REGULATION OF SECURITIES MARKETS - …Polish Securities an d Exchange Commission the Sixth OECD Conference on Financial Sector Development in the Central Asian countries, Azerbaijan

Polish Securities and Exchange Commission

the Sixth OECD Conference on Financial Sector Development in the Central Asian countries, Azerbaijan and Mongolia, 29-30 April 2004, Istanbul, Turkey

REGULATION OF SECURITIES MARKETS

- EVOLUTION OF POLISH CAPITAL MARKET

Miroslaw KachniewskiSecretary of Polish Securities and Exchange Commission



1. IOSCO Principles

2. Essential elements of capital markets

3. The case of the Polish market



1. IOSCO Principles

Three objectives of securities regulation

Principles Relating to the Regulator

Principles for Issuers

Principles for Collective Investment Schemes

Principles for Market Intermediaries

Principles for the Secondary Market



Three objectives of securities regulation

the protection of investors

ensuring that markets are fair, efficient and transparent

the reduction of systemic risk



Principles Relating to the Regulator

comprehensive inspection, investigation, surveillance and enforcement powersoperationally independent and accountable in the exercise of its functions and powersadequate powers, proper resources and the capacity to perform regulator’s functions and exercise its powersthe staff of the regulat or - the highest professional standards including appropriate standards of confidentiality



Principles for Issuers

full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions

holders of securities in a company -treated in a fair and equitable manner

accounting and auditing standards - high and internationally acceptable quality



Principles for Collective Investment Schemes

the regulator sets standards for a collective investment scheme the regulator provides ru les governing the legal form and structure of collective investment schemes and the segregation and protection of client assetsthe regulator should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme



Principles for Market Intermediaries

minimum entry standards

initial and ongoing capital

procedures for dealing with the

failure of a market intermediary



Principles for the Secondary Market

the establishment of tradi ng systems including securities exchanges and systems for clearing and settlement of securities transactions - subject to regulatory authoriz ation and oversight

ongoing regulatory supervision of exchanges and trading systems

transparency of trading

regulation - designed to detect and deter manipulation and other unfair trading practices



2. Essential elements of capital markets

Features that attract issuers

Features that attract investors

Incentives that should be employed by

exchanges


financial intermediaries



Essential elements of capital markets

Features that attract

issuers:effective and relatively cheap source of capital

publicity

possibility of financing risky business

investors




Features that attract

investors:protection of shareholders’ rightsfair treatment of all shareholdersaccurate disclosure informationgood investors relations

issuersmarket meeting international standards





exchanges:

creation of efficient and effective trading system

relatively low transactional costs

safety of conducted transactions

protection against unfair practices





financial intermediaries:

high standard and quality of conducted activities

development of mature procedures and mechanisms

safety of conducted transactions



3. The case of the polish market

Dormant market

Manipulated market

Speculative market

Mature market



Evolution of Polish capital market

In the process of growth of Polish capital market four stages of development can be specified:

Dormant market

Manipulated market

Speculative market

Mature market



Dormant market

the characteristic feature of the dormant market is that investors are not interested in capital market at all

in Poland it began at the end of the year 1990, along with the privatisation by public offerings and lasted till the beginning of 1992 - WIG = 937 (I.1992)

the market did not attract much attention both abroad and at home and number of opened investment accounts was incredible low



Dormant market

WARSZAWSKI INDEKS GIEŁDOWY

0

100

200

300

400

500

600

700

800

900

1000

wrz-91 paź-91 lis-91 gru-91 sty-92



Manipulated market

the main feature of this st age of the growth is that decisions of investors are as much significant for the market, as they can not only influence the market prices, but also determinate short-term trend on the market

in Poland it occurred in 1992 - WIG = 1041 (XII.1992)

the size and the depth of the Polish market were not appropriate for the investment potential of investors



Manipulated market


0

200

400

600

800

1000

1200

wrz-91

paź-91

lis-91 gru-91

sty-92

lut-92

mar-92

kwi-92

maj-92

cze-92

lip-92

sie-92

wrz-92

paź-92

lis-92 gru-92



Speculative market

the main feature of this stage of the growth is that the market is dominated by speculationin Poland it began in 1993 and lasted t ill the beginning of 1996

II 1993 (WIG = 1083,1) - IV 1994 (WIG = 14 236,9): unnatural growth generated mainly by domestic investorsIV 1994 (WIG = 11 020,3): price slump on WSEIV 1994 - 1996 (WIG = 14 342,8 - XII.1996): recovery of market’s potential



Speculative market


0

5000

10000

15000

20000

25000

199

1-0

9-24

199

1-1

2-24

199

2-0

3-24

199

2-0

6-24

199

2-0

9-24

199

2-1

2-24

199

3-0

3-24

199

3-0

6-24

199

3-0

9-24

199

3-1

2-24

199

4-0

3-24

199

4-0

6-24

199

4-0

9-24

199

4-1

2-24

199

5-0

3-24

199

5-0

6-24

199

5-0

9-24

199

5-1

2-24

199

6-0

3-24

199

6-0

6-24

199

6-0

9-24

199

6-1

2-24



Mature market

in 1996 arose symptoms that the market entered into this stage of development and it lasts up to now

its solid legislative and economic foundations are still developed

the "mature market" does not only mean the mature capital market but also m odern stabile free market economy, acting in a transparen t and stabile political structure



Mature market


0

5000

10000

15000

20000

25000

199

1-0

9-24

199

2-0

3-24

199

2-0

9-24

199

3-0

3-24

199

3-0

9-24

199

4-0

3-24

199

4-0

9-24

199

5-0

3-24

199

5-0

9-24

199

6-0

3-24

199

6-0

9-24

199

7-0

3-24

199

7-0

9-24

199

8-0

3-24

199

8-0

9-24

199

9-0

3-24

199

9-0

9-24

200

0-0

3-24

200

0-0

9-24

200

1-0

3-24

200

1-0

9-24

200

2-0

3-24

200

2-0

9-24

200

3-0

3-24

200

3-0

9-24



Development of Polish capital market in numbers

WIG index:

900 points in 1991 - 20 820 points in 2003

number of companies in public trading:

12 (1991) - 263 (2003)

market capitalisation of WSE:

104 mln PLN (1991) - 168 bln PLN (2003)

turnover on WSE:

30 mln PLN (1991) - 215,8 bln PLN (2003)



Development of capital market’s legislation

The first ever act on public trading in sec urities and trust funds was passed in 1991 and amended in 1993

A new law on the public tr ading of securities and a separate act on investment funds was passed in 1997. Several amendments in the following years

The continuous harmonisa tion with the EU legislation (e. g. a new act on investment funds is being prepared in the parliam ent at the moment)



Warsaw Stock Exchange Index WIG and capitalisation of the WSE

WARSAW STOCK EXCHANGE INDEX WIG

0

5000

10000

15000

20000

25000

09-91

03-92

09-92

03-93

09-93

03-94

09-94

03-95

09-95

03-96

09-96

03-97

09-97

03-98

09-98

03-99

09-99

03-00

09-00

03-01

09-01

03-02

09-02

03-03

09-03

Sou

rce:

PS

EC 98 249 3 206 3 249

4 4168 768

12 414

20 674

29 86931 408

25 48528 802

43 115

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

CAPITALISATION OF THE WARSAW STOCK EXCHANGE [mln USD]

Source: PSEC



Turnover at the WSE and number of companies listed

28 185

4 657

11 77313 614

18 381

22 71921 079

26 887

58 249

46 049

36 544

55 457

0

10 000

20 000

30 000

40 000

50 000

60 000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

TURNOVER AT THE WARSAW STOCK EXCHANGE [mln USD]

Source: PSEC

916

22

4465

83

143

198

221 225230

216203

0

50

100

150

200

250

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

NUMBER OF COMPANIES LISTED ON THE WSE

Source: PSEC



Number of investment accounts and number of brokerage houses

I 93

III 9

3

I 94

III 9

4

I 95

III 9

5

I 96

III 9

6

I 97

III 9

7

I 98

III 9

8

I 99

III 9

9

I 00

III 0

0

I 01

III 0

1

I 02

III 0

2

I 03

III 0

3

0

200000

400000

600000

800000

1000000

1200000

1400000

NUMBER OF INVESTMENT ACCOUNTS

Brokerage houses Banks conducting brokerage activities TotalSource: PSEC

NUMBER OF ENTITIES CONDUCTING BROKERAGE ACTIVITIES

12

20 21 21

11

6 5 6

15

31

19

54 5450 49

36

22 22

86

16

303332 32

29

87

35

4043

3638

28

36

42

4847 46

0

10

20

30

40

50

60

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Banks conducting brokerage activities Brokerage houses TotalSource: PSEC



Number and value of public offers

NUMBER OF PUBLIC OFFERS

54

32

48

90

73

54

62

27 27

86

106

1

16 14

5 41 1 0

44

26

47

74

59

49

58

26

15

29

11

57

0

10

20

30

40

50

60

70

80

90

100

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Total number of offers Number of IPOs Number of stock issues Number of bond issuesSource: PSEC

VALUE OF PUBLIC OFFERS [mil USD]

858

358 49

8

2416

2304

1242

937

713

664

1763

345

239

11

1407

1216

610

53 1 2 0

513

119

487

1009

1088

632 88

4

712

150 37

9512

1384

0

500

1 000

1 500

2 000

2 500

3 000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Total value Value of IPOs Value of stock issues Value of bond issuesSource: PSEC



Number of investment funds and value of their net assets

1 1 1 1 1 1 2 4 511 10

30

15

46

17

66

21

85

19

108

19

124

17

137

0

20

40

60

80

100

120

140

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Number of investment funds and f unds corporations

Investment funds corporations Investment fundsSource: PSEC

388 584281

474 540 509

626

1 741

3 053

5 857

8 862

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 30.09.2003

Value of net assets of investement funds [mln USD]

Source: PSEC



Number of pension funds and value of their net assets

21 21 21 21 21 21 2120

18 1817 17 17 17 17

16 16 1616

0

5

10

15

20

25

2Q1999

3Q1999

4Q1999

1Q2000

2Q2000

3Q2000

4Q2000

1Q2001

2Q2001

3Q2001

4Q2001

1Q2002

2Q2002

3Q2002

4 Q2002

1Q2003

2Q2003

3Q2003

4Q2003

Number of pension funds

Source: PSEC

4 204544

1 0061 337

1 642

2 3952 856

3 464 3 643

4 869

5 9496 206

6 625

8 223 8 282

9 693

10 459

11 986

0

2000

4000

6000

8000

10000

12000

2Q1999

3Q1999

4Q1999

1Q2000

2Q2000

3Q2000

4Q2000

1Q2001

2Q2001

3Q2001

4Q2001

1Q2002

2Q2002

3Q2002

4 Q2002

1Q2003

2Q2003

3Q2003

4Q2003

Value of net assets of pension funds [mln USD]

Source: PSEC



Central Table of Offers Index ITO and capitalisation of the CTO

CENTRAL TABLE OF OFFERS INDEX ITO [points]

0

5000

10000

15000

20000

25000

XII1996

XII1997

VIII1998

XII1998

IV1999

VIII1999

XII1999

IV2000

VIII2000

XII2000

IV2001

VIII2001

XII2001

IV2002

VIII2002

XII2002

IV2003

VIII2003

XII2003

Sou

rce:

PS

EC

41 42

141

109

7058 59

97

0

20

40

60

80

100

120

140

160

1996 1997 1998 1999 2000 2001 2002 2003

CAPITALISATION OF THE CENTRAL TABLE OF OFFERS [mln USD]

Source: PSEC



Turnover at the CTO and number of companies listed

16 12

692

203130

77161

2466

0

500

1000

1500

2000

2500

1996 1997 1998 1999 2000 2001 2002 2003

TURNOVER AT THE CENTRAL TABLE OF OFFERS [mln USD] CUMULATED FROM THE BEGINNING OF THE CALENDAR YEAR

Source: PSEC

2

14

2524

21 21 2122

0

5

10

15

20

25

1996 1997 1998 1999 2000 2001 2002 2003

NUMBER OF COMPANIES LISTED ON THE CeTO.

Source: PSEC

REGULATION OF SECURITIES MARKETS - …Polish Securities an d Exchange Commission the Sixth OECD Conference on Financial Sector Development in the Central Asian countries, Azerbaijan

Documents