Bourses for courses

IFR Emerging Europe and Turkey Special Report 2014
11 min read

After nearly two decades of outstanding success, a series of unfortunate events have robbed the Warsaw Stock Exchange of much of its once considerable allure as the largest independent bourse in CEE.

To see the digital version of this report, please click here.

To purchase printed copies or a PDF of this report, please email

When Ludwik Sobolewski became CEO of the Bucharest Stock Exchange (BVB) in July 2013, few could deny he had the chops for the job. The bourse’s president, Lucian Anghel, was quick to underline his new hire’s credentials. Sobolewski ran the Warsaw Stock Exchange (GPW) for seven years with great aplomb, turning it into the largest independent bourse in Central and Eastern Europe.

Listing candidates from across the region flocked to Warsaw from the early 2000s, some bypassing Vienna, home to a much larger, CEE-focused bourse, as well as the likes of Paris, Frankfurt, Moscow, and London.


But since Sobolewski left under a cloud in late 2012, Warsaw has lost much of its once considerable allure. Initial public offering issuance totalled just €18m (US$24.9m) in the first three months of 2014, said PricewaterhouseCoopers in its quarterly IPO Watch Europe report, against €58m the previous year.

Strengths are being perceived as weaknesses. And the government is not helping much.The rush of privatisations that opened up key sectors from banking to telecoms to energy in the 1990s and 2000s is now virtually over: the Polish state has sold, and listed, virtually every monetisable asset. Even current GPW chief executive Adam Maciejewski admitted in April this year that the privatisation process, “which for many years spurred on the growth dynamics of the capital market’s development … is coming to an end”.

The decision this year by Polish authorities to seize US$51bn worth of privately run pension funds, previously controlled by institutions that held 43% of the GPW’s free-float assets, and transfer them back into state control, will further weaken its position as a regional magnet for IPOs, by making it harder for issuers to find buyers.

Warsaw won’t shed all of its regional influence overnight, but recent events have unsettled investors and would-be issuers. The GPW has never been a particularly deep or liquid market, at least compared with the Wiener Boerse in Vienna. It needs fresh IPO blood to keep the oxygen circulating, and in recent quarters new listings have been become both smaller and thinner on the ground.

Modelling Warsaw

That throws the BVB’s smart decision to snap up Sobolewski last year into sharp relief. Romania is clearly attempting to follow the model that proved so successful for Poland for nearly two decades. Bucharest is pushing through an aggressive, Warsaw-esque privatisation programme. The November 2013 IPO of Romgaz raised US$530m, while total domestic equity capital market issuance reached US$1bn in 2013, up from US$76m in 2012. Sobolewski points to a host of forthcoming IPOs this year, from the initial stock sale of power distributor Electrica, set to raise up to US$700m, to the second-half IPO of coal power generator Oltenia.

Such sales are vital for Romania’s drive to create a regional securities trading hub.

“Privatisations are extremely important for the development of the local capital markets, because the positive experience of more developed economies showed that the competition for foreign investments was directly influenced by the IPOs of large state-owned enterprises,” Sobolewski said.

They also suck in foreign capital, giving local pension funds and insurers the chance to expand and grow into the market they know best. Next on the tick-list: a push to complete more corporate bond sales, while listing more smaller Romanian enterprises on the BVB.

Bucharest’s determination to walk in its peer’s considerable footsteps has been made publicly and regularly clear by leading BVB officials.

“In Warsaw, we attracted issuers to increase the size of the market,” Sobolewski said. “Does the BVB need issuers? Yes. In Warsaw, privatisations grew the market and liquidity. Does BVB need privatisations of SOEs? Yes. In Warsaw we built out our market infrastructure and eased investors’ access. Does BVB need these? Yes.”

Sobolewski’s arrival was described last July by BVB president Anghel as a “signal of confidence to shareholders, local and foreign investors, that we are determined to transform the BVB into a regional-class player”. The new CEO’s remit, Anghel made clear, was to build out Bucharest’s scale, power, liquidity, and reputation, brick by brick, year by year. Sobolewski and Anghel have become the public face of Bucharest’s efforts to promote the country’s renascent economy as a viable destination for both foreign corporates and institutional investors.

Much remains to be done. Sobolewski flags up three key goals aimed at giving the bourse more regional credibility: modernising its operating structure and financial infrastructure; influencing the regulatory framework of the Romanian economy; and turning the domestic capital markets into a natural source of fundraising, on the debt and equity side. Since joining, the new chief executive has extended trading hours and pushed through measures designed to eliminate market fragmentation.


The BVB chief executive, coming up to his first anniversary in the role, is rarely shy about outlining Bucharest’s ambitions. “We have embarked on a modernising path, with the medium-term ultimate goal of being upgraded by the MSCI into the category of emerging market,” he said. “We want to be at the turnover level of Prague, Budapest or even Vienna, and with the growth dynamics resembling Warsaw, even though it will be a big difference in scale between us and Warsaw.”

Further north, the biggest beneficiary of the decline of Warsaw’s stock exchange is likely to be the Wiener Boerse (WB). Vienna is widely seen as the gateway to the region. A protracted acquisition programme over the past decade has seen the WB buy controlling stakes in the Budapest and Prague bourses, while acquiring the Ljubljana Stock Exchange outright.

Atop this structure sits a WB-controlled pan-regional stock exchange group, CEESEG, which channels data from member bourses and outside affiliates, including the stock exchanges of Serbia, Macedonia, and Romania, to more than 20,000 professional end-users across the world, more than 60% of which are based in the UK and the US.

It’s notable that after years of speculation, the GPW management in November 2013 quietly made a positive recommendation on a tie-up with CEESEG following preliminary talks in Vienna. And in January, GPW chief executive Maciejewski expressed his “wish” that a merger will be “realised this year”, via a joint share issue.

Yet with Warsaw on the wane and Vienna looking to strengthen its grip on the region as it emerges from recession, it’s clear who has the upper hand in talks. A Vienna Stock Exchange official admitted that talks were ongoing and that a tie-up with the GPW would “be an option to strengthen our position”, while adding the rider: “With our strategic stakes in four exchanges of the CEE region [including the WB] our group is already well positioned today.”

For Michael Buhl, co-chief executive officer of both the Wiener Boerse and CEESEG, Vienna, which struggled to locate its identity and direction in the late 1990s and early 2000s, has again become the trading future of the region.

“The clear distinction between CEESEG and the Warsaw Stock Exchange is that we are an international state-of-the-art agglomerated stock exchange group,” he said.

“Warsaw, by contrast, is a very national and also a very closed market. They had the opportunity to acquire other regional stock exchanges in the past but in the end they didn’t, and they are now very focused on their national market model. Poland has 40m people, so the GPW won’t lose relevance, but we will see effects of fewer new listings that come to the market, and of the Polish pension fund system.”

According to London-based financial consultancy Z/Yen, at the end-March 2014 Vienna was placed 19th among the world’s most influential bourses, up a single place from end-September 2013. By contrast, the GPW dropped 11 places over the same period to 60th.

CEESEG’s most compelling advantage, along with the dissemination of so much data, is its range of regional stocks, and its standing with global institutional investors. Around 70% of daily trading channelled through CEESEG stems from major financial hubs such as London and Frankfurt. Two-fifths of all trading is sourced from Anglosphere investors – 25% of CEESEG institutional members hail from the US while more than 15% are UK-based.

But members and investors are arriving in increasing numbers from the central eurozone, Scandinavia and Asia, and Buhl said “two or three major investment banks – which are already members of the Vienna Stock Exchange – will become remote members of the Prague and Budapest stock exchanges over the next one to two months”.

CEESEG’s official goals are simple and clear: to boost the liquidity of local stock exchanges (Ljubljana’s bourse is notably tiny, while those of Prague and Budapest have never really lived up to earlier expectations); to make market access easier for international trading members; and to boost global interest in regional stocks. With new listings coming to market in the likes of Romania, and economic growth ticking up faster in CEE than in the eurozone, that job has become a lot easier.

The group also wants to harmonise clearing systems, run joint roadshows, create a common data vending system, and create a structure giving international members access to all partner exchanges.

“We want to reap the fruits of our joint trading platform,” said Buhl, who ruled out a move to acquire shares in other bourses in the near term. “We are very strong in terms of increasing the number of stock exchange members who trade not just in Vienna but across CEESEG. And most importantly, we want to increase liquidity and trading volumes. It’s a nice spot to be in right now. We are coming out of the crisis, and the sun may well be coming out for CEE.”