Срсп 14 money market 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.

1. During the transition process we were faced with many dilemmas about the future shape of the capital market.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. The new legislation will provide comprehensive reg­ulation for bonds, which should create a legal environment for all kinds of bonds.

Ex.2. Have a talk based on the text with your friend. Make use of questions.

1. When and where did the process of transition from a centralized to a free-market

econ­omy began?

2. What is the most important issues of the reform?

3. What should be the role of the state in creating the proper institutions?

4. Who should be the main market participants?

5. What forms of legal regulation should be introduced to protect all market participants, espe­cially the investors?

6. What model of stock exchange should be introduced?

7. What institutions should be present from the outset and which should follow?

Ex.3. Retell the text according to the plan.

1. The beginning of a capital market.

2. The key to successful privatization.

3. Some problems at the way of market economy.

Ex.4. Read the project and discuss it.

1. Identify products in your home and school that represent the phases of a product’s life cycle: introduction (stars), growth (cash cows), maturity (problem children), and decline (dogs).

A Rubic’s Cube, for instance, can now be called a dog. A new blouse or shirt style that’s just come into fashion this season is a star. Explain why you have identified each item according to its life cycle phase (and nickname).

2. Watch and analyze television commercials. Have paper and pencil at hand, ready to record and classify data from the selected commercials. Use the following guidelines:

1. At the top of three sheets of paper, write one human need category: physical, social, and psychological.

2. Select commercials that appeal to each human need.

3. Record the names of each company and the products and services being marketed in each TV commercial. Record these data on your separate sheets of paper, opposite each itemized commercial.

4. Compare your primary research finding. Report the findings to your class.

3. Locate several magazines ads. (Use old magazines from home or the classroom or photocopy ads from magazines in the library). Select ads that demonstrate appeals to consumers’ motivational buying habits, namely: rational, emotional, patronage.

(Note that the copy – written matter – might provide facts and figures as an appeal to consumers’ rational side. The pictures, however, might nave been selected to appeal to consumers’ emotional side, as well as to the three categories of human needs. Ads that promote a company’s reputation are designed to appeal to consumers’ patronage motive).

Ex.5. Explain the meaning of the following proverbs.

1. Don’t count your chicken before they are hatched.

2. Don’t put all your eggs in one basket.

3. Never judge a book by its cover.

4. Never look a gift horse in the mouth.

5. Take care of the pence and the pounds will take care of themselves.

6. One swallow does not make a summer.

7. Many hands make light work.

8. When the cat’s away, the mice will play.

Ex.6. Write an essay on one of the topics.

1. Is profit regarded as a source of income in economic theory?

2. Competition stimulates market development.

3. Some concurrent problems of market economies.