Share revolution
The three new laws were passed by the lower chamber of the former parliament on July 29. The legislation made for some enthusiasm among stock-traders more used to complaining about Poland's cumbersome stock-exchange regulations. The bills altered the privileges and duties of the Warsaw Stock Exchange, gave brokers a wide spectrum of new possibilities and introduced some new challenges.
Most reacted positively to the new regulations: "The most important thing within these new regulations is the alignment of Polish law with European standards," says Jarosław Kozłowski, head of the Polish Securities and Exchange Commission (KPWiG). Others express some minor reservations. "These changes are very good, but I have the impression that the new laws were prepared too hastily," states Marek Wodnicki, director of the Warsaw Stock Exchange's legal department.
Market manipulation
The first significant change concerns the security of transactions. The definition of manipulation has been expanded, and KPWiG is now able to block assets of brokerage houses suspected of shady dealings. Now, "trying to influence the outcome of a so-far unlisted company's public offer," and "spreading false or unreliable information which could excite investors," are considered breaking the law.
"There are a lot of changes in many areas, but the ones connected with security are really a step in the right direction," head analyst at BRE Bank, Tomasz Mazurczak says. "For companies, the importance of internal auditing increases and anti-manipulation rules provide better protection to investors."
As a result of the new regulations, KPWiG is allowed to either ask the prosecutor's office to launch a case, or to conduct proceedings itself and, when guilt is proven, to impose a penalty reaching zł.200,000 or 10 times the amount gained illegally.
Just the facts
Magazines and newspapers are also subject to the new regulations. If a journalist spreads false or imprecise information that could impact on share prices - whether purposely or as a result of inattention to detail - he or she will be reported to the prosecutor's office and taken before the court. The highest penalty for a journalist convicted of purposely spreading false information is zł.5 million and up to five years in prison. Moreover, if managing editors do not generate their own internal procedures for stock-related material, their journalists can be treated in the same manner as any other person or institution giving stock recommendations. Publishing news "encouraging or suggesting a behavior" to potential investors without the proper evidence can be punished with a zł.1 million fine.
Officially, everyone supports these regulations, but anonymously some journalists admit they are worried as to whether they will be able to continue scooping good bourse-related stories while the shadow of potential prosecution hangs over their heads. "There is no certainty these rules will not be bent or interpreted to frighten someone," said one financial TV reporter.
Minority report
The new regulations have a serious impact on minority shareholders' protection as well. Major stockholders now do not have to gain the KPWiG's agreement to buy out more than 25, 33 or 50 percent of a company's shares. However, once a shareholder comes into possession of 33 percent of a company's shares, he is expected to put forward a demand for at least another 33 percent. This serves to inform the market of changes in shareholder structure and give other players the opportunity to increase their holdings.
After an investor gains possession of 66 percent of a company, another demand is expected to take place, this time for all shares left in the market. Moreover, if a major stockholder exceeds 66 percent ownership of a company and announces a demand, he is forbidden to offer a lower share price than its current market rate or its mean value over the previous three months.
"These are fair rules," says DB Securities analyst, Renata Klita, "and when combined with the fact that companies no longer have to get permission to go beyond these thresholds, the regulations are much clearer."
Brokers' benefits
Brokerage houses and investment advisors are the group which will benefit most of all from the new regulations. Now, they are allowed to make their own decisions (up to now they had not been allowed to invest money without's a client's order). Brokers gain the right to advise their clients on investments and brokerage houses have the right to cooperate with franchise holders, who will invest money on their behalf. Brokers are now expected to inform KPWiG about every deal they are suspicious of. "There are fewer writs, and more clarity on the bourse now," Kozłowski claims.
Investors are now allowed to perform so-called internal transactions, which means they can introduce a public offer over WSE's head, something which had previously been impossible. This regulation saves time and energy since this type of transaction is not considered 'controllable turnover' and is thus not subject to secondary market rules (such as including the transaction in quarterly reports).
"Although it is a solution for extraordinary occasions, since public offers make more sense if directed towards multiple investors, it's a good step in changing the philosophy of behavior," vice-director of the WSE's listing department, Łukasz Jagiełło says.
However, some are harsh in their reactions to this solution. "It's complete nonsense," one of them says anonymously, "no one is going to do that, since public offers [performed] above the bourse have no credibility at all. It looks as if someone wrote this specific regulation during his lunch break and never looked into it again."
What really has brokers smiling though, are rules dealing with the capital orders of Polish investment firms. Until now the initial capital of a so-called 'narrow-investment' company was required to exceed zł. 4 million. Now, only a risk-management agreement is needed.
Europe strikes back
One of the most exciting changes is the introduction of the 'Unified European Passport'. This allows a company to issue bonds on many bourses at the same time, impossible in Poland before October 23. "Currently, companies do not have to generate separate prospectuses for each bourse. They just add appendices to a prospectus in the desired languages and launch an offer on one exchange only," Łukasz Jagiełło explains.
According to many analysts, this might be a great opportunity for Warsaw to attract more capital. "Foreign companies are allowed to solicit Polish investors and we can try to attract their money," KPWiG's chief says. "Either way, Warsaw has a great opportunity to become a financial center for this part of the continent."
Analysts officially agree the unified passports open up new possibilities, but complain off the record. "This will create chaos on the bourse," one of them states, "no one will be ready for anything since few companies are able to constantly follow all the European exchanges to see who is using the passport to perform unified offers at the moment."
Marek Wodnicki, however, looks to steady investors' nerves: "These regulations closely follow European directives such as the MiFiD [The Directive on Markets in Financial Instruments], the market-abuse directive, and others. It is a normal situation in Europe, why can't we have the same?"
