Warsaw exchange CFO discusses listings and expansion plans

May 14, 2018
Compliance costs and a strategic review are on the radar

Warsaw Stock Exchange CFO Jacek Fotek spoke to IR Magazine about listings, Mifid II and the exchange’s development plans

How was the listing activity at the Warsaw Stock Exchange last year?

In 2017 we had a total of 27 IPOs across the main market and our alternative market called NewConnect. This was the third-highest figure in Europe and we foresee a large potential for market cap growth.

We’re now mainly focusing on listing domestic firms, as well as regional ones. We continue to be the obvious choice for regional companies and the recent IPO of Lithuanian tour operator Novaturas is a good example of this.

Is the stock market still the preferred way of raising funds for Polish companies?

The majority of Polish entities are small or mid-caps by European standards – this is a feature of our economy. At the moment, the most popular way of raising funds remains equity but we believe the market will evolve in the years to come.

Since 2009, we’ve been growing our debt capital market so there’s also the opportunity for issuers to raise debt capital. However, most of these instruments are medium-term notes rather than long-term bonds. We are working to change this and I believe in the years to come there will be more long-term corporate bonds available and liquidity in our market.

What’s the split between domestic and international investors?

On the equity side, international investors currently contribute about 53 percent of market turnover. Sixteen percent of equity turnover on the main market is generated by individual shareholders. We’re proud of our retail segment share, which is a hallmark of a mature market.

We believe individual investors are the best promoters of capital markets across Polish society, which is still in need of a better understanding of the benefits, as well as potential risks, of investing.

Tell us about your plans for expansion

We’re now in the process of a strategic review, which includes new development initiatives. My personal belief is that you need to increase the scale in this type of business in order to decrease operational costs per item and become more effective. The equity market is becoming more competitive on an international level as there is increased competition for capital as well.

Have recent regulatory changes been a challenge?

The Polish regulation incorporating Mifid II requirements came into force in April this year. As the country’s stock exchange, we did all the preparation work in 2017. It led us to a smooth introduction of regulatory changes into our daily activities, right from January 3 [the Mifid II implementation date]. We’re obviously discussing these changes, as well as the subsequent increase in costs for issuers, intermediaries and investors.

In the short term, we’ve had to include compliance costs into our cost matrix, but our long-term objective remains to increase safety and transparency in the market and promote equality of access. There’s always a link between the level of regulation and the pace of growth of a market.

The Warsaw Stock Exchange is a listed entity. Do you believe this is a burden or an advantage?

In the long term, being a listed entity is an advantage for the company, as we need to validate our performance and strategic decisions with investors. There’s no better benchmark for the management board than having our strategy reviewed as positive. And obviously, being listed delivers cheaper sources of funding.

In addition, it’s a unique position for us as a listed company and an exchange, because it gives us the opportunity to set IR standards for the rest of the market. As the stock exchange, we co-organize investor conferences across the world, and as a listed company we also take part in those. We cooperate with brokers to be able to reach out to a wide investor audience internationally. We hold individual meetings here at the exchange when investors come to Poland, but we also organize a number of conference calls for those who cannot meet us in person. So while being listed brings its usual challenges, the benefits of it are far more visible. It gives us the correct perspective on our performance and it shows that what we do makes sense.

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