Part Three: Warsaw Stock Exchange looks beyond 30th anniversary

Marek Dietl, the CEO at Warsaw Stock Exchange (GPW), has in the past years been working hard with other exchanges in Central and Eastern Europe to attract international investors to the fast-growing companies across that part of Europe.

Dietl’s initiatives have involved neighbours such as the Czech Republic and Hungary, growing economies to the south such as Romania and Croatia, and, more recently, far-flung markets such as Armenia.

The Warsaw-based exchange group sees itself as a regional hub for international investors to access interesting firms from across the vast Central and Eastern sections of Europe.

Dietl said recent efforts have drawn on Poland’s experience of being promoted by index firms through the ranks of more advanced economies, the most recent example being the country’s promotion to the status of “developed market” by FTSE Russell in September 2018.

The chief executive said: “As Poland was upgraded from emerging, to advanced emerging and developed markets, we somehow missed some of our clients so we decided to work on what we call the Frontier Markets Board for investors that are interested in assets bearing the country risk of frontier markets such as Ukraine, Georgia or Armenia,”.

“We are already an eastern European hub; we have on our venue Ukrainian companies and Czech companies for example, but we would like to group together companies from frontier markets and offer these to international investors. Thus, the investors would have exposure to the risk of non-developed countries, but with the quality of exchange and service from a developed market,” Mr Dietl added.

The chief executive said countries like Georgia and Armenia have dozens of strong, growing firms looking for an efficient mechanism to attract investors, but they are not yet at the level where they might be looking to list somewhere like London or New York.

Indeed, the Warsaw Stock Exchange Management Board went further in September 2020 when it signed a term sheet with the Central Bank of Armenia to acquire a 65% majority interest in the Armenia Securities Exchange (AMX). Currently this project is going through business plan with EBRD and AMX.

Jacek Sasin, Poland’s Deputy Prime Minister and Minister of State Assets, said in September 2020: “Many sectors of Armenia’s economy are looking for quality investments so the country has a huge growth potential. Investments are a driver of economic growth, especially in the emerging markets.”

Dietl told Global Investor: “In our relatively smaller, arguably less competitive venue, companies are much more visible than they would be in London for example and of course it is much cheaper to list in Warsaw than it is in London. So I think there is a sweet-spot for us to serve companies on their way to becoming very large companies, but needing capital in the meantime.”

The CEO also sees a key role for GPW as a focal point for investors interested in opportunities across the region.

He said: “We have had approaches from investment banks in Asia who are asking us to do a Polish day but they might also ask to see two or three companies from Hungary. Rather than having to explain that Poland, Hungary and Czech Republic are different countries, we would rather present the region all together, which is the rationale behind our Three Seas initiative.”

The Warsaw Stock Exchange hosted in September 2020, the Three Seas Stock Exchanges Conference in Kraków, to enhance the co-operation among the Visegrad Group countries (Poland, Czech Republic, Slovakia, Hungary) and Croatia, Romania Slovenia and Bulgaria.

Looking ahead, Dietl said: “Many of the companies that are coming to us now looking to IPO, have been working with venture capital investors for years and have the proper reporting systems in place; therefore, they are in a better place than firms coming to market at the start of the century. I think good times are coming for IPOs on the Warsaw Stock Exchange, not because of the changing sentiment, but the systematic building up of companies and the fact that more venture capital funds want to exit via the stock exchange.”

He added: “There is a feeling that if you want to raise a chunk of money you have to go to Nasdaq or another large exchange but it’s not true – we have raised a significant amount of money on the Polish stock exchange. This comes back to what I said about the frontier markets, if you are on a mainstream exchange in the EU, such as Warsaw, you have very similar access to the investor base that you would get in London for example.”

To complement its efforts to attract listings, GPW has also been working hard on its trading infrastructure.

Dietl said: “In 2017, we were preparing for MiFID II and wanted to introduce several changes into our system to make us more competitive against MTFs and other international competitors.  We realised third party software is very costly and has lots of features not needed by us because we are a medium-sized rather than large exchange.”

Dietl and his team saw this as an opportunity to develop a new trading platform using state-of-the-art technology designed specifically for mid-sized markets like GPW.

“So we decided to build a system that is extremely modular and multi-asset, making it appropriate for the smallest exchanges, up to larger markets,” said Dietl.

He continued: “We will deliver in one year the first system which will be for bonds. Two years after that, we will deliver a system for equity and derivatives trading and after another year for commodities. We will have a full blown system by the end of 2024 available as a hosted service or a standalone system.”

Dietl concluded: “We will of course test the system on ourselves, so by the end of 2023 we will have changed our system to the new matching engine.”

Looking again at 2021, the coming year represents a big milestone for the firm: the celebration of GPW’s 30th modern-day anniversary.

The exchange re-opened its doors to investors on April 16 1991, shortly after the fall of communism, ironically from its base in the old communist party headquarters.

On its first day back, the exchange had just five listed companies and traded shares worth about $2,000. Dietl and his team are understandably proud of how far the firm has come in the past 30 years and hope to be able to celebrate this achievement in April.

Dietl said: “In just three decades, Warsaw Stock Exchange has gone through all levels of development. From a small trading floor, where only a few companies were listed, to the current status of a developed market. This experience makes the Warsaw Stock Exchange a model and reference point for smaller markets at early stages of development.”

The CEO added: “By creating synergy between the potential of such markets and GPW’s unique, proprietary know-how, we would like to both strengthen our own position and contribute to the development of younger capital markets.”

 To listen to the third installment in the exclusive interview series, click here: https://www.youtube.com/watch?v=LAEoNFwg7qA