WSE's tight regulations rankle brokers, calm investors
Brokers often complain the exchange's regulations and their enforcer, the Securities Commission, are too heavy-handed. They have claimed this stifles their own development, while also scaring some companies away from the prospect of a public listing.
On the flip side, analysts say the market's transparency and solid regulatory structure have been key to attracting foreign capital here.
"We are always complaining about the regulations," said Miroslaw Andrysiak, in charge of strategic planning and international investors for Powszechna Kasa Oszczednoćci (PKO) BP brokerage house. "But generally, in the long run, it is good for the market."
Unlike the Budapest or Prague stock markets, the WSE was established with the goal of attracting primarily small, retail investors. So its architects wanted to ensure that these investors would have faith in the market through regulations that protected them.
The Securities Commission, set up by Leslaw Paga, was modeled after regulatory bodies in developed markets, such as the U.S. Securities and Exchange Commission. Today, Jacek Socha sits at the helm of the commission, which has an enforcement team of 10. But rather than bow to criticism that his agency is too active, Socha wants to get more involved. He hopes to get another 20-25 enforcement staff members by 1997.
"We have more and more regulatory work because of the complexity and development of the market," Socha said.
The Securities Commission's detractors, mainly brokers, claim it is too active, because Warsaw is an over-regulated market.
Among the WSE's strict regulations are monthly reporting requirements for listed companies - in addition to quarterly and annual financial reports. Brokers face tough licensing and fees rules and are forbidden to give recommendations on shares unless they have a special license.
Many brokers are afraid to even discuss a stock for fear the Commission will impose disciplinary measures. Some of them are also afraid to criticize the Commission.
But Socha shrugs off criticism that he is out to get brokers. "Look at this young guy," he says, pointing to a photograph of a stock broker who gives recommendations in the financial daily Parkiet. "I have nothing against him, I'm not going to go running after him."
A broker giving recommendations in a newspaper poses no threat to investors, Socha said. "But if they are giving some recommendations directly to investors, it's absolutely a different level of quality of information," he added.
Socha noted the Securities Commission requires licenses for brokerage houses expanding into other activities such as portfolio management not to punish brokerages, but rather to protect investors.
"There is a lack of knowledge in the market to prepare such services," he said. For the record, Socha added that all brokerage houses who have applied for a portfolio management license have received one. "No one was refused," he said.
But Polish brokers also complain the Securities Commission delves into areas where it has no direct authority under law, for example, derivatives trading. Socha responded that the Commission must set standards as the market develops.
But now that the market is growing up, analysts said, the Commission would be well-advised to loosen its grip a little.
"I think it (the market) is over-regulated, but we prefer it that way, so long as there is flexibility shown in reducing regulation," said Rory Landman, manager for Baring Emerging Europe Trust at Baring Asset Management in London. "It's best to start off with full regulation and then deregulate as necessary, rather than constantly bolting the stable door after the horse has fled."
Among the loosening foreign analysts would like to see would be greater ease of access to the market for international investors.
International investors, for example, have to place orders through a local custodian rather than directly. Toward that end, a broad amendment to the Securities Act expected to be passed this fall is aimed at easing settlement and clearing procedures, and changing the day of the transfer of ownership from the day of transaction to a T+3 system.
"What investors would want to see is for it to become easier for international orders to be handled," said Martin Gollner, East European analyst at Nomura Research Institute. "Some easing up would be good." Still, he said, "if you have a very regulated system and then start chipping away at it, people get concerned. The market is risky to begin with, so people would rather live with over-regulation."
On the flip side, analysts say the market's transparency and solid regulatory structure have been key to attracting foreign capital here.
"We are always complaining about the regulations," said Miroslaw Andrysiak, in charge of strategic planning and international investors for Powszechna Kasa Oszczednoćci (PKO) BP brokerage house. "But generally, in the long run, it is good for the market."
Unlike the Budapest or Prague stock markets, the WSE was established with the goal of attracting primarily small, retail investors. So its architects wanted to ensure that these investors would have faith in the market through regulations that protected them.
The Securities Commission, set up by Leslaw Paga, was modeled after regulatory bodies in developed markets, such as the U.S. Securities and Exchange Commission. Today, Jacek Socha sits at the helm of the commission, which has an enforcement team of 10. But rather than bow to criticism that his agency is too active, Socha wants to get more involved. He hopes to get another 20-25 enforcement staff members by 1997.
"We have more and more regulatory work because of the complexity and development of the market," Socha said.
The Securities Commission's detractors, mainly brokers, claim it is too active, because Warsaw is an over-regulated market.
Among the WSE's strict regulations are monthly reporting requirements for listed companies - in addition to quarterly and annual financial reports. Brokers face tough licensing and fees rules and are forbidden to give recommendations on shares unless they have a special license.
Many brokers are afraid to even discuss a stock for fear the Commission will impose disciplinary measures. Some of them are also afraid to criticize the Commission.
But Socha shrugs off criticism that he is out to get brokers. "Look at this young guy," he says, pointing to a photograph of a stock broker who gives recommendations in the financial daily Parkiet. "I have nothing against him, I'm not going to go running after him."
A broker giving recommendations in a newspaper poses no threat to investors, Socha said. "But if they are giving some recommendations directly to investors, it's absolutely a different level of quality of information," he added.
Socha noted the Securities Commission requires licenses for brokerage houses expanding into other activities such as portfolio management not to punish brokerages, but rather to protect investors.
"There is a lack of knowledge in the market to prepare such services," he said. For the record, Socha added that all brokerage houses who have applied for a portfolio management license have received one. "No one was refused," he said.
But Polish brokers also complain the Securities Commission delves into areas where it has no direct authority under law, for example, derivatives trading. Socha responded that the Commission must set standards as the market develops.
But now that the market is growing up, analysts said, the Commission would be well-advised to loosen its grip a little.
"I think it (the market) is over-regulated, but we prefer it that way, so long as there is flexibility shown in reducing regulation," said Rory Landman, manager for Baring Emerging Europe Trust at Baring Asset Management in London. "It's best to start off with full regulation and then deregulate as necessary, rather than constantly bolting the stable door after the horse has fled."
Among the loosening foreign analysts would like to see would be greater ease of access to the market for international investors.
International investors, for example, have to place orders through a local custodian rather than directly. Toward that end, a broad amendment to the Securities Act expected to be passed this fall is aimed at easing settlement and clearing procedures, and changing the day of the transfer of ownership from the day of transaction to a T+3 system.
"What investors would want to see is for it to become easier for international orders to be handled," said Martin Gollner, East European analyst at Nomura Research Institute. "Some easing up would be good." Still, he said, "if you have a very regulated system and then start chipping away at it, people get concerned. The market is risky to begin with, so people would rather live with over-regulation."
