Warsaw: The Region’s Key Market
The Polish capital market was built almost from scratch 25 years ago. Today it is considered the biggest and most liquid market of Central and Eastern Europe. Poland has long been put on the map by international investors, becoming one of the world’s most important emerging markets. This has been driven not only by Poland’s huge economic potential, its good perception among Western economists and analysts, and the advancing globalisation. Equally important was the dynamic development of market infrastructure, where Poland has evidently outpaced the other countries of the region.
Towards a Success
In its 24 years in business, the Warsaw Stock Exchange has evolved and is broadly seen as the most important market in Central and Eastern Europe. It has joined the group of Europe’s leading exchanges, although in 1996 its capitalisation was lower than even that of the Teheran exchange.
The WSE was not the first exchange to be established in a European post-communist state. Slovenia was the pioneer. The Ljubljana Stock Exchange was created in 1989, two years before the country’s independence. Hungary’s exchange was also established early, in 1990. Today both these exchanges are relatively small markets, members of the CEE Stock Exchange Group grouped around Austria’s Wiener Boerse. The WSE was established 1991, as was the exchange in Sofia, followed two years later by the Prague Stock Exchange. Micex in Moscow did not launch until 1995. At the time, however, all those markets were small and weak compared to Vienna or the Scandinavian exchanges, not to mention Western European markets. In 1996, the capitalisation of domestic companies on the WSE (according to the WFE) was only US$ 8.4 billion and the capitalisation of the Prague Stock Exchange was US$ 19.7 billion, compared to US$ 33.6 billion for the Wiener Boerse, US$ 240.4 billion for the Stockholm Stock Exchange and US$ 23.6 billion for the Athens Exchange. In 1998, the Warsaw Stock Exchange outdid the Prague Stock Exchange as measured by the capitalisation of domestic companies. The WSE outpaced the Wiener Boerse in 2008. Today the WSE still ranks below the giants including the Deutsche Boerse, the London Stock Exchange and even Russia’s Micex, but it is bigger than most regional markets by an order of magnitude. In May 2011, the (domestic) capitalisation of the WSE was US$ 168.7 billion compared to US$ 103.9 billion for the Wiener Boerse and US$ 18.4 billion for the Budapest Stock Exchange. The WSE is a close match for the capitalisation of the Istanbul Stock Exchange (US$ 193.6 billion).
“The Warsaw Stock Exchange is well positioned to remain the key market in Central and Eastern Europe in the coming years. I don’t see how its position could be challenged. Many companies, both Polish and international, still want to be listed here while investors are looking for a good place to invest in Europe’s emerging markets. The climate for the exchange in Warsaw is good,” said Herbie Skeete, Managing Director of the UK-based exchanges research company Mondo Visione.
Attracting Investors
The stocks of five companies were traded on the WSE in the first session. At the time, the Wiener Boerse listed 151 companies. At the end of April 2015, all WSE-operated markets listed 472 companies, compared to 96 in Vienna, 277 in Istanbul, and 257 on Moscow’s Micex. The WSE outpaced the Austrian exchange already in 1997. The WSE is also the region’s unparalleled leader in attracting foreign issuers. In April 2015, the WSE listed 52 foreign companies, compared to 2 foreign companies on the Vienna Stock Exchange, one foreign company in Istanbul, and only four foreign companies in Moscow. The WSE has attracted some major players in the region, including the Hungarian oil corporation MOL, the Czech energy corporation CEZ and the Italian bank UniCredit. In November 2010, the WSE was newly listed as well: it opened an IPO which attracted huge investor interest. The capitalisation of the WSE reached ca. PLN 2.2 billion.
However, the WSE Group is more than the main market. In August 2007, the Warsaw Stock Exchange opened NewConnect, the alternative trading system dedicated to small and medium-sized companies. NewConnect works to attract young innovative companies and can be a springboard for their listing on the regulated market. At the end of April 2015, NewConnect listed 420 companies (including foreign companies) with a total capitalisation of EUR 2.4 billion. In September 2009, the WSE opened the bond market Catalyst comprised of four trading platforms operated by the WSE and its subsidiary BondSpot. At the end of April 2015, Catalyst listed 195 issuers. The WSE holds 100 percent of the Polish Power Exchange, Poland’s only licensed commodity exchange. PolPX has offered trade in electricity since 2000 and trade in natural gas since 2012. PolPX also operates the Register of Certificates of Origin of electricity produced from renewable energy sources (RES) and high-efficiency cogeneration.
The importance of the Warsaw market is demonstrated by the fact that it accounts for approximately 60 percent of all exchange trade in Central and Eastern Europe. What is also important for investors is that Poland withstood the crisis in a relatively good condition. It did not experience a banking crisis on a major scale, as did Latvia or Bulgaria. Furthermore, the Polish financial market continues to develop dynamically. It is an inspiration for institutions present on large emerging markets, which are looking closely at the Polish banking system “Our interest in the Polish market currently focuses on the experience of Polish lenders with retail banking services. We monitor Polish banks which offer new products and modify their business models,” said Mikhail Zadornov, CEO of the Russian bank VTB24 and co-founder of economic reform in Yeltsin’s Russia, on his visit to Poland in 2013. For financial institutions in Russia and China, we are “close Western Europe”; for Western investors, a promising emerging market which has avoided the mistakes that some of the euro zone countries have made.
The Polish capital market has state-of-the-art infrastructure. In the past 20 years it has witnessed no events that would pose a serious threat to the safety or quality of the post-trade infrastructure.
Role of KDPW
The Central Securities Depository of Poland (KDPW), founded in 1994, is an important part of the capital market infrastructure. KDPW shareholders are the State Treasury, the National Bank of Poland and the Warsaw Stock Exchange. The KDPW Group is comprised of two companies: the central securities depository KDPW (which operates the Trade Repository KDPW_TR) and the clearing house KDPW_CCP.
These institutions are well positioned for the challenges of today’s markets: in 2013, KDPW was one of the first four institutions in Europe to have its Trade Repository authorised under European regulations. Only six registered trade repositories operate in the European Union. In April 2014, KDPW_CCP was the third institution in Europe (out of 22 applicants) to be authorised under European rules. In April 2013, KDPW received the prefix (2594) necessary to issue legal entity identifiers (LEI). (Every entity which has the obligation to report trade details directly or via an intermediary is required to hold an LEI. LEIs are only issued by authorised LOUs (pre-LOUs). In December 2013, KDPW obtained the pre-LOU status, which means that KDPW complies with the global standards for the issuance of LEIs. Identifiers issued by KDPW are broadly accepted and recognised around the world.) KDPW is preparing for the authorisation as a central securities depository. Authorisations and powers granted to the institutions of the KDPW Group confirm that the institutions of the Polish capital market work according to the highest European standards. With the range of services offered to investors, they outperform peer capital market institutions in Central and Eastern Europe and follow the service standards offered in Western Europe.
Looking at the financial market and its infrastructure, it is important to note how the KDPW Group has developed Eastern Europe’s leading clearing and settlement infrastructure. The services offered by KDPW and KDPW_CCP have significantly improved the quality and safety of the Polish financial market and its attractiveness to international investors.