History and activities of the
Warsaw Stock Exchange
President and CEO, Warsaw Stock Exchange (WSE)
The Warsaw Stock Exchange (WSE) was created in April 1991, however the first exchange in Warsaw was opened in 1817 and operated until the end of World War II. The WSE is a modern securities market, with centralised, fully computerised, paperless trading and a central depository for securities and delivery versus payment settlement. The market is supervised by the Polish Securities Commision, a government body established to regulate and control all market intermediaries, issuers, and the stock exchange. Strict regulations make the market safe and transparent. High standards of regulations are already recognised internationally: since October 1994 the WSE has had member status in the International Federation of Stock Exchanges (FIBV) and in May 1997 the WSE received the status of a designated offshore securities market from the US Securities and Exchange Commission.
The year 1996 brought substantial increases in volumes and prices on the WSE. Equity turnover doubled in comparison with 1995. The average l996 daily turnover value amounted to USD 44 million, with 29,000 orders and 9,600 transactions per session.1 The WSE main index, The WIG, rose 89.1 per cent. The growth of prices was accompanied by the lowest volatility in the history of the WSE; the average daily change of the WIG equalled 1.2 per cent. As a result of increased prices and the growing number of listed companies, market capitalisation doubled, exceeding USD8 billion. 1n the first five months of 1997, the WIG index advanced by 11.1 per cent. The period saw further increases in volumes on the WSE. The average daily turnover value exceeded USD66 million, with 35,000 orders and 14,000 transactions per session.1
At present, the WSE has three trading floors with different listing requirements - the main, parallel and free market. The WSE listing requirements follow those of other European markets. The main market is aimed at bigger, more established companies with a larger shareholder base; the parallel market is meant for medium-sized companies with shorter track records; and smaller companies can seek listing on the free market. Currently 97 companies (including National Investment Funds) are listed on the WSE main market, 23 companies have their shares listed on the parallel market and one company's shares are listed on the free market.
The range of securities available to investors increases. Equties, 43 Treasury bond issues (with various maturities) and privatisation certificates and shares of the 15 National Investment Funds are now listed on the WSE. The privatisation certficates, the first type of securities related to the National Investment Funds Programme, were introduced to the exchange trading in July 1996. On June 12 1997, shares of the 15 Funds started trading on the WSE main market.
By mid-June, 38 new companies (including 15 National lnvestment Funds) had been introduced to trading, thus the number of exchange listed companies reached 121. With the introduction of the NIF shares, the WSE equity market capitalisation increased by over USD1.5 billion, exceeding USD11 billion.
As the market matures, so does the exchange. Its structures and trading systems continue to develop. In April 1991 the exchange started its operations with the French electronic call auction system (one fixing per day). ln July 1991 post auction trading (balancing) was added to the single price auction. In 1995 a modification was introduced to the post-auction trading, a new phase called the 'crossing phase' involves matching orders from both sides of the market at the previously established price. The exchange started continuous trading in Treasury bonds in 1992, original board system was later replaced by electronic trading. As the market participants gained more expertise, the need for continuous trading in equities became more apparent. In 1996 the exchange introduced first equities and privatisation certificates to continuous trading, its share in total market turnover reached eight per cent.
The National Investment Funds (NIF) Programme maintains its momentum. The programme combines voucher privatisation with the management skills provided by 15 National Investment Funds. The National Investment Funds manage 512 companies, which were contributed to the programme by the State Treasury. Each fund is a leading fund for some 35 companies and holds a minority stake in the remaining enterprises. Under the NIF scheme, Polish citizens were eligible to receive NIF certificates, 26 million of which were distributed in the 12 months ending November 1996. In July ]996, the cetificates were introduced to the exchange trading. In April 1997, the Polish Securities Commission admitted the shares of all the 15 Funds to public trading, and since May 12 l997, the certificate holders have an option to convert each NIF certificate into a portfolio of 15 shares (one share in each of the 15 Funds). On June 12 1997, shares of the 15 National Investment Funds started trading on the WSE main market.
Apart from the NIF certificates and the NIF shares, shares of individual underlying companies can be traded on the exchange, provided they meet the WSE listing requirements. The first company from the programme was listed on tbe WSE on March 17 1997. By mid-June five more companies had been introduced to the exchange trading. NIF certificates are available to foreign investors on the secondary market. Foreign investors are also able to convert the certificates into NIF shares, and trade them on the WSE.
All publicly traded companies have a continuous disclosure obligation. They must submit quarterly, semi-annual and audited annual financial reports. Short reports on sales and earnings have to be submitted monthly and any price-sensitive information must also be reported to the market.
The WSE has 37 member firms including leading Polish banks like Bank Handlowy and PeKaO Group as well as internationally known investment banks - among them Creditanstalt Securities, Citibrokerage, CS First Boston, ABN-AMRO Hoare Govett, IB Austria, ING Barings, Raiffeisen Capital & Investment and Robert Fleming. The numer of investment accounts registered with brokerage firms is growing as a result of the implementation of the National Investment Funds Programme. By the end of May there were already over one million accounts registered in Poland.
The exchange transactions are settled through the National Depository for Securities (NDS). The central depository system, based on paperless trading, means that all securities of a given issue are deposited at the NDS in the form of a global certificate. A transaction completed for a client is recorded in his account with the broker or custodian. All transactions are settled on a delivery versus payment basis within three days, and due to very rigorous procedures no failed trades occur.
The market has always been open to foreign investment. The rule of free entry and exit for foreign investors has been adopted from the very beginning of the exchange operations. There are generally no restrictions on foreign investment in the stock market. The rule of free entry and exit applies to all foreign investors, and non-residents are free to repatriate profits. Unless an intergovernmental agreement to prevent double taxation exists, non-residents and legal persons with headquarters outside Polish territory are generally subject to the same taxation as Polish residents. The foreign participation on the WSE is estimated at a level of 30 per cent.
To meet the growing information demand in 1996, the exchange launched the system of commercial data distribution. Information on the WSE trades and quotes is now available in real time from major international data vendors like Dow Jones Telerate and Reuters; other vendors including Bloomberg, Telekurs, or Datastream distribute end-of-day results.
The WSE is in the process of acquiring a new trading system. It is a very important project for the exchange as it will shape its development over the next years. The new system will allow more flexibility and a higher level of automatisation of order flow. The system supplier should be selected shortly. It is planned that the new system will be operational by the end of l998.This year the WSE intends to introduce first derivatives. It is planned that in 1988 the range of derivative instruments offered will increase.
The development of Polish capital markets should be further facilitated by a new securities law. The draft prepared by the Polish Securities Commission has already been passed by the Parliament, but is still subject to the Senate approval.
1. Shares and privatisation certificates, single-price auction