Top 20 regional stock index proposed

The council of the Budapest Stock Exchange last week gave its approval for a proposal to create the CETOP20 Index, a new basket of the 20 largest titles listed on Central European stock exchanges.

With the new index expected to function as a benchmark, local bourse executives are partly aiming to boost trading volume of Hungary's largest stocks with the decision.

"The initiative to create a new index came from Budapest, because we wanted to have an index that can be traded," said Ildikó Fecser, director of business development at the Budapest Stock Exchange.

The new index will include the largest Polish, Slovakian, Czech, Slovenian and Hungarian titles, but may also be expanded to other Central European markets, Fecser said. She said the Zagreb Stock Exchange has also expressed an interest in participating.

The new index would be denominated in euros and would include not more than seven stocks from each market, depending on the individual titles' market capitalization and trading volume. Fecser added the weighting of each stock in the basket would be 60% based on its capitalization and 40% on its trading volume. She added that there will be no limit on the total weighting of stocks from any one given market.

The CETOP20 Index is intended to be traded in the derivatives section of each participating market, with investors trading the index in futures contracts. Fecser said the Budapest Stock Exchange also expects foreign investors to create new mutual funds to invest in the stocks of the new basket and subsequently follow the movements of the CETOP20 Index. Trading the shares of these potential mutual funds investing exclusively in CETOP20 stocks would effectively create prompt trading of the index, according to Fecser.

"We would like to make this new index into a tradeable benchmark of the region," she said.

Issuers on the Budapest bourse welcomed the the new index and are happy about any innovation from the management of the bourse, according to Lajos Oláh, a member of the Stock Exchange Council representing issuers. He said representation in a new index may help promote Hungarian titles abroad, and might also help increase the trading volume of stocks included in the new basket.

The future CETOP20 Index is not intended to replace the existing Central European Stock Index (CESI), according to Fecser. She said the CESI represents the weighting of markets in the region, while the new index is intended to focus on individual stocks.

The CESI was established in 1996 as one of the first initiatives for regional cooperation of stock exchanges, although the index was not suitable for trading, Fecser said.

According to an agreement among the region's five exchanges in October, the number of stocks in the CESI basket was lowered to 32 from last year's 48 as of Nov. 1 this year. The total capitalization of the CESI dropped to $22 million by mid-October this year from $29.77 million at the same time in 2000. With the shares of Hungarian pharmaceutical firms Richter Gedeon and Egis having been dropped from the CESI earlier this year, the number of Hungarian titles in the CESI basket fell to three - telecom Matáv, oil and gas company MOL and OTP Bank.

Béla Fincziczki