One of the segments of the main markets in Poland is the stock exchange market (WSE), on which secondary trading in securities takes place. Transactions on the stock exchange include buying and selling financial instruments that can be traded on the main market. In addition, NewConnect is an alternative trading system allowing smaller companies to float shares, and is also run by the WSE. Trading is conducted outside the main market as a multilateral trading facility.
An issuer of financial instruments can be any institution that floats securities on the WSE, being :
- a private or legal person
- the State Treasury or a state -owned bank
- a financial institution
- local authorities
In Poland, the main issuer is the State Treasury, which floats government bonds and co-owns shares in many listed public companies. There are different kinds of securities. In general, securities can be divided into shares and bonds:
- Shares: – issuing shares is a common means of financing the operations of an enterprise. A shareholder has a stake in the share capital until its sale, and has capital and corporate privileges given by the shares. There are ordinary shares (the simplest type of corporate stock) and preference shares (having priority over other classes of shares in claiming dividends or assets in the event of company’s dissolution). However, only ordinary shares can be traded on the stock exchange)
- Bonds: an issuer of bonds must guarantee that statements on bond value and dates on which the bonds shall be offered to the bondholders are accurate. This is compulsory, as the issuance of bonds is recorded in the books of the issuer as an obligation that can be secured through a mortgage, pledge or guarantee. Bonds have to be redeemed within a certain time, and named in a manner that indicates the issuers:
- Government bonds- issued by the State Treasury are the most reliable and have the greatest liquidity. On the stock exchange, fixed and floating coupon bonds are indexed to the WIBOR or to inflation
- Municipal bonds –issued by local authorities that cannot be declared bankrupt. This is a rather large market, while a rather small portion of these bonds will be traded on the stock exchange – only 0.5% of all issuers. These bonds are typically of low liquidity
- Mortgage bonds – issued by leading mortgage banks to finance loans (mortgage). Their high level of security is due to the fact that they are secured through mortgages. Coupons of these bonds have a higher rate compared to government bonds due to their lower liquidity
- Bank Gospodarstwa Krajowego (BGK) bonds – traded on the WSE as “government bonds” due to the fact that 70% are infrastructure bonds issued by BGK for the benefit of the National Road Fund and guaranteed by the State Treasury. Thus they are almost as reliable as government bonds. However, BGK also issues its own bonds without any guarantee from the State Treasury, and they are deemed to be ordinary bank bonds. They are also highly reliable, and a high coupon is a sort of a bonus for lower liquidity. Infrastructure bonds are issued mostly for ten years and more, and BGK’s own bonds for up to five years
- Eurobonds are bonds issued in a currency other than the national currency of the country in which they are issued (not only in Euros). There are samurai bonds which are Eurobonds (issued in Yen by entities in countries where a different currency is in circulation), euro dollar bonds (issued in US dollars ) and panda bonds (sold in renminbi). 80% of this market is government bonds (but there may be different issuers). One of the advantages of investing in Eurobonds is their high reliability (high rating) and attractive coupon
- Bank bonds are bonds issued by banks, and the coupons they offer are attractive as well. These bonds are often subordinated debts, and thus the risk associated with bond investment is slightly higher than in the case of ordinary senior bonds. These bonds are considered safe and are the most liquid of all non- treasury bonds. In addition, banks are closely monitored by the Polish Financial Supervisory Authority (KNF), and this makes them more secure.
- Corporate bonds are a group of diverse financial instruments. Their issuers may have high or very low reliability (in the past there were many bankruptcies of issuers listed on CATALYST). As a result, the coupon rates may also significantly differ. Issuers of corporate bonds may include developers, debt collection companies, or energy companies. These bonds sometimes differ in liquidity – trade in the bonds of some of these companies is practically non-existent, however, bonds issued by energy companies continue to have high liquidity.
- Cooperative bonds are related to cooperative banks in Poland. Their credit rating is rather low. Institutional investors such as an Investment Fund Company (TFI) or Open Pension Fund (OFE) are not interested in buying these bonds. The high risk associated with this type of bond investment is caused many bankruptcies of cooperative banks in the past.
Issuers are required to publish current and periodic reports giving details of the issuer itself, and the issuer’s financial instruments. The Electronic Communications System (ESPI) is a highly useful tool for fulfilling this obligation. It is an important element of the disclosure obligation that the information provided by the issuer enables investors to assess how the information impacts commercial, material, and financial standing. Firms whose financial instruments are admitted to organized trading are required to file current reports. The issuer must declare all facts and events that may have a major impact on their commercial, material, or financial standing. This obligation arises where the firm believes that its situation may affect the price or value of listed financial instruments. The issuer must publish this information within twenty-four hours. Events that have to be disclosed include:
- conclusion or termination of a major contract,
- acquisition, sale, or loss of high-value assets due to a random event,
- redemption of equity,
- a decision to enter into a merger,
- court registration of a change to the share capital,
- demerger or transformation,
- the recalling or appointment of a member of the management or supervisory board,
- appointment of an auditor,
- drawing up or forecasts of financial results.
The types of periodic reports are quarterly, semi-annual, and annual. The time limits for publishing these documents are stated in the published current report, by the end of the first month of each year. The issuer is required to include periodic information and give details of the firm in the form of financial statements and other documents in the periodic report.
Admission of shares for trading on the stock exchange /Main and parallel market
Once the Central Securities Depository of Poland (KDPW) has passed a resolution registering shares, the company files an application with the WSE for admission of the shares for trading. The application is filed by the issuer with the WSE management board, along with an opinion provided by an investment firm on eligibility for admission on the stock exchange.
For shares to be admitted and floated on the WSE, a company has to fulfill requirements under the WSE rules and Universal Trading Platform (UTP) Detailed Exchange Trading Rules. For this reason, shares can be admitted for trading on the WSE on the main or parallel market, subject to certain conditions:
- the issue prospectus has been approved by the Polish Financial Supervision Authority (KNF);
- there are no limits on sale of shares;
- no bankruptcy or liquidation proceedings are pending with respect to the issuer;
- minimum capitalization of PLN 60 m or the PLN equivalent of EUR 15 m;
- shareholders, each holding less than 5% of voting rights at the issuer’s general meeting of shareholders, hold a minimum of:
- 15% of the shares to be admitted to trading on the WSE (25% in the case of the main market);
- 100 000 shares to be admitted to trading on the WSE of a minimum value equal to EUR 1 m, according to the most recent sale or issue price (or 500 000 shares of a value of a minimum of EUR 17 m on the main market);
- the number of shareholders holding the shares will ensure liquidity of trading.
The WSE also considers the following when reviewing the application (without limitation):
- adequate share liquidity;
- adequate capitalization;
- current and envisaged financial standing;
- prospects for growth;
- experience and credentials of managing bodies;
- safety as to trading on the WSE and interests of participants.
The WSE management board has fourteen days to adopt a resolution admitting financial instruments to trading on the WSE from the day of filing of a complete application.
If the WSE management board approves the application for trading on the WSE, the issuer is required to float the shares within six months, failing which the WSE management board may repeal the resolution admitting the shares for trading on the WSE.
The shares are floated as of the first day on which they are listed, i.e. when a company goes public on the WSE.
The main condition for issuing shares for trading on NewConnect is the preparation of an application containing information related to the issuer. Every issuer has to submit an application to the WSE for shares to be floated on NewConnect, and this includes the information document drawn up in cooperation with an authorized adviser.
The information documents of issuers must be uploaded on the of NewConnect website. Furthermore, every issuer must meet the following requirements laid down in the WSE rules to obtain the status of a company listed on NewConnect .
- the company must be incorporated as a joint-stock company
- the period of operation – the information document must include an annual financial statement for the last financial year and must be examined by a certified auditor
- the issuer cannot be subject to any bankruptcy and restructuring proceedings
- Minimum nominal value of a share of PLN 0.10
- the minimum values of equity are in the region of PLN 500,000 (funds obtained from the shares issue prior to the first listing on NewConnect can be attributed to equity)
- appropriate dispersion of shares – meaning that a minimum of 15% of shares floated must be held by no less than 10 investors each holding no more than 5% of voting rights in the company (“minority investors”)
The WSE organizes NewConnect, and makes decisions regarding applications for admission of shares for trading, according to assessment of the documentation and status of the company. The WSE may also, at its discretion, verify the status of the applicant. The WSE will deny the application if admission of financial instruments for trading on NewConnect would pose a threat to safety of trading and the interests of its participants.
Shares are admitted for trading on NewConnect within ten working days from the day of filing of a complete and correct application along with all required documents.