Options for WIG 20 Index

WSE attempt to drive up trade volumes

By Aleksander Nowacki

The Warsaw Stock Exchange has had its fair share of criticism over the years. The low liquidity on many stocks and few initial public offerings (IPOs) of any significance have led some market watchers to conclude that the exchange stands little chance of competing on the emerging pan-European market. That is why, says its president Wiesław Rozłucki, the exchange has taken things into its own hands and pushed for the introduction of new instruments. The latest arrival on the scene takes the form of the options on the WIG20 index of the largest listed companies, which made their début on the bourse last Monday.

"We do have an influence over the début of new instruments," Rozłucki said. "IPOs, on the other hand, are independent of our actions." He went on to describe the introduction of options as a next step in the board's efforts to boost the volume of trade on the WSE.

New instruments have enjoyed varied fortunes after their introduction onto the market. Futures on WIG20, the first derivative to make its entry in January 1998, has been the most successful of such instruments, with close to 44,000 contracts changing hands on a single day last month. Experts are not in agreement as to whether the options would prove to be a success like WIG20 futures, or a failure like futures on euro and dollar exchange rates, which have attracted few investors since their debut in late 1998.

Michał Wojciechowski, board adviser at BOŚ brokerage house, described his feelings about the options debut as "ambiguous." He said that its success depends on the volatility of the market; should it prove low, there would be little incentive for trade in options.

Other market insiders are more optimistic, noting that trade on options reached a higher volume in its first week than futures had done in the past. Jacek Jaszczołt, Amerbrokers president, said that the results have been so encouraging as to prompt the house to introduce options to its offer in the coming weeks.

"We had taken a 'wait and see' approach and the volume turned out to be higher than we expected," Jaszczołt said. "There is definitely growth potential here, though it is likely to happen at the expense of futures." Amerbank was in the majority of brokerages that had taken a cautious approach to the options début. In the first week, only 10 out of 21 brokerages offered options, although it is expected that most or all will follow suit in the coming weeks.

Jaszczołt expects that the success of the WIG20 options is likely to encourage the WSE board to follow through with the introduction of options on individual stocks. This was confirmed by Rozłucki, who said that the exchange has the technical capability to introduce such transactions overnight. The complexity of these instruments means, however, that such a step would require laying some groundwork in order to attract and educate investors.