Creating a Future-Ready Capital Market

After the parliamentary election in June 1989, the process of transition from a centralized to a free-market econ­omy began in Poland. Naturally, creating capital market regulations and institutions was among the most important issues of the reform.

During the transition process we were faced with many dilemmas about the future shape of the capital market. We referred to regulations in differ­ent countries, to the standards worked out by the International Organization of Securities Commissions, and to the E.E.C. Directives.

But it was hard to create a coherent system of capital market regulation, mech­anisms and institutions following models which, while they have proved efficient, function in totally different conditions. So we had to combine different ideas taken from different markets with our own ideas about how to create a capital market that would best suit our situation.

The Warsaw Stock Exchange, found­ed in 1817, was officially re-opened on July 2, 1991 - some 52 years after its clos­ing in 1939. In June 1991 the Polish Secu­rities Commission had begun to operate. As a result, there appeared the first li­censed brokerage houses and licensed stockbrokers.

But since infrastructure alone is not enough for a market to operate effective­ly, it was immediately supplemented by establishing high standards, to ensure a transparent, fair and effective market.

From the very beginning, in fact, we have paid special attention to prospectus and continuous disclosure requirements and to auditing, a profession that had not existed in Poland for over 45 years. But in 1992 the Parliament approved the Act on Auditing and Publication of Financial Statements, Auditors and Their Council.

But establishing a stock market in an economy that undergoes transition from a centralized system can be the key to successful privatization. To a great ex­tent, the Polish capital market was created to be a tool to serve privatization and, as our experience shows, it did this to our satisfaction. Its main function, however, should be to generate a flow of both for­eign and domestic capital, which will boost growth in the economy and accelerate privatization.

In this regard, however, at the begin­ning our capital market did not perform to our satisfaction, though the last quar­ter of 1993 brought about a major spurt of interest among public companies in making new public offerings to increase capital. There is also a dynamically grow­ing number of private companies and pri­vatized firms now turning to the capital market, where they see the only chance for growth.

Furthermore, the rapid development of our equity market in 1993, an enormous increase in trading volume, in the number of orders placed per trading session, in the number of active investors, and in the prices of listed stocks attracted much at­tention not only in Poland but also abroad. Morgan Stanley, for one, began including Polish stocks in its recommendations, and quotations from Warsaw began to appear in the world financial press. The London monthly, Euromoney, ranked the Warsaw Stock Exchange eighth in its emerging markets ranking, ahead of exchanges in the Czech and Slovak republics, Hungary, Argentina, Mexico, Portugal and Greece -all with much longer histories. All of this has resulted in growing foreign interest in our market. In fact, according to the Warsaw Stock Exchange, foreign participa­tion is roughly estimated at 25 to 30 per­cent of the trading volume.

At the moment, 24 companies are listed at the Warsaw Stock Exchange. The main problem we face now is a lack of strong domestic institutional in­vestors. The Warsaw Stock Exchange is therefore still a very speculative market. But it is hoped that the only Polish trust fund, Pioneer, will soon involve more institutional investors, which will make the market more stable. Also, I strongly believe that we will see shortly the development of a regulat­ed O-T-C market for many small compa­nies trading on both the national and regional markets. This will be supplemented by new brokerage firms. The appearance on the market of professional licensed financial advisers will soon make it possible for bro­kerage houses to engage in portfolio man­agement and to organize professional market research departments.

Finally, the Polish Securities Commission is also well along in preparing major amendments to our bond law. The new legislation will provide comprehensive reg­ulation for bonds, which should create a legal environment for all kinds of bonds. Our aim is to introduce provisions to stim­ulate the development of a modern bond market. I strongly believe, however, that even now the Polish securities market, after having become the best regulated and most active in the region, although still very small, is ready to become a full mem­ber of the European community of capital markets.

Ex.1. Translate these sentences from the text in Russian.