Management Board Report on the Activities of Giełda Papierów Wartościowych w Warszawie S.A. for the year 2010

Transcription

1 on the Activities of Giełda Papierów Wartościowych w Warszawie S.A. for the year 2010 Warsaw, March 2011

2 1. GENERAL INFORMATION ON THE WSE Key indicators for WSE markets Selected financial data 7 2. ACTIVITIES OF WSE Organization of the WSE Strategy of the WSE Key events of Development of the Exchange in 2010 and key drivers development in Development of the Exchange in Development of the Company in Key drivers for development International activity of WSE Business lines of WSE Listing Trading Stock market Derivatives market Debt securities market Catalyst Other cash market instruments Electricity market Sale of market information Material agreements Research and development Litigation CORPORATE GOVERNANCE AND INVESTOR RELATIONS Statement of application of corporate governance standards Share capital, shareholders and share listing on WSE General Meeting Controlling rights and restriction of rights from shares Rules for amending the Articles of Association WSE Supervisory Board and its committees Management Board Remuneration and employment contracts of WSE Management Board and WSE Supervisory Board Members Changes in the manner of managing the Issuer s enterprise and the Group Auditor Internal control system RISKS AND THREATS FINANCIAL SITUATION REVIEW Selected stand-alone financial data of WSE Company s current financial standing and presentation of key financial data Major Factors Materially Affecting the Operations and Financial Results of the Company Financial prospects and assessment of planned investment projects implementation Issuer s major investments and organizational and equity links to other entities 61 2

3 1. General information on the WSE Giełda Papierów Wartościowych w Warszawie S.A. ( WSE, the Company, the Exchange ) is the largest national stock exchange in the CEE area and one of the fastest-growing exchanges in Europe. The Company offers a wide range of products and services within its trading markets of equity, derivative, fixed income and structured products; it also sells market information. WSE is one of the Polish financial institutions most recognizable worldwide. As at December 31, 2010, WSE was a leader in the CEE area in terms of capitalization and value of turnover. In the twentieth year of WSE s existence, the IPO of PZU amounting to 8 billion PLN was successfully completed - the biggest ever in the history of the Polish capital market; the Exchange itself was ranked second in Europe as regards the number of IPO and, for the second time in history, it was ranked second as regards the value of IPOs. The year 2010 saw also the privatization of WSE through the State Treasury public offering which encountered the investors significant interest as regards both retail investors as well as national and international financial institutions. WSE domestic companies market capitalization against the background of the largest markets in the area (in billion EUR) As at December31, Change WSE % CEESEG Vienna % CEESEG Prague % CEESEG Budapest % Source: Federation of European Securities Exchanges (FESE) The year 2010 witnessed a significant rise in the investors and issuers activity on WSE, which rise, in connection with the implementation of the projected strategy, allowed most parameters of the markets organized by the Exchange to increase. The Company has three main business lines: listing, encompassing mainly introduction, admission to trading and listing of securities on markets organized and operated by WSE, trading, encompassing the trading in all financial instruments admitted and introduced to trading on markets organized and operated by WSE, information services (market data), encompassing the provision of stock exchange data to users and licenses for indices. In its business in all these three segments, thecompany organizes and operates trading on the following markets: Main Market (trade in equities, other equity-related securities and cash markets instruments as well as derivatives), 3

4 NewConnect (trade in equities and other equity-related securities of small and medium-sized enterprises), Catalyst (trade in corporate, municipal, co-operative, Treasury and mortgage bonds operated by WSE and BondSpot), poee WSE Energy Market (trade in electric power). Basic information about the Company: Name and legal status:... Abbreviated name:... Registered office and address:... Giełda Papierów Wartościowych w Warszawie Spółka Akcyjna Giełda Papierów Wartościowych w Warszawie S.A. ul. Książęca 4, Warsaw, Poland Telephone number:... (+48 22) Telefax number:... (+48 22) , (+48) Website: gpw@gpw.pl KRS (registry number): REGON (statistical number): NIP (tax identification number):

5 1.1. Key indicators for WSE markets 1 Number of domestic companies - Main Market Number of foreign companies - Main Market Capitalization of domestic companies - Main Market (PLN bn) Number of new listings - Main Market* Source WSE; * - includes transfers from NewConnect ,9 Session turnover (shares) - Main Market (PLN bn) 30,4 23,9 33,4 55,2 90,6 162,0 231,0 160,4 166,7 206, ,7 Block trades turnover (shares) - Main Market (PLN bn) 9,9 8,0 6,8 4,5 8,0 7,4 8,8 5,3 9,2 27, Turnover volume - futures contracts (m contracts) Turnover volume - options ('000 contracts) ,5 3,8 3,2 4,2 3,6 5,4 6,4 9,5 12,2 13,4 14, ,0 78,8 675,0 399,1 421,6 327,8 326,6 254, Effective from 2011 the data on turnover volume is presented on one-side basis and, unless stated otherwise, the same methodology was applied in this Report 5

6 Number of investment accounts (thousand) % 80% 60% 40% 20% 0% -20% -40% -60% -80% -100% Rate of return WIG-index 45% 47% 28% 34% 42% 19% 10% -1% 3% % -51% Source: KDPW Number of members od WSE Investor structure (equity trading) - Main Market (%) Remote Local % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Foreign Polish institutional Polish retail Number of companies - NewConnect Number of new listings - NewConnect Capitalization - NewConnect (PLN m) Turnover (shares) - NewConnect (PLN m)

7 1.2. Selected financial data Separate statement of comprehensive income, under IFRS, audited 12 months ended December 31, PLN '000 EUR '000 [1] Revenues Trading Listing Information services Other revenues Operating expenses Other income Other expenses Operating profit Financial income Financial expenses Profit before income tax Income tax expense Profit for the period Basic/ diluted earnings per share [2] (in PLN) 3,22 2,16 0,81 0,50 EBITDA [3] [1] Based on the arithmetic mean of EUR/PLN exchange rates quoted by the National Bank of Poland on the last day of the year (respectively: 1 EUR = 3,9946 [2] Calculated based on ten net profit attributable to shareholders of the parent company [3] EBITDA = operating profit + depreciation and amortization Separate statement of financial position, under IFRS, audited As at December 31, PLN '000 EUR '000 [1] Non-current assets Property and equipment Investments in subsidiaries and associates Available-for-sale financial assets Held-to-maturity financial assets Other Current assets Available-for-sale financial assets Held-to-maturity financial assets Cash and cash equivalents Other TOTAL ASSETS Equity Non-current liabilities Current liabilities TOTAL EQUITY AND LIABILITIES [1] Calculated based on mean EUR/PLN exchange rates quoted by the National Bank of Poland respectively on (1 EUR = 4,1082) and on (1 EUR = 3,9603 PLN). Selected financial ratios of the Company, unaudited EBITDA margin (EBITDA/ Revenues) Operating profit margin (Operating profit/ Revenues) Return on equity (ROE) (Profit for the last 12 months/ Average equity for the beginning and end of the year) Debt-to-equity ratio (Interest-bearing liabilities/ Equity) As at and for the 12 months ended December 31, ,0% 49,1% 42,5% 41,8% 36,0% 16,2% 0,0% 0,0% 7

8 2. Activities of WSE 2.1. Organization of the WSE As at December 31, 2010 the Warsaw Stock Exchange Group comprises Warsaw Stock Exchange (the parent entity) and its three subsidiaries. In addition, WSE held shares in three associates. Subsidiaries and associates of Giełda Papierów Wartościowych w Warszawie S.A. as at December 31, 2010 and the share held by in these companies share capitals. GIEŁDA PAPIERÓW WARTOŚCIOWYCH W WARSZAWIE S.A. Subsidiaries Associate BondSpot S.A. (92,47%) KDPW S.A. (33,33%) WSEInfoEngine S. A. (100%) INNEX PJSC (24,98%) Instytut Rynku Kapitałowego WSE Research S.A. (100%) Centrum Giełdowe S.A. (24,79%) The subsidiaries are fully consolidated from the date on which the control is taken over by the Group while the investment in associates is measured with equity method. In addition to the above mentioned subsidiaries and associates, the parent entity holds shares also in other companies: Towarowa Giełda Energii S.A., S.C. SIBEX SIBIU STOCK EXCHANGE S.A. Since 2008 the Company has operated a representative office in Kiev (Ukraine), whose operations focus on promoting WSE amongst the Ukrainian investors, issuers and financial intermediaries. The representative office has no separate legal personality and does not carry on any profit earning independent business operations. In all its activities, the Representative Office acts on behalf and for WSE to the extent stipulated in the Representative Office s Statutes and powers of attorney granted by the WSE Management Board, always in compliance with the laws of Ukraine. The Group does not hold any branches or plants. 8

9 2.2. Strategy of the WSE The mission of the Company is to strengthen Polish capital market and assure solid foundations for further economic growth in Poland, with simultaneous strive to improve the Company s profitability and increase in shareholder value. The Company focuses on satisfying the needs of its clients, mainly issuers, investors and financial intermediaries and information vendors through development of products and improvement of services in all the areas, including technologies, operational practice and market regulations. Concurrently, the goal is to strengthen the international position held by WSE: to broaden the base of foreign market players, to further integrate with the European capital market and to strengthen the position of a leading securities exchange in the CEE area as well as to maintain its status of a financial centre in that region. The Group s strategic goals include: TO INCREASE WSE APPEAL FOR MARKET PARTICIPANTS The Company is continously verifying and assessing its business model. It actively participates in social consultations in the law-making process and keeps in touch with the market participants in order to approach new participants of the markets organized and operated by the Company and to support the activity of investors. Issuers Continuation of economic growth and the increased investor activity on the stock markets in Poland pave the way for a sustainable inflow of new companies to the capital market. Acting to the benefit of further development and strengthening of the Main Market in respect to regulations and technology and also through supporting the development of the NewConnect and Catalyst markets, WSE will be still strengthening its position as an effective place for the companies of various size and operating in different industry branches to gain capital and financing. The Group continues its promotional and educational activity aimed to encourage foreign issuers to have their shares listed on WSE. Introduction of new solutions in respect to listing regulations and listed instruments will support investing, which will, concurrently with improvement in public companies regulations, result in WSE appeal as an international trading floor. Investors As a consequence of amendments to the Polish law, from July 2010 WSE has developed the possibility of short selling of financial instruments. This increased investors options in respect to realized investment strategies, which, according to the Exchange, should improve market liquidity. To support the same objective WSE extended the trading hours from the beginning of WSE Members The Company plans to develop initiatives aimed at increase in number of the Exchange members. WSE cooperates with KDPW in the development of a clearing house operating as a central counterparty (CCP). CCP will improve a post-transaction services offer on the Polish financial market, improve safety for clearing parties and, by introducing omnibus accounts, enhance the level of trading volume on WSE attributable to foreign investors. 9

10 INVESTMENTS IN NEW TECHNOLOGIES The agreement for the acquisition and implementation of a new UTP (Universal Trading Platform) from NYSE Euronext is the factor strengthening the Company s competitive position. After its implementation, the transaction system will meet high standards in respect to efficiency and speed, offering at the same time a much broader range of functionalities. In the Company s view, this will contribute to the increase in trading volumes in a broad range of financial instruments and will attract to WSE new investor categories e.g. investors dealing with high frequency trading and so-called algorithmic trading. The Company expects a new trading platform to be launched in DIVERSIFICATION OF WSE ACTIVITY THROUGH DEVELOPMENT OF THE PRODUCT RANGE The Exchange intends to expand its product offer, amongst others, through: development of trading in ETF on the Main Market, support of professional investors activity and promotion of derivatives, further development of the NewConnect market as an effective place for small and medium size enterprises to gain capital, activities to make the Catalyst trading system a mechanism supporting growth of, the historically poorly developed bonds market, development of the electricity trading market and its linked instruments, which will make it possible for the Company to gain new investors interested in commodity markets operations. FURTHER DEVELOPMENT OF THE INTERNATIONAL OPERATIONS OF THE EXCHANGE AND STRENGTHENING THE POSITION OF THE REGIONAL FINANCIAL CENTRE The Company has the ability and potential to gain not only national but also international market participants. The CEE region is the area where WSE focuses its business as part of its international strategy. WSE intends to strengthen its status of the most significant financial instrument exchange of in the CEE area and to strengthen the position of the financial centre for this region Key events of 2010 In 2010, the following key events, significant for the development of WSE, took place: WSE BECOMES A PUBLIC COMPANY AND ITS SHAREHOLDING STRUCTURE CHANGES After nearly 20 years of operations, WSE became a public company traded on its own trading floor. A public offering of WSE shares culminating with a debut of the Company on the Main Market on November 9, 2010, attracted a significant number of retail investors, who placed 323 thousands of subscriptions. Institutional investors interest exceeded more than 25 times the number of shares offered. The offering concerned 63.82% of shares in the Company owned by the State Treasury. The offering was preceded by almost 60 meetings with approximately 300 institutional investors on three continents, which offered a chance of promotion of the Company and the Polish capital market. Becoming active participant of the capital market in its new role as a public company, WSE more effectively enters and develops relations with international investors, which, in the Company s view, should positively leverage into increased interest in the Polish capital market. 10

11 EXECUTION OF THE AGREEMENT WITH NYSE EURONEXT In July 2010 the Company concluded a Master Agreement with the stock exchange NYSE Euronext. The Master Agreement provides for WSE acquiring the UTP trading platform and for a strategic partnership to be established between the parties on an exclusive basis, in the CEE area, to the extent of specified business initiatives. For more specific information concerning the agreement see section 2.9 Material agreements of this Report. DEVELOPMENT OF NEW PRODUCTS AND TRADING PLATFORMS On December 11, 2010, the new commodity trading platform poee WSE Energy Market was launched. It is expected that, in the following years, poee WSE Energy Market will represent an additional and material source of revenues, which will favorably contribute to the results generated by the WSE. For specific information in this respect see section Electricity market poee WSE Energy Market. Furthermore, in July 2010, WSE saw a debut of Poland s first ever ETF fund (exchange-traded fund) based on WIG20 index. WSE introduced the possibility short selling based on new legal regulations. From the beginning of 2011, the Exchange introduced a new WIGdiv index, which includes companies with high dividend ratios and which regularly pay dividends. In May 2010 the Exchange launched the second edition of its RESPECT Index project, which covers the Polish companies listed on the WSE Main Market, which comply with the highest standards of corporate governance and investor relations. In September 2010, NewConnect created the NC Life Sciences new index, which groups biotechnology companies. Moreover, NewConnect Lead segment was established, which includes companies with a potential to move to the WSE Main Market. The Exchange plans to introduce further indices for business sectors or companies selected based on country of activity. INCREASE IN THE INVESTORS ACTIVITY In the course of the enhanced activity of investors in relation to the IPOs of privatized companies: PZU, Tauron Polska Energia and WSE, the IT systems of the Exchange ensured a solid and safe environment for trading in shares with resulting massive turnover. On the day of PZU s IPO, a record value of stock turnover was noted on the Main Market, i.e., PLN 3.35 billion. The PZU s stock turnover amounted to PLN 2.55 billion topping all the WSE listings ever. The State Treasury offerings relating to the privatization process attracted a record number of new investors. The number of investment accounts as at the end of 2010 equaled 1,477 thousand and it was almost 350 thousand higher as compared to the end of In three privatization offers, individual investors placed more than 800 thousand subscriptions. The highest number corresponds to WSE IPO (323 thousand). The Main Market turnover value (session and block trades) amounted to PLN billion in 2010 and was higher by 33.2% than the turnover value in The derivatives turnover in 2010 amounted to 14.7 million contracts and was higher by 6% than that in 2009 and highest ever. Domestic retail and institutional investors contributed 53% of the session turnover on the WSE Main Market. Foreign investors had a 47% share as opposed to 36% in The role of institutional investors on NewConnect increased. The share of domestic institutions in NewConnect turnover amounted to 11% in entire 2010, and 13% in the second half of the year. 11

12 ATTRACTING SIGNIFICANT CAPITAL TO WSE In 2010, WSE was an attractive place for Polish and foreign companies to raise capital. The value of IPOs on both markets amounted to PLN 15.7 billion and was higher by 129.5% than the IPO value in According to the PriceWaterhouseCoopers IPO Watch Europe report, the IPOs of PZU and Tauron Polska Energia ranked 2 nd and 7 th in Europe in 2010 in terms of value. The total value of secondary public offerings (SPO s) of the companies listed on WSE, including foreign issuers, amounted to PLN 22.6 billion in 2010 compared to PLN 20 billion in In 2010, the volume of transactions realized by the State Treasury through WSE, other than IPOs, exceeded PLN 10 billion. These transactions included, amongst others, sale of PGE shares worth PLN 4 billion, KGHM shares worth PLN 2 billion and Enea shares worth PLN 1.1 billion Development of the Exchange in 2010 and key drivers development in Development of the Exchange in 2010 In 2010, the Company s operations were mainly driven by: according to the Central Statistical Office data, the real GDP growth in Poland amounted in 2010 to 3.8%. Thus, the Polish economy was amongst the fastest growing national economies in the European Union. In 2009, Poland was the only EU Member State to report positive GDP growth (1.7%). Positive economic tendencies enhanced national and international investors to invest money on the equity markets, which, in turn, created a friendly environment for companies searching for capital by issuing from the issue of shares; due to a strong and recognizable brand on the international market, WSE has become a first -choice market for companies from the region willing to raise capital for development through the issue of shares, an attractive market to act on for leading international investment companies (in 2010, direct access to the exchange transaction system was granted to Nomura, UBS, Morgan Stanley, Reneissance and IP Intercapital) and foreign investors (in 2010, foreign investors generated 47% of turnover on the WSE stock market, which is a record in a more than ten-year history of the investors structure analysis carried out by WSE), the Exchange and the Polish capital market represent an effective and transparent environment for the privatization of State Treasury enterprises. Big privatization offerings of PZU and Tauron Polska Energia materially contributed to the increase in capitalization and equity turnover and, coupled with the Exchange privatization, gave rise to a big interest emerging amongst international investors on the Polish capital market and activated hundreds of thousands of retail investors, solid base of local institutional investors is an important element supporting the development of the domestic capital market. In 2010, total assets of investment and open-ended pension funds increased by 23.8% up to PLN bn. Based on WSE research on investors structure, open-ended pension funds had ca. 7.4% in the Main Market equity turnover on WSE, while investment funds had ca. 14% Development of the Company in 2011 The Exchange focuses on sustainable development of all its business lines. In the shares and derivatives segment WSE continues the liquidity measures to increase the number of liquidity providers and to improve the market making conditions understood as the reduction of bid and ask spreads and the increase in value of offers. 12

13 Similar activities carried out to solicit market makers and to enhance interest of the investors in those segments of the WSE s business will be executed in respect to bond trading conducted by WSE and BondSpot. WSE will continue activities aimed to attracting Polish and international issuers. The Company intends to strengthen its role of one of the most attractive European exchanges. For a few years, WSE has maintained this position towards businesses in various sectors, of different sizes and at different stages of development, and also, more and more, for issuers representing the entire CEE region. The Company s product offer will be expanded by new classes of derivatives, structured instruments and by commodity market instruments (based on electricity) Key drivers for development The key drivers which may impact the Company s development dynamics include: EXTERNAL DRIVERS Macroeconomic situation in Poland and worldwide The perspectives for further economic development in Poland appear to be solid. According to the Eurostat forecasts, in 2011 GDP will increase up to 3.9% (more than double the value of the average forecast for EU 1.8%), and in 2012 to 4.2% (more than double the value of the average forecast for EU 2%). The above average dynamics of Polish economy growth creates favorable conditions both price increases of shares listed on WSE and for interest in securities listed on WSE on the part of Polish and international investors. Furthermore, the favorable macroeconomic situation should encourage increased interest in the issue of shares on the part of new and already listed issuers as well as the supply of capital on the part of investors. A significant key driver for the WSE development is also the international economic situation and the conditions on foreign financial markets. Based on international financial institutions forecasts, it could be expected that in 2011 the global economy will be still slowly reviving following the economic crisis in Changes in infrastructure, laws and regulations Omnibus accounts At the end of December 2010, omnibus accounts were not available in Poland. An omnibus account means a securities account in which securities can be held on behalf of a group of investors. The identity of investors does not have to be disclosed in the jurisdiction where the account is held. Thanks to omnibus accounts investors may trade in securities in various jurisdictions without holding separate individual accounts in each of them. At present, the Act on Trading in Financial Instruments requires that securities accounts maintained in Poland be designated in such a way so as the holders of securities can be identified. In August 2010 the Ministry of Finance published a draft amendment to the Act on Trading in Financial Instruments and other Acts proposing the regulation of omnibus accounts. The Company is not able to indicate any specific date when omnibus accounts will be implemented. 13

14 Pension Funds In January 2011, a government draft Act on Amending Certain Acts Relating to the Operations of the Social Security System was presented. The proposed regulations, which are key from the perspective of WSE, include: the reduction of the contributions transferred to OFE (Open-ended Pension Funds) from 7.3% of the gross pay to 2.3 % in 2011 and the gradual increasing of the contribution up to 3.5% in 2017, gradual increase in the cap for investments in stock from 40% of the total assets as at the end of 2010 up to 62 % in 2020 (in , this limit would increase by 2.5 p.p. and subsequently by 2 p.p. per annum). The draft Act was presented to the lower chamber of the Polish Parliament on 10 March The real effect of the anticipated amendments for WSE could be assessed once the Act is approved. Privatization The State Treasury at the end of 2010 held significant stakes of shares in many listed companies (e.g. 45.2% in PZU, 69.3% in PGE, or 31.8% in KGHM). WSE is an effective platform for privatization of large companies controlled by the State Treasury. It is expected that, in the nearest years, the State Treasury will be still privatizing through WSE, which should contribute to higher capitalization and turnover on WSE. INTERNAL DRIVERS Level of fees WSE operates in a competitive sector, which is characterized with a trend for consolidation and with a fast pace of changes and innovations. In WSE s opinion, its fees are competitive in the CEE region and, as at the day of announcement of this Report, no modifications or alterations are planned in respect to the Exchange price list. On a periodic basis, WSE reviews the fee structure and adjust it to the current market situation. Change in the trading sessions schedule As of the beginning of 2011, WSE extended trading hours to 5.35 p.m., which was to align the WSE trading time to European standards. The Exchange expects the changes to translate into bigger activity of investors, increased turnover on the stock and derivative markets and, consequently, higher revenues of the Group. Implementation of new trading system Competitiveness of stock exchanges to a great extent depends on the level of technology involved: efficiency, capacity and speed of the trading system and infrastructure. The Exchange is in the process of implementing the new trading system purchased from NYSE-Euronext, which is planned to be launched in Following its implementation, the trading system will ensure faster transaction matching and better scalability in comparison to the formerly applicable system, a much wider portfolio of functionalities, which, in the Company s opinion, will contribute to bigger trading volume with more diversified financial instruments and may attract to WSE new categories of investors (e.g. investors active in high frequency trading and algorithmic trading). In the Exchange s view, following the implementation of the new trading system parallel to the development of the security clearing infrastructure, the attractiveness of WSE as a trading platform will increase for investors, issuers and financial institutions. 14

15 SHORT SELLING In 2010, WSE introduced new regulations with a view to facilitate short selling. At 2010 year end, short was allowed on WSE members own account or on the clients accounts in respect of shares in 36 companies and 40 bonds listed on WSE (market makers may enter into short sale transactions in respect of shares in 141 companies and 40 bonds). The development of securities lending and short selling segment will contribute to better liquidity of shares listed on WSE and is of significance for further dynamic growth of the derivatives market understood as: increase in the volume of trading in WIG20 futures (the most important WSE derivative), increase in the volume of trading in stock futures contracts, WIG20 options, relaunch and development of stock options. In 2010, the stock turnover realized as part of short selling transactions represented 0.9% (of the overall stock trading after short selling was introduced, i.e. from July to December 2010). In 2011, the key driver for the development of short selling will be the extensive introduction of this service by brokerage houses and its popularization amongst investors. KDPW_CCP CLEARING HOUSE FOR THE ORGANISED MARKET WSE cooperates with National Depository for Securities (KDPW) to establish a central counterparty (CCP), the entity whose objective will consist in assuming the risk of transaction counterparties through intermediation between original parties to the transaction. This will allow to increase security to settlement system participants and to decrease the cost of post transaction services. The first step to spin off a clearing house from KDPW structure was the establishment of KDPW_CCP in 2010 (formerly KDPW_CLEARPOOL S.A.), which will guarantee the settlement of transactions. KDPW_CCP was injected with PLN 60 million of share capital. The full functionality of KDPW_CCP will be reached when the CCP clearing house, equipped with a SPAN based risk management system (planned for the 2 nd quarter of 2011) and subsequently securities netting functionality (planned for the 4 th quarter of 2011), is implemented International activity of WSE International activity of WSE is performed through: DEVELOPMENT OF A NETWORK OF FOREIGN INVESTMENT FIRMS EXCHANGE MEMBERS Through participation in international conferences, own conferences organized in main world financial centers or at international road shows, the Exchange proactively promotes the Polish capital market amongst global investors and financial intermediaries. The number of WSE remote members grew in 2010 from 18 to 23 entities. Another two foreign investment firms gained this status at the beginning of Remote membership represents for foreign brokers the possibility of direct access to the WSE system without necessity of being physically present in Poland or using intermediary services of local brokers. Currently, this solution is used by intermediaries from Austria, Bulgaria, Cyprus, the Czech Republic, Slovakia, Estonia, France, Germany, Sweden, Hungary and the UK. Most of the main investment banks worldwide have direct access to WSE (in 2010, the status of WSE remote member was granted, among others, to UBS, Nomura and Morgan Stanley). The number of WSE domestic members amounted did not change compared to 2009 and amounted to 28 at the end of

16 Increase in the international importance of the Polish capital market results in opening and development of Polish branches by the largest investment banks. In 2010, Credit Suisse Securities Ltd. established the research and trading department, which allowed it to achieve a 5.6% share in the Main Market share turnover. The UBS, Goldman Sachs, Morgan Stanley and J.P. Morgan teams were also strengthened. In 2010, the value of trading performed by WSE remote members in session transactions amounted to PLN 66.3 billion (double counted), which translates into an increase by 126% in comparison to The share of remote members in the session turnover amounted to 16% in comparison to 8.8% in On the futures market, remote members were responsible for 5.5% of the trading volume (1.5 million contracts; increase by 0.1 million). The activities undertaken by WSE with a view to strengthening its brand amongst foreign business partners are reflected in statistics showing the share of foreign investors in turnover. The foreign investors that execute stock trades through both remote and local members were responsible for turnover exceeding PLN 96.6 billion, which in comparison with the amount of PLN 60.2 billion in 2009 translates into an increase by more than 60%. Investors share in turnover on the Main Market shares (%) Year ended December 31, Foreign investors 47% 36% Domestic retail investors 19% 27% Domestic institutional investors 34% 37% Also the futures market saw better activity of investors in The volume of turnover generated by foreign investors amounted last year to over 1.8 million contracts, which, in comparison with the volume of approx. 1.3 million contracts in 2009 means rise by more than 35%. Investors share in turnover on the futures market(%) Year ended December 31, Foreign investors 14% 11% Domestic retail investors 50% 52% Domestic institutional investors 36% 37% ATTRACTING FOREIGN ISSUERS The Company aims at strengthening its position of the regional financial centre in Warsaw through focusing its marketing, regulatory and infrastructure activities on companies from the CEE area. As at December 31, 2010, the markets operated by the Exchange listed shares of 30 foreign companies, including 3 listed on NewConnect, with total capitalization of over PLN 254 billion. In the Company s opinion, WSE has competitive advantages over other stock exchanges in the CEE region which include, among others: a recognizable brand, reliable transaction system, quality of transactions performed, market liquidity and market environment protecting interests of investors and facilitating access for foreign investors and brokers. WSE systematically develops and strengthens its competitive advantages also versus the big West European and world exchanges, which include institutions interested in the Central and Eastern European market and markets east of Poland. 16

17 In its proprietary Program WSE IPO Partner, WSE works together with a network of foreign banks, brokerage houses and other intermediaries with a view to promoting the Polish capital market abroad. As at December 31, 2010, the WSE IPO Partner program covered 27 entities from 13 countries, which materially enhances WSE s possibilities of approaching a bigger group of prospective clients and market participants. Amongst foreign issuers present on the WSE Main Market, five companies come from the prospective Ukrainian market. In the fourth quarter of 2010, three IPOs of Ukrainian companies took place. Kernel, the Ukrainian company operating in the food industry was included in WIG20 index after the session held on March 18, 2011 following the annual review of indices. The growing interest of Ukrainian issuers in listing on WSE is the result of activities undertaken by WSE, including the representative office in Kiev operating since Due to a growing number of Ukrainian companies, WSE intends to introduce, in 2011, a new index for Ukrainian companies to offer them better recognition amongst investors. CHANGES IN REGULATIONS A change in the trading session timetable, introduced at the beginning of 2010 which extended trading till 5:35 p.m. facilitates investment opportunities for investors operating in other time zones, especially in the USA. Support for KDPW in establishment of a CCP clearing house and activities focused on the introduction of omnibus accounts set the direction of WSE s work to increase activity of foreign investors on WSE Business lines of WSE Listing Listing encompasses mainly admission and introduction to Stock Exchange trading and listing of securities on the markets organized and operated by the Company as well as collecting respective fees. WSE ended the year 2010 with 585 companies listed in aggregate on the Main Market (regulated) and in the alternative trading system NewConnect (regulated by the Exchange). The total number of 120 new listings on both markets (including 8 companies transferred from NewConnect) provided WSE in this respect with the second rank in Europe preceded only by the London Stock Exchange. For the second time in its history WSE ranked second amongst the most important European markets in terms of the value of IPOs in the annual ranking of the IPO Watch Europe report by PricewaterhouseCoopers. During three years from 2008 to 2010, WSE represented from 14.5% to 17.9% of the annual exchange IPO values on the surveyed markets. Value of IPOs on WSE markets and the share in the main national markets in Europe Rok zakończony 31 grudnia IPO value 2 (EUR million) WSE s market share 3 (in %) 14,5% 22,4% 17,9% Source: PriceWaterhouseCoopers IPO Watch Europe 2 In accordance with the methodology applied by PwC for the number and value of IPOs, only those companies are taken into account which were first publicly listed without those companies which transferred from one market to another (e.g. in the case of WSE transferred from the NewConnect market to the WSE regulated market). 3 The PriceWaterhouseCoopers IPO Watch Europe report covers national stock exchanges in Austria, Belgium, Denmark, France, Germany, Greece, the Netherland, Ireland, Luxemburg, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the UK. 17

18 In 2010 the number of IPOs on the Main Market amounted to 34 and was higher by 162% than the number of IPOs in Only in the fourth quarter of 2010, the Main Market saw the IPOs of 19 companies. As at December 31, 2010, the number of companies listed on the Main Market amounted to 400, including 27 foreign companies, and was higher by 6% than the number of companies as at the end of In 2010, the development of WSE and the Polish capital market was to a large extent enhanced by the privatization of enterprises by the State Treasury. Largest privatization transactions conducted through WSE in 2010 No. Company Sector Date Value (PLN m) 1. PZU Insurance April TAURON Energy June PGE Energy October KGHM Mininig industry January GPW Capital market November Source: Dealogic, WSE The NewConnect market recorded the year 2010 to be the best year in terms of the number of IPOs since that market opened in NewConnect ranked first in Europe in terms of the number of IPOs amongst the regulated and alternative markets covered by the IPO Watch Europe report by PriceWaterhouseCoopers, before London s AIM. The year 2010 saw IPOs on the NewConnect market, which was by 231% higher than the number of IPOs in In the 4 th year of NewConnect s operation, the number of listed companies increased by 73%. The increase was reflected in the market capitalization increment by 101% as compared to At the end of 2010, the NewConnect capitalization amounted to PLN 5,138 million. As at the end of 2010, the number of companies listed on NewConnect amounted 185 (including 3 foreign entities). Capitalization, number of IPOs and number of listed companies on NewConnect As at/the year ended December 31, Number of IPO Number of listed companies Market capitalization (in PLN million) Moreover, WSE lists issuers of structured products and debt securities. In 2010, Poland s first-ever ETF debuted on WSE. For more information about ETFs and the company s plans with respect to their development see section Other instruments of cash market of this Report. For information on the debt securities market see section Debt securities market Catalyst Trading Trading encompasses all the instruments admitted to trading on the Main Market and on WSE regulated markets and on the markets operated and regulated by WSE. Trading offered by the Exchange concerns the following instruments: 18

19 shares and other equity-related securities, derivatives, including without limitation futures and options, debt securities listed and traded on the Catalyst market, other cash market instruments, including structured products and closed-end investment funds certificates listed on the Main Market Stock market The Warsaw Stock Exchange is the biggest equity securities market in the CEE in terms of turnover value. In 2010, the turnover value on the WSE stock markets represented 44.7% of the aggregate turnover on the markets in the region (Austria, Bulgaria, Czech Republic, Poland, Romania, Slovenia, Slovakia and Hungary). In the 4 th quarter of 2010, WSE s share amounted to 50.8%. Respective shares in turnover held by individual stock exchanges in the CEE region 4 12 months ended December 31, months ended December 31, 2010 WSE 44,7% 50,8% CEESEG - Vienna 27,6% 26,1% CEESEG Budapest 15,0% 11,1% CEESEG Prague 11,5% 10,8% Other (Bulgaria, Romania, Slovenia, Slovakia) 1,2% 1,2% Source: FESE In 2010, the trading value in session and block trades on the WSE Main Market amounted to PLN billion and was higher by 33.2% than the turnover value in The average session trading value amounted to PLN 926 million and increased by 40.1% in comparison to The number of transactions in 2010 amounted to 12.2 million, which is less by 5.8% than in Turnover on WSE Main Market As at / for the year ended December31, Number of issuers Velocity ratio (%) 45,3 58,4 Stock trading value (PLN billion) 234,3 175,9 Stock trading volume (billion) 25,44 28,25 Number of transactions (order book, million) 12,2 13,0 Free float (domestic companies, %) 44,0 39,3 In 2010, the NewConnect market was one of the fastest developing alternative trading systems in Europe, also in terms of increase in turnover value. In 2010, the turnover amounted to PLN 1,847 million and was higher by 218% than the turnover recorded in The trading value on the NewConnect market in the 4 th quarter of 2010 (PLN 687 million) was higher than the trading value in the whole 2009 (PLN 581 million). The number of transactions in 2010 amounted to thousand and was higher by 171% than that in Austria, Bulgaria, Czech Republic, Poland, Romania, Slovenia, Slovakia and Hungary. 19

20 NewConnect turnover As at / for the year ended December31, Total IPO value (in PLN million) Market capitalization (in PLN million) Velocity ratio (%) 61,6 42 Trading value (in PLN million) Number of transactions (thousand) 877,9 323, Derivatives market The derivatives market encompasses mainly WIG20 futures and mwig40 futures, stock futures, index options, foreign currency futures and WIG20 index units. The Warsaw Stock Exchange operates the biggest derivatives market in the CEE region. The year 2010 ended with record results in terms of trading volume and number of open interest. The aggregate volume of derivative trading in 2010 amounted to PLN 14.7 million instruments and was by 6% higher recorded in As at December 31, 2010, the number of open interest amounted to thousand and was by 26% higher than that noted as at December 31, Number of open interest for derivatives listed on WSE (thousands) As at December 31, Futures contracts 124,5 110,2 73,5 53,4 Options 43,6 20,9 6,9 11,2 miniwig20 units 13,3 13,1 8,8 6,1 In 2010, the stock index futures market maintained the 4 th rank in Europe in terms of the trading volume. Volume of stock index futures trading in Europe (in thousands) 12 months ended December 31, EUREX Euronext Liffe NASDAQ OMX Nordic WSE BME (Spanish Exchanges) Borsa Italiana Oslo Børs CEESEG Budapest Athens Exchange CEESEG Vienna Bucharest Stock Exchange 3,5 12. CEESEG Prague 1,4 Source: FESE, figures concerning Borsa Italiana from the exchange website 20

21 The most important product in the derivatives segment are WIG20 futures responsible for 91.6% of the trading volume in In 2010, the WIG20 futures trading volume amounted to 13,482 thousand contracts and was by 5.6% higher than that generated in The number of open interest on WIG20 futures as at December 31, 2010 amounted to 114 thousand and was by 12.8% higher than that noted on December 31, Index options reported the highest volume growth. In 2010, the volume amounted to thousand options and was higher by 60.1% than that recorded in WSE expects further increase of investor interest in index options, also because of market makers on the option market, which, in the Company s view, will result in better liquidity of that market. Derivative trading volume in thousands Volume 2010 Share 2010 Volume 2009 Share 2009 Change WIG20 futures ,6% ,9% 5,6% mwig40 futures 33 0,2% 30 0,2% 9,3% Stock futures 375 2,6% 466 3,4% -19,4% Currency futures 119 0,8% 162 1,2% -26,6% Index options 675 4,6% 422 3% 60,1% Index units 36 0,2% 42 0,3% -14% Total % % 6% In 2010, WSE expanded its offer to include futures on stocks of companies listed on the Main Market. The number of stock futures categories increased from 6 as at December 31, 2009 to 10 as at December 31, An important initiative of the Company in the area of derivative instruments will be the introduction of the new UTP system in The new platform will provide a full scope of functionalities currently available on advanced derivative markets. WSE expects that the derivatives trading, including stock futures and options, will be encouraged by the development of short selling Debt securities market Catalyst The bond market Catalyst is operated on the trading platforms of the Warsaw Stock Exchange and BondSpot, a subsidiary of WSE. It was launched on September 30, It consists of regulated markets and alternative trading systems. Catalyst is designated for debt instruments municipal, corporate and mortgage bonds, and is compatible with issues of various sizes and different characteristics as well as suitable to meet the needs of various investors wholesale, institutional and retail ones. Within Catalyst, on the WSE Main Market, retail Treasury bonds are also listed. On all the Catalyst markets, the settlement of transactions is guaranteed by the National Depository of Securities and issuers have reporting obligations concerning current and periodic reports. In 2010, the value of debt instruments listed on the Catalyst market amounted to PLN 21.5 billion, i.e. more by % as compared to As at the end of 2010, the Catalyst market listed 97 series of debt instruments, and another 12 series were authorized 5. Amongst the debt instrument issuers on the Catalyst market, as at the end of 2010, there were 16 local governments and 37 companies and banks. 5 Authorization of bonds on Catalyst involves acceptance by the issuer of information obligations set out in the Catalyst Rules and issue registration in the Catalyst information system. The issuers of non-dematerialized issues can also apply for authorization. 21