Impact on Capital Markets from EU Accession. © Catalyst Development Ltd 2002 AGENDA Introduction Current Status Expectations Special problem areas Cross-market

Impact on Capital Markets from EU

Accession

© Catalyst Development Ltd 2002

AGENDA

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


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


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



• Differing economic and monetary policies• Pension reform

Example Poland Adoption of Chilean model

• Free market economies• Banking vs public corporate funding



• 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



• 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



• 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


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


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!


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


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?



• 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



• 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



• 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

TCP-IPAS400

5250Terminal

Emulators


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…

stock exchange D

stock exchange C

stock exchange E

stock exchange A

stock exchange B

stock exchange D

stock exchange C

stock exchange E

stock exchange A

stock exchange B


Cross border trading

• Local AlliancesSlovenia leading alliance with:Bosnia Herzegovina,

Montenegro, Macedonia and Srpksa stock exchanges

• Other international interest Athens, Italy Deutsche Borse Group Austria, Hungary

• Likely targets for mergers/takeover Euronext


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

Impact on Capital Markets from EU

Accession

Documents

Impact on Capital Markets from EU Accession. © Catalyst Development Ltd 2002 AGENDA Introduction Current Status Expectations Special problem areas Cross-market