A C T A U N I V E R S I T A T I S L O D Z I E N S I S FOLIA OECONOMICA 182, 2004 A gata Szczukocka* T H E P O L IS H C A P IT A L M A R K E T F A C IN G IN T E G R A T IO N W IT H T H E E U R O P E A N M A R K E T 1. In trod u ction
The process o f adjusting the Polish econom ic system to the rules existing in the European U nion started at the time o f system transform ation. B uilding o f the capital m arket started from forming laws and establishing stock m arket and securities deposit. At that m oment already the solutions used in the U nion were taken into consideration.
The main purpose and at the same time great challenge for the Polish securities market is becoming a part of the European market structure on the basis of partnership so that the market may play important function in the Polish economy.
2. C ap ital m ark et in Poland
Capital market has been separated as one o f the segm ents o f financial market. Capital market is the sum o f all transactions of purchases and sales o f financial instruments with redem ption longer than a year (Jajuga 1998). The basic aims o f capital market functioning are as follows: effective capital allocation am ong the com panies em itting instruments o f that market, the proper evaluation o f the market instruments and gaining profit by investors. Dividing the capital market on the primary and secondary market, the following basic institutions o f securities secondary m arket should be mentioned (Tarczyński 1997):
- Polish N ational Bank (N arodow y Bank Polski),
- Securities Com m ission (K om isja Papierów W artościow ych) and W arsaw Stock Exchange (W arszaw ska G iełda Papierów W artościow ych),
- N ational D eposit o f Securities (K rajow y Depozyt Papierów W artoś ciow ych),
- Stock Exchange,
-U n lis te d securities market,
- B roking H ouses (biura maklerskie), - Investm ent banks,
- Pension funds/schem es, - Insurance com panies.
In the structure o f the Polish securities market, sim ilarly to the countries in w hich the m arket is well organized, the im portant role is played by Securities Com mission.
The Polish capital m arket developed greatly within the first few years o f its existence. A lthough it was being established from the very basis, it had no specified legal and institutional norm s and it had little professional staff, over relatively short period o f time it managed to develop into the m arket that meets the basic w orld standards. It is considered to be small but dynam ically developing m arket based on the rules accepted in such model countries as the Unites States o f A m erica and the European Union countries.
W hile discussing the capital market in Poland, the problem s it m ust deal with, cannot be ignored. One o f the most im portant ones are legal and tax problem s. A lso the clearing system, high em ission costs and high costs of participating in the capital market operations are also w orth m entioning. A nother problem is small developm ent o f the institutional and individual investors’ sectors.
Strong com petition o f foreign secondary m arkets requires new structural and technical solutions on the W arsaw Stock Exchange. O ne o f them is the possibility o f establishing the common platform o f stock exchange instead o f the several ones already existing. W hat is more, the stock exchange privatization enables som e foreign investors to enter it. Am ong the problem s faced by the Polish capital m arket there is also small control of the ow ners and offence. This situation can be changed owing to the inner control organs (in banks and brokerage/broking houses), outer control organizations (K PW iG ) and prosecuting and ju dicial institutions.
3. Polish and E u ro p ean regulations o f capital m ark et
D evelopm ent o f capital market in the w orld resulted in a situation in which the regulations concerning only securities and regulating them w ere not sufficient to protect investors. Trade in securities and other capital m arket
instrum ents requires special regulations concerning m arket organisation, m ediacy in trade transactions and sim plification o f taking investm ent decisions. In Poland such regulation is m ade through the act dated 21 A ugust 1997 The act on p ublic trade in securities, which becam e binding on 4 January 1998, replacing the act dated 21 M arch 1991.
In the E uropean Union the regulation o f capital m arket is guarded by the C om m ittee o f European Securities R egulatos - CESR. It was established in accordance with the decision o f the European C om m ission (2001/1501/EC ) dated 6 June 2001 as a result o f accepting the so called R eport o f W isem en G roup by the C ouncil led by A lexandre Lam falussy. T he C om m ittee adopted all the output o f the Forum o f European Securities C om m issions (FESC O ) and it continues the w orks on all the projects started by the m em bers o f FESCO. M em bers o f the C om m ittee are institutions supervising capital m arkets o f the countries o f European Econom ic Area (non m em ber countries o f U E without vote capacity) and a representative o f European C om m ission. T he duties o f CESR are as follow s (Socha 2003):
- im provem ent o f cooperation between the institutions supervising and regulating securities m arkets,
- a c t i n g as an advisory group o f European C om m ission and preparing projects o f securities regulations,
- activities aim ing at constant and efficient putting new regulations into practice by the m em ber countries.
In the years 1998-2000 Securities and E xchange C om m ission was a FESCO observer and at the m om ent it is a m em ber o f C onsulant G roup o f the Institutions S upervising and R egulating Capital M arkets o f C andidate C ountries for UE and it cooperates with CESR with reference to regulation w orks within UE.
In order to cooperate in setting com m on international standards in securities trade International O rganization o f Securities C om m issions - IO SCO was founded in 1983. C urrently it has 172 m em bers com posed o f ordinary, affiliated and associated ones. In 1998 the Organization published the docum ent entitled: The aims and principles o f trade in securities.
The docum ent includes 30 rules concerning the laws regulating trade in securities. T he principles have three main purposes:
- investors protection,
- fair, efficient and transparent m arket functioning assurance, - system risk reduction.
In order to achieve those aims, the 30 rules m entioned above m ust be put into practice according to the suitable laws. T he rules can be grouped into eight categories:
A. Rules concerning regulation organ. B. R ules concerning autoregulation.
C. Rules concerning execution o f laws regulating securities trade. D. Rules concerning cooperation in regulating.
E. Rules concerning em itents.
F. Rules concerning program m es of group investm ents. G. Rules concerning m arket agents.
H. Rules concerning secondary market.
4. S tra teg y o f ca p ita l m ark et d evelop m en t
T he governm ent program focuses on the follow ing strategy o f capital market developm ent:
I. E u r o p e a n U nion I n t e g r a tio n
- T o m aintain the achieved harm onization o f laws regulating the Polish capital m arket with the E uropean Union instructions.
- T o incorporate G PW and KDPW into European structures enabling them to become com petitive in a region together with retaining investors and em itents matters.
- To form the ow nership structure and the rules o f G PW and K DPW acting that will prom ote developm ent o f national capital m arket and the dem and o f future com petition on the com m on European Union m arket. It dem ands the Agenda W arsaw C ity 2010 project creating which aim s at changing W arsaw into regional finance-capital centre such as London City, F rankfurt Finanzplatz or Paris Europlace. T he project also aims at privatization o f W arsaw Stock Exchange and the increase in the capitalization from the present 21% to alm ost 50% G D P within the next six years.
II. T h e use o f o p e n pension fu n d s potential
- Privatization o f the im portant com panies o f the E xchequer through the public capital m arket over the next few years. Privatization offers for pension funds.
- D evelopm ent o f the m arket o f indebted securities, including the m arket of letters o f deposit, treasury bonds, m unicipal and corporation bonds.
- D evelopm ent o f the electronic platform o f treasury bonds turnover in accordance with the standards o f the public capital m arket - System of Securities Dealers.
III. D e v elo p m e n t o f public cap ita l m a r k e t as th e s o u rc e o f cap ita l re ta in in g
- D evelopm ent o f m echanism s that prom ote financing infrastructural program s by pension funds, including the use o f infrastructural funds of European U nion.
- P re p a rin g neutral and stable tax solutions. In case o f taking eventual decision to im pose taxes on the incom e earned on the public capital m arket, special tax rules should be prepared and announced at least 1,5 year in advance, so that investors have tim e to adjust.
- Increase in the efficiency o f cooperation betw een Civil S ervice units and prosecuting units in tracking and punishing offence connected with public trade in securities.
- Increase in the clarity o f financing units o f self-governm ents.
Increase in the use o f public capital in getting financial m eans for investm ent o f the self-governm ent units.
T aking som e special system means i order to m ake the Polish capital m arket more com petitive sustaining the proper level o f safety in trade.
5. Advantages and dangers for the Polish capital market
The agreem ent on the unconstrained capital flow betw een Poland and EU (according to the art. 73 b o f M aastricht T reaty) and putting into practice other liberties m eans that Poland will join united inner m arket o f EU. All the benefits that can be expected have the follow ing roots (Socha J. 2003):
- savings resulting from the end o f trade barriers within European Union, - savings resulting from the full liberalization o f financial m arket, - intensification o f inner com petition
- increase in the production range
-e lim in a tin g the restrictions connected with the access to public orders market
The possible effects in the Polish econom y due to the introduction of unconstrained capital flow are as follows:
- increased inflow o f capital (in various forms), contributing to the increase in its supply on the national market, will press for low ering interest rate, so it may happen that the value o f capital will be lowered;
- the low ered value o f capital will m ake it m ore accessible for investors, that m eans possibility to stim ulate investm ent in the country and som e other processes o f grow th;
- the low ered value o f capital will result the increase in the accessibility for investors, which m eans the possibility o f the investm ents stim ulation and additional grow th processes starting;
- the low ered value o f capital results in few er advantages for those who make som e savings and m ore advantages for investors: net benefits o f Poland as
far as prosperity is concerned will be connected with the difference betw een the benefits o f investors and losses o f those w ho make savings;
- the rate o f profit division among the main social groups in the country (profits o f work factor versus income from capital) may becom e different; in Poland, the country receiving capital, an increase in benefits from work can be expected and at the sam e time a decrease in profit gained by capital owners; such a situation is highly welcom ed by trade unions; that effect will only appear if m arkets will function properly;
- it is possible that the balance o f paym ents may becom e w orse for some time due to the liberalization o f capital-financial m arket, depending on the structure o f capital arriving to Poland; in case o f large inflow o f short-tem capital and appearance o f some factors that have an adverse effect on the financial stability, the outflow o f capital may appear that may have bad influence on m onetary policy; at the same time the inflow o f long-term investm ent in Polish econom y (for instance direct foreign investm ent and reinvestm ent o f the profits resulting from it) may subdue the above m entioned difficulties in balance of paym ents;
- integration o f the market o f production factors (including capital) can sim plify restructurization and the process of liberalization o f trade in custom s union; liberalization o f capital flow may activate dynam ic effects o f custom s union;
- the integration o f production factors m arket (including capital) can facilitate restructuring, which accom pany the trade liberalization processes in the custom s union; that is why the liberalization o f capital flows can quicken the realization o f the dynam ic effect o f the custom s union;
- also the effect o f form ing and moving the capital stream may be observed that opposed form ing and moving o f capital stream in custom s union betw een Poland and EU;
- also dynam ic effects may take place through strengthening o f com petition betw een financial organizations in Poland, it will increase scale benefits and service quality; banking sector, protected in the past, will be negatively influenced but everybody involved in financial m arket will take advantage o f it;
- also the effect o f area concentration is possible to appear, that m eans in case o f difference in the level o f developm ent o f financial m arkets, that is present betw een Poland and EU m em ber countries and in case o f easy founding a com pany, transfer o f the surplus of dem and and supply to financial centres is possible, as well as the situation in which m oneylender and borrow er will move there all their activity; such an effect would be highly undesirable for Poland.
It is also worth em phasising that the w rong sequence o f general liberalization processes betw een integrating sides can lead to great losses. Introduction o f full capital m obility between Poland and EU, w ithout rem oving tariff obstacles in trade, will result in loss for producers and reduction o f profits
for the governm ent. T herefore, before form ing custom s union, com m on capital m arket should be first established. Since rem oving tariff obstacles in trade in industry articles is highly advanced, the above m entioned problem refers to tariff obstacles referring to agricultural articles.
EU m em bers’ experiences shows that the accession is a very im portant im pulse for the econom y developm ent, including the capital m arket. Some num erical data prove that Poland also has such chances.
The value o f com panies quoted in the W arsaw Stock E xchange (29,3 billion Euro in the end o f the year 2003) is alm ost the sam e as the sum o f the capitalization o f succeeding three Central E uropean Stock Exchanges in respect o f the volume: H ungarian Stock Exchange (13,2 billion E uro o f capitalization), Czech Stock Exchange (12,3 billion Euro) and Slovenian Stock Exchange (5,6 billion Euro). T his Stock Exchange is also a leader taking into account the turnover volum e in the shares market, which am ounted to 8 , 8 billion Euro. T he
increase in the main stock exchange index (W IG 20), which am ounted to alm ost 34% proved that the polish m arket can be more attractive for investors than other European m arkets.
Fig. 1. The change o f stock exchange indexes o f som e o f the European stock exchanges in the year 2003
S o u r c e : Annual R eport o f the W arsaw Stock Exchange.
The levels o f shares and forw ard contracts turnovers o f the last year as well as the exchange capitalization o f the national com panies testifies to the international status o f the W arsaw Stock Exchange.
Fig. 2. Shares turnovers - monthly averages in the year 2003 (billion Euro) - individually calculated S o u r c e : A s same as Fig. 1. 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 x <: О) ? о x x C \l D u . _ J CO UJ СО N <s> 03 CD ro -C C 03 ш Q) Cl ГО "D (Л 0 ) Q . г CÜ D CO X.O X m О о 1Л О о смI ш со й с/) ь—ĽL >> с QJ < ю со й CÜ "О 03 2 о CNJ о со 1 го N 2 03 <: о со CG ГО о ЪО)
Fig. 3. V olum e o f the forward contracts turnover on the main indexes - m onthly average in the year 2003
Fig. 4. Exchange capitalization o f the national com panies - D ecem ber 20 0 3 (billion Euro) S o u r c e : A s same as Fig. 1.
T here are various advantages o f the m em bership agreem ent. O ne should expect that our European region com panies’ interest in the W arsaw Stock Exchange securities quotation will increase. T he above data also suggest that the risk o f the transfer o f the national com panies quotation to the foreign floors will decrease. On the other hand, the securities transactions o f European countries can becom e the new source o f the stock exchange m em bers’ income.
6. C on clu sion
N ow adays capital m arket is an im portant part o f every free m arket econom y. It enables com panies to obtain, relocate and invest capitals in such a way that they bring profit.
As results from the above m entioned facts and conclusions, the Polish capital m arket although it is w ell-prepared for the integration with the European Union, has still many problem s to solve if it wants to becom e sim ilar to those existing in the countries o f w ell-developed econom ies. It is w orth m entioning that the Polish financial market is considered to be solid, transparent and reliable, it m eans that legal rules referring to that field o f econom y conform to the world standards. H ow ever, lack o f efficiency, liquidity and innovations results in such a situation that many com panies decide to invest its savings in banks, giving sim ilar return on investm ent and sm aller investm ent risk. It seem that the solution to that problem and many other can be integration process.
R eferences
J a j u g a К. (red.) (1 9 9 8 ), Rynek kapitałow y, inw estycje fin a n so w e, Wroclaw. T a r c z y ń s k i W. (1997), Rynki kapitałow e, Warszawa.
S o c h a J. (2 0 0 3 ), Rynek p a p ie r ó w w artościow ych w P olsce, Warszawa.
R aport roczn y 2 0 0 3 G P W w W arszaw ie, Strona internetowa OPW w Warszawie.
Agata Szczukocka
PO LSK I R Y NE K K A PIT A Ł O W Y W P E R S PE K T Y W IE IN TE G R AC JI Z R Y N K IEM E U R O PE JSK IM
W artykule starano się szczególn ą uwagę zwrócić na szanse i korzyści, jakie m ogą zaistnieć dla p olsk iego rynku kapitałowego w wyniku integracji z rynkiem europejskim. Skoncentrowano się także na strukturze rynku kapitałowego w Polsce i regulacjach prawnych. Przybliżony został także program rządu dotyczący strategii rozwoju rynku kapitałowego w Polsce.
