2006 On The Warsaw Stock Exchange

2006 highlights and statistical data

The year 2006 turned out to be the best year in the history of the Warsaw Stock Exchange and the Polish capital market as a whole with the record values and volumes traded both on cash and derivatives markets, the rising indices and very good IPO market performance. 38 companies made their debut on the Exchange, among them 6 foreign ones, including CEZ – the largest company in the region. As a result, at the end of the year the WSE market capitalisation (domestic companies only) was 40% higher that the year before.

The equity market

New listings

In the course of the year, 38 companies debuted on the WSE (including six foreign companies). That was the best result since 1998 (57 debuts then). As the „debut of the year” the debut of CEZ, the largest company of the region from Czech Republic may be considered (25 October). At the end of the year companies from 9 countries were listed on the Exchange (Poland, Czech Republic, Slovakia, Hungary, the Netherlands, Israel, Ukraine, Germany, and USA). Small and medium-sized companies predominated among new listings. A spectacular IPO was the Multimedia one – the largest offer of a private company in the WSE history (PLN 803 million). Another historical record on the primary market was set up by the Arteria Company: the IPO reduction rate amounted to 99.48%. In 2006 for the first time two debuts took place one day (on 20 December – Monnari Trade and CEDC). Debuting companies raised PLN 2.44 billion via the Exchange for development (new issues of shares only). WSE-listed companies as a result of new share issues raised PLN 2.15 billion.

Equity turnover

2006 was a year of the highest-ever equity turnover - over PLN 343 billion, of which PLN 320.2 billion traded in the course of trading sessions, which was 83% higher than in the record year 2005. Already on July 25, 2006, the total equity session turnover reached PLN 176.2 billion, thus exceeded the 2005 annual equity session turnover (PLN 175.4 billion). November 2006 with the equity turnover of PLN 36.9 billion brought the highest monthly equity turnover ever. On the session of 23 May another historical record was broken - the number of daily transactions reached 110 425 (including 8 block trades); previous record day being 31 January, 1994 (106 436 transactions).

Indices and indicators

2006 was undoubtedly a year of record-breaking performances by the WSE indices. In total, in the course of the year, all the WSE indices set their all-time highs 450 times. Most often the records were broken by medium and small companies’ indices, which also increased the most in the course of the year: MIDWIG (70.4%) and WIRR (133.4%). All except one WSE indices ended the year with two-digit positive rates of return. Only sub-index WIG-OIL ended the year negatively.

Indices crossed barriers

On 27 February, WIG index for the first time ever reached 40 000 pts.
On 24 March, WIRR index for the first time ever exceeded 8 000 pts.
On 13 March, WIG20 index for the first time reached 3 000 pts.
On 12 May, MIDWIG index for the first time exceeded 3 000 pts.
On 29 November, WIG index for the first time ever exceeded 50 000 pts (session closing data).

Dividend yield

Dividend yield for listed companies amounted to 2.7%. This is the highest dividend yield since 1992. Among others it was a result of the record value of the dividends paid by WSE-listed companies in 2006 (PLN 12.8 billion - the highest amount of dividends paid annually in the WSE history; in 2005 – PLN 7.9 billion paid out).

P/E ratio

At the end of the year the average P/E ratio for domestic listed companies equalled 16.9, which constitutes a slight increase in comparison with 2005 (14.3).

P/BV

At the end of the year 2006 P/BV ratio stood at 2.61 (2.06 at the end of 2005).

Capitalisation

The WSE market capitalisation rose significantly in 2006. At year-end it totalled PLN 635.9 billion, with PLN 437.7 billion accounted for by domestic companies and PLN 198.2 billion by foreign ones. Capitalisation increase was driven by the growth in the number of companies and a positive market trend the forth year in a row. The WSE market capitalisation (domestic companies) increased by 40% during 2006. Market capitalisation/ GDP ratio at year-end amounted to 45%.

The derivatives market

2006 was a record-breaking year for the derivatives market as well. Trading volumes for all WSE-listed derivatives in 2006 totalled 6.68 million contracts and were by 20% higher than in the previous year. As far as the trading value is concerned, 2006 turnover was by over 50% higher in comparison with the previous year. Traded volume for futures contracts amounted to 6,334,289 – and it was 17.8% higher than in the previous year. On the trading session of 12 December, daily trading volume amounted to 62,131 being the highest ever daily turnover in those instruments. Trading volume in WIG20 index options increased by over 28.8% in relation to 2005 and totalled 327,828 options. Increasing turnover was supported by the new WSE regulations, which since 16 October made futures contracts and options block trades possible for investors.

New instruments

On August 25, 2006, new instruments appeared on the Exchange – so-called structured products. As the first ones, the structured bonds “db Magic Three”, issued by X–markets of Deutsche Bank AG in London, were listed on the Warsaw Stock Exchange.

WSE IPO Partner

In the mid-November the WSE launched a new project - WSE IPO Partner programme. The essence of the programme is to support WSE promotional activities on foreign markets via activities of the WSE partners – foreign brokerage houses and investment firms. The Warsaw Stock Exchange signs such agreements with entities conducting brokerage business or activities related to investment services in order to attract – directly and indirectly – potential issuers from abroad. In 2006 already four entities became programme participants (3 from Ukraine and 1 from Estonia, which will service also Lithuanian and Latvian markets):

• E-volution Capital (Ukraine)
• Altera Finance (Ukraine)
• Sokrat Capital (Ukraine)
• Superma Securities (Estonia – Baltic countries markets).

Exchange Members

In 2006 four entities became WSE new members: 3 remote members (Bayerische Hypo- und Vereinsbank AG (HVB AG) from Germany, Bank Austria Creditanstalt AG from Austria, AS Suprema Securities from Estonia) as well as Ipopema Securities S.A. Currently 35 entities are the WSE members, among them 10 remote members (from Austria, Czech Republic, Estonia, France, Germany, Sweden, Hungary and UK) and 25 domestic firms. In 2006 first foreign member began the activity on the WSE derivatives market (RCB).

New WSE partner firms’ programmes

Two new programmes replaced Partner Firms programme. The aim of the programmes is to support entities seeking capital for their development on the public market, and especially to facilitate development of small and medium-sized companies.

WSE Partner Firm – Primary Market Leader

The condition of participation in this programme is to manage in every 2-year period, at least 5 IPOs with the total value of minimum PLN 300 million (the value of the new issues of the companies listed already on the WSE is also included).

WSE Partner Firm for Small and Medium-sized Companies

This title is reserved for entities (investment firms, legal and audit companies, financial advisors), which will co-operate in the IPO processes with the value up to PLN 100 million, in which the cost of capital raising will not exceed 5% of the issue value.

Investors

Significant changes occurred in the investors’ structure. 1H 2006 data show, that the share of individual investors in the equity trading reached 37% (11% more than in 2005). The share of domestic institutional investors in turnover amounted to 34%. The number of investment accounts run by the participants of the National Depository for Securities at the end of November 2006 totalled 901 thousand, which was nearly 50 thousand higher than at the end of 2005.

Fees

Starting from April 1, 2006, the Warsaw Stock Exchange reduced transaction fees for its members by 13.5%, on average. The benefits for the market resulting from these reductions were estimated at PLN 8.3-9.8 million in 2006. As of 1 July, for the second time in 2006, the WSE lowered the transaction fees. The benefits for the market resulting from the second reduction were estimated at additional PLN 3.8 million in 2006.

Trading system

Since 1 September 2006, a change of tick size was introduced which caused the number of instruments for which the minimum tick size is determined increase significantly: among others for all stocks with the price below PLN 50, the tick size is 1 grosz (PLN 0.01).

In the regulations concerning permissible price variation limits an important change was introduced on 24 March 2006 – a so-called dynamic price range system - an additional mechanism for limiting price variations. Dynamic limits are used to protect investors’ interests.

In February the WSE liberalised also the rules for block trades.

Exchange Information

The number of on-line data users exceeded in 2006 100,000. New data vendors were won, including: GL (France), Factset and CQG (USA) Fischer Partners (Sweden), Infront (Norway), Proquote (UK), Patria (Czech Republic). Another important fact in this field was the signing of licensing agreements for the issue of financial instruments based on WIG20 Index with Societe Generale and Citigroup.

Technology

2006 was another year in which the 100% accessibility ratio to WARSET system services was maintained. During the six years of WARSET system’s functionality, the record level on the world scale had been achieved with 99.96% for accessibility of services.

2007 – Goals and expectations

In the year 2007 the WSE will continue its activity aiming at building in Warsaw a regional, Central European centre for trading in financial instruments.

• A few dozen of new companies are expected, among them several foreign ones. The WSE expects debuts by 8-10 companies of the State Treasury, 6-8 foreign companies and the same number of the companies migrating from MTS CeTO market. Apart from that, around 30 Polish companies of private origin may join the Exchange market.
• New participants of WSE IPO Partner programme are expected, to support the WSE in attracting foreign companies to the WSE market.
• Changes to organisation and segmentation of the WSE markets will occur in the first half of 2007. A New Market will be launched to create a platform for financing and secondary trading for small enterprises with large development potential. A New Market will have the status of an organised market; however it will be operating outside the regulated market – in the alternative trading system formula.
• In the second quarter of 2007, the WSE intends to activate, together with the Polish Press Agency (PAP), an Internet window for investors providing information concerning Polish and foreign WSE-listed companies, their market environment, sectors, legal environment, macroeconomic conditions, etc.