Impact on Capital Markets from EU Accession

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Impact on Capital Markets from EU Accession
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AGENDA

• Introduction
• Current Status
• Expectations
• Special problem areas
• Cross-market linkage
• Next steps

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Trading Technology

• Specialists in Exchange Technology
• Exchanges survey
• Consultancy, not development
• People are the challenge, not the technology!
• Business analysis
• Program and Project Management
• IT Marketing and Research
• Cross-market linkage expertise
• Europe, Far East, US

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EU Accession countries - status

• Emergence from predominantly communist economics
• Mass privatisation
• Bulgaria
• Czech Republic
• Lithuania
• Romania
• Slovakia
• Initial Public Offerings
• Estonia
• Latvia
• Hungary
• Poland
• Slovenia
• Malta

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EU Accession countries - status

• Differing economic and monetary policies
• Pension reform
• Example Poland
• Adoption of Chilean model
• Free market economies
• Banking vs public corporate funding

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EU Accession countries - status

• Confidence in Capital Markets is LOW!
• Privatisations bungled voucher system
• Modelled on Russia/Czech Republic
• Widely dispersed certificates
• No established trading system!
• Oligarchs purchased all certificates
• Now control significant portions of former
  state-run industries
• Lack of stocks to invest in
• Typical emerging market
• Polarised to few stocks
• Presents unacceptable risk

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EU Accession countries - status

• Hyperinflation
• Bad experiences with respect to investments
• Investors lost savings
• Forced investors towards property
• Thankfully looking towards Euro low inflation
• Brings other problems..
• Boom and bust bubbles

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EU Accession countries - status

• Regulation
• Generally weak
• Undermines local confidence
• Forces larger floatation to London, NASDAQ
• Investment advice
• Directors shareholdings and dealings
• Corporate news disclosure
• Over-regulation
• Malta world standard
• BUT Caused problems
• Right-size regulation

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Expectation

• The size of the financial sector might rise by
  as much as a factor of 15 in absolute terms
  during the catch-up process
• - European Central Bank 2001

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Expectation

• Pension/Health welfare reforms
• Increasingly aging population
• Require liquid capital markets for investment
• State funded at present
• Previously mentioned Chilean Model?
• Much of Western Europe has not decided on this
  yet!

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Expectation Foreign interest

• Investment will come from west
• Speculative interest
• Economic shift from Western Europe
• Manufacturing, petrochemicals, technology,
  property
• Educated population
• May force bubble

Net purchases of shares by non-Slovenian residents
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Specific Issues / Problems

• Invasion of Western Europe
• Broker level
• Fears that local brokers will be forced out
• Listing
• Estonia example
• Acquisition and de-listing
• Exchanges merging/acquisition
• Deutsche Borse Group
• ATOS Euronext
• Austrian Stock Exchange
• Ireland?

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Specific Issues / Problems

• Regulation tightening/harmonisation
• Moving target!
• ISD2
• Basle 2
• IOSCO
• No central School for learning!
• Danger of over-regulation
• Lack of expertise/practise in designated
  countries
• Experiences of middle-east
• World Bank, IADB, ADB are already funding
  projects
• Caribbean, South America, India

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Specific Issues / Problems

• Euro Conversion
• Specific Project
• All Stocks to be changed to different currency
• Big Bang approach
• Historical prices also need conversion
• Payment, deposition and registry information also
• Dividends, etc

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Specific Issues / Problems

• Technical infrastructure
• Most systems are old or small
• No commonality
• Reliance on the RTS
• Future needs will be
• Upgrading of depository
• Exchange linkages
• Market Surveillance
• Internet-facing activities
• Business continuity plans

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Cross-border trading

• Cross border trading
• Needed to improve liquidity
• Access to other EU markets
• Re-orientation of funds
• Reduce market polarisation
• Temptation to merge

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Cross border trading

• Local Alliances
• Slovenia leading alliance withBosnia
  Herzegovina, Montenegro, Macedonia and Srpksa
  stock exchanges
• Other international interest
• Athens, Italy
• Deutsche Borse Group
• Austria, Hungary
• Likely targets for mergers/takeover
• Euronext

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Summary

• Confidence in Capital Markets Low
• Requirement for development from
• Accession criteria
• Pension reform
• Local economy
• Cope with demand
• Low inflation
• Specific issues in
• Regulation
• Technology
• Cross-border trading
• Euro conversion

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Impact on Capital Markets from EU Accession