Poland
30 October 2012
Poland continues to beat but not buck economic
trends in Europe, as SLT finds out
Image: Shutterstock
A recent securities lending conference and market commentators have highlighted a decline in initial public offerings in 2012, lamenting the effect that an IPO decline has on lending supplies. While Central and Eastern European powerhouse Poland may not be bucking this trend, it is doing better than most.
According to a PricewaterhouseCoopers report, the Warsaw Stock Exchange (WSE) reported 26 IPOs on its exchange in Q3 2012. This represented more than 46 percent of all IPOs on European markets, and made the WSE the European leader.
The WSE also ranked fourth in Europe for IPO value, with its 26 IPOs worth €14 million. Only the London Stock Exchange group (17, €4.32 billion), the Luxembourg Stock Exchange (two, €54 million) and Deutsche Börse (five, €26 million) finished above it. But IPO figures for the WSE are down on previous years. It reported 61 IPOs with a value of €1.464 billion in Q3 2011.
With IPOs making Poland a leader in Europe, the country is looking to securities lending as it attempts to cement its position.
Terry O’Brien, EMEA head of equity trading, securities finance, at Citi, says: “Poland has promoted itself as the leading financial centre for Central and Eastern Europe. It has the largest stock exchange and one of the biggest derivative markets in the region. The WSE developed a new trading system which is about to be launched, and recently announced that it was looking to further develop its securities lending market.”
As part of its strategy, the WSE identified key drivers for development in 2012. One of these drivers is a new trading platform that is scheduled for implementation in November. It will “improve the efficiency and expand the functionality of trading on markets in financial instruments operated by WSE”, said the exchange.
Another driver is short selling and securities lending. The WSE is working with the KPDW (Polish National Depository for Securities) on a system that will support securities lending for short selling to “foster investor interest in short selling”, said the WSE. They plan to launch it this year.
The KPDW’s central counterparty clearinghouse, KPDW_CCP, is also developing an electronic securities lending platform that will centralise and transmit deal offers between lenders and borrowers.
In a statement, the KPDW_CCP said: “The project is particularly relevant to the development of short selling on the Polish market. Short selling requires the possibility of borrowing securities on the market for the investor to sell them at a certain time and later to buy them back at a much lower price and return them to the lender. Brokerage houses and banks whose clients want to use short selling to offer securities will be able to borrow securities on the market from other brokerage houses or banks quickly and effectively.”
Andy Krangel, global product development head for securities finance at Citi, says that one of the key things about lending in Poland is the rules for a lender. “When you lend stock in Poland, unless you have a short sale agreement in with your local broker when you sell stock on the organised market, you must have the stock back from loan before you sell it, otherwise it is considered a short sale. You can technically sell on OTC. Short rules does not apply then but stamp duty may be applied.”
“The short sale regulations in Poland are quite prescriptive. So as a lender, you can lend stock that is in your position, you can deliver it free to the borrower just like a standard market, but if you want to sell that stock, unless you have a short sale agreement with that local broker, you must have that stock back in your account before you sell it.”
“That affects lending because there’s no exclusion for a lending client that sells securities. They’re not like some markets where a stock that’s out on loan isn’t considered a short sale; in Poland, unless you fulfill certain criteria, it is considered a short sale.”
Citi added Poland to its lending network in February 2012. In a statement that was released at the time, the firm said that it worked closely with Polish legal and tax specialists so that it could create efficient and easy access to the country for foreign borrowers and lenders. “The addition of … Poland to Citi’s lending network will open [the country] up to new sources of liquidity and support the development of [its] local capital markets.”
Krangel adds: “We offer agency lending services to our clients that hold Polish securities. We can lend both fixed income and equities in Poland.
Citi decided to expand into Poland because it was “a market that we considered had the opportunity for our clients to utilise their portfolios further,” explains Krangel.
But lending in Poland depends on “our clients’ willingness to follow the rules of the market as with any other emerging market where the rules are more complex”.
Krangel says: “We are very open with our clients on what they need to do, and we do have clients who are willing to lend in Poland. We tend to focus on selective names that are more event-driven: we wouldn’t be looking to lend to general collateral names, because obviously the clients want to sell the stock, they have to get it back before they sell it, so we have to focus on individual opportunities.”
“We’re very proactive with clients on opportunities in emerging markets, the potential on individual loans and let the clients get very involved in the decision making process.”
According to a PricewaterhouseCoopers report, the Warsaw Stock Exchange (WSE) reported 26 IPOs on its exchange in Q3 2012. This represented more than 46 percent of all IPOs on European markets, and made the WSE the European leader.
The WSE also ranked fourth in Europe for IPO value, with its 26 IPOs worth €14 million. Only the London Stock Exchange group (17, €4.32 billion), the Luxembourg Stock Exchange (two, €54 million) and Deutsche Börse (five, €26 million) finished above it. But IPO figures for the WSE are down on previous years. It reported 61 IPOs with a value of €1.464 billion in Q3 2011.
With IPOs making Poland a leader in Europe, the country is looking to securities lending as it attempts to cement its position.
Terry O’Brien, EMEA head of equity trading, securities finance, at Citi, says: “Poland has promoted itself as the leading financial centre for Central and Eastern Europe. It has the largest stock exchange and one of the biggest derivative markets in the region. The WSE developed a new trading system which is about to be launched, and recently announced that it was looking to further develop its securities lending market.”
As part of its strategy, the WSE identified key drivers for development in 2012. One of these drivers is a new trading platform that is scheduled for implementation in November. It will “improve the efficiency and expand the functionality of trading on markets in financial instruments operated by WSE”, said the exchange.
Another driver is short selling and securities lending. The WSE is working with the KPDW (Polish National Depository for Securities) on a system that will support securities lending for short selling to “foster investor interest in short selling”, said the WSE. They plan to launch it this year.
The KPDW’s central counterparty clearinghouse, KPDW_CCP, is also developing an electronic securities lending platform that will centralise and transmit deal offers between lenders and borrowers.
In a statement, the KPDW_CCP said: “The project is particularly relevant to the development of short selling on the Polish market. Short selling requires the possibility of borrowing securities on the market for the investor to sell them at a certain time and later to buy them back at a much lower price and return them to the lender. Brokerage houses and banks whose clients want to use short selling to offer securities will be able to borrow securities on the market from other brokerage houses or banks quickly and effectively.”
Andy Krangel, global product development head for securities finance at Citi, says that one of the key things about lending in Poland is the rules for a lender. “When you lend stock in Poland, unless you have a short sale agreement in with your local broker when you sell stock on the organised market, you must have the stock back from loan before you sell it, otherwise it is considered a short sale. You can technically sell on OTC. Short rules does not apply then but stamp duty may be applied.”
“The short sale regulations in Poland are quite prescriptive. So as a lender, you can lend stock that is in your position, you can deliver it free to the borrower just like a standard market, but if you want to sell that stock, unless you have a short sale agreement with that local broker, you must have that stock back in your account before you sell it.”
“That affects lending because there’s no exclusion for a lending client that sells securities. They’re not like some markets where a stock that’s out on loan isn’t considered a short sale; in Poland, unless you fulfill certain criteria, it is considered a short sale.”
Citi added Poland to its lending network in February 2012. In a statement that was released at the time, the firm said that it worked closely with Polish legal and tax specialists so that it could create efficient and easy access to the country for foreign borrowers and lenders. “The addition of … Poland to Citi’s lending network will open [the country] up to new sources of liquidity and support the development of [its] local capital markets.”
Krangel adds: “We offer agency lending services to our clients that hold Polish securities. We can lend both fixed income and equities in Poland.
Citi decided to expand into Poland because it was “a market that we considered had the opportunity for our clients to utilise their portfolios further,” explains Krangel.
But lending in Poland depends on “our clients’ willingness to follow the rules of the market as with any other emerging market where the rules are more complex”.
Krangel says: “We are very open with our clients on what they need to do, and we do have clients who are willing to lend in Poland. We tend to focus on selective names that are more event-driven: we wouldn’t be looking to lend to general collateral names, because obviously the clients want to sell the stock, they have to get it back before they sell it, so we have to focus on individual opportunities.”
“We’re very proactive with clients on opportunities in emerging markets, the potential on individual loans and let the clients get very involved in the decision making process.”
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