as market-makers for the main list shares. Investor confidence is increased by the regulation enforced on the trading by which all members of the exchange must give the priority to the interests of investors and always guarantee them the best price available on the market. The regulation, together with low transaction fees charged by the exchange (25 EEK flat fee per transaction), has helped to achieve a considerable increase of the activity among private investors. Within the last 15 months, 19,351 new securities accounts have been opened in the Estonian Central Depository of Securities.

Most traded securities are shares that make on average 99.9 per cent of the turnover of the Tallinn Stock Exchange. Monthly turnover has increased from 85 million EEK in June 1996 to 3,902 million EEK in August 1997. Average turnover per session has grown from 4.7 million EEK to 185 million EEK in the same period. The number of transactions per day has increased from 63.6 transactions in June 1996 to 755 transactions in August 1997. The trading is concentrated to a very big extent into banking shares, which show on average over 20 per cent liquidity on a monthly basis.

Most active investors have been corporate investors. The market capitalisation of the securities held by the corporate investors makes 87 per cent of the total market capitalisation of the Tallinn Stock Exchange. Foreign investors' interest towards the Estonian securities market has also been high. The biggest number of investments come from Finland, which as of the end of July 1997 was holding 17.83 per cent of the market. The second and third biggest foreign investors are the UK (6.86 per cent) and Italy (2.11 per cent).

Information dissemination has also been a major objective for TALSE. From its first days of operation, TALSE has given real-time price and transaction information to Reuters and Dow Jones Telerate. In order to increase the awareness of Estonian investors, TALSE maintains a web page on the Internet (, which provides up to the minute price and transaction information and publishes all company announcements.

Transparency and information disclosure

In order to increase transparency on the market, TALSE has put in place stringent listing requirements. Companies are required to give quarterly financial statements and to continuously disclose any important information about their activities. To ensure market participants equal access to information, all announcements forwarded to the exchange are immediately distributed throughout the exchange information system and put on to the TALSE web page. In drafting the regulations, the legislation of the European stock exchanges has been carefully studies and all relevant EU directives have been implemented. Special care has been taken in drafting regulations for corporate actions. In order to ensure that information given by the issuers is of high quality, it is planned to enforce the requirement to consolidate the accounts and publish the annual reports in accordance with international accounting standards in the near future.

Despite the fear that heavy information disclosure requirements will hinder the flow of new companies to the securities market, TALSE has seen a surge of new companies being listed. At the beginning of June 1996, the Tallinn Stock Exchange traded with the stocks of five banks (Hansabank, Estonian Savings Bank, Forexbank, Union Bank of Estonia, Bank of Tallinn), bonds of the State Compensation Fund (six issues) and shares of one closed-ended fund (Hansa Privatisation Investment Fund). By the end of August 1997 there were 21 companies listed on the Tallinn Stock Exchange. In addition, there are seven securities being traded on the free market, which is the unlisted segment of the stock exchange. New listings during this year have come mostly from the industrial sector (construction, ski producing and textile manufacturing companies) but nevertheless the issuers from the banking sector dominate the market. Equity market capitalisation has increased from three billion EEK to 25 billion EEK and has reached a 48 per cent ratio to the GDP for 1996.

Future outlook

Despite a successful start of the exchange, special attention is planned to be given to the further elaboration of the regulation. Priority shall be given to the regulation of minority rights protection and the enforcement of capital adequacy requirements for the non-bank members of TALSE. The increase in the number of companies listed on the exchange is envisaged, mostly with listings from small and medium sized companies from the industrial sector. The increase of the market capitalisation is mostly dependent on the privatisation of infrastructure companies, which is planned to start in 1998.

Tallinn Stock Exhange - Traded Securities

Company NameProfileMarket Capitalisation
Million EEK
As of August 31, 1997
Million EEK
August 1997
(monthly turnover/capitalisation)
Main List - Common Shares
Number of securities: 12
Hansabank banking 9,236 928.4 10.1%
Estonian Savings Bank banking 4,868 987.1 20.3%
Union Bank of Estonia banking 4,084 781.6 19.1%
Norma seat belt manufacturing 1,493 124.0 8.3%
Estonian Forexbank banking 1,139 416.6 36.6%
Bank of Tallinn banking 1,000 226.3 22.6%
Tallinn Pharmaceutical Plant pharmaceutical producing 720 68.8 9.6%
EMV construction 368 35.9 9.8%
Marko Ehitus construction 382 38.3 10.0%
Tallinn Department Plant retail 350 30.7 8.8%
Baltika textile manufacturing 218 20.4 9.3%
Estonian Fairs fairs 115 12.8 10.9%
Total 23,975 3671.0 15.3%

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