The capital market needs a strategy like air

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News article by Piotr Rosik of including BTA Consulting

Let us hope that when you read these words, the new strategy for the capital market has already been discussed by the Council of Ministers, or even the Sejm. Everyone needs it: investors, issuers, market institutions and even the Warsaw Stock Exchange.

The capital market is one of the most important tools for modernizing the economy. An effectively functioning market is the source of raising capital for the most dynamic and innovative enterprises, especially medium and small ones, as well as the place of locating and multiplying citizens’ savings.

– Today, the challenge for the Polish economy is to increase productivity, and the source of productivity are innovations, which are financed mainly by capital markets, not the banking system. Therefore, we must focus on the development of the capital market in Poland – says Gazeta Bankowa Waldemar Markiewicz, president of the Chamber of Brokerage Houses.

The problem is that the Polish capital market is not developing as expected. His problems are numerous, ranging from the low liquidity of the stock exchange, to excessive regulatory burdens on the issuers or the burdens of the cost of brokerage houses, and ending with scandals undermining confidence in him. The important figures from market institutions in the comments placed next to the article say more about the problems it is facing.

In 2018, however, a ray of hope appeared. In March, during the Conference of Brokerage Houses in Bukowina Tatrzańska, Minister of Investment and Development Jerzy Kwieciński announced that the government will create a new strategy for the capital market.

– It will be heading in a way that the capital market will finance innovations, including start-ups, as well as the construction of infrastructure in Poland. The WSE is to undertake more activities to attract small and medium-sized companies on the market. It will also be aimed at attracting Poles’ savings to the real estate market through REITs, or real estate market funds – said Kwieciński.

A promising preliminary version

The consulting company BTA Consulting was chosen to develop the concept of the strategy. Its managing director Brian Taylor announced that it would begin by defining barriers to the development of the Polish capital market and the opportunities it faces. He also did not hide the goals that are to be achieved in the five-year horizon thanks to the new strategy.

– The Polish capital market is to become the main driver of the development of the Polish economy, and the WSE as the leader in the Central Europe region. Implementation of the strategy should attract the largest Polish companies to the floor. In addition, the WSE must go with services outside of Poland. The role of the debt market should also increase – announced Brian Taylor.

In August, BTA Consulting presented the initial version of the strategy to the most important entities from the capital market. Most people who saw the document speak about it positively. – First of all, the methodology of strategy creation should be appreciated: gathering, analyzing and discussing not so much problems as the proposals for their solutions, as well as eliminating conflicting expectations. I have not seen the final version yet, but the one presented in August was very promising – says Mirosław Kachniewski, the President of the Stock Exchange Issuers, to Gazeta Bankowa.

– I only regret that the next months pass and it is not being implemented. What’s more, solutions that go against its basic assumption are implemented, that is creating a competitive regulatory environment, because at that time in each of the bill proposals we have issued additional requirements generating costs, not increasing the market security – adds Kachniewski sadly.

Revolution of the sphere of taxes and institutions

In December 2018, the final version of the strategy was still underway. Finance Minister Teresa Czerwińska at the Capital Market Congress emphasized that the department focuses, among others, on on developing tax incentives for capital market participants. The lack of tax incentives for investors is indicated as one of the main problems of the market.

A bit of a mystery about what detailed solutions the strategy contains, quashed the daily “Puls Biznesu” in mid-November. According to the newspaper, the direction of the proposed changes is that the WSE should attract mainly European small and medium-sized companies, especially those who will not be comfortable on the London Stock Exchange after brexit.

To do this, the WSE must become cheap and modern. According to “Puls Biznesu”, the BTA Consulting company indicated in the document what changes in regulations must be introduced immediately (six months after the implementation of the strategy), and some later (within two years).

As far as taxes are concerned, first of all, the strategy would enable a reduction in capital gains tax from 19%. up to 9 percent Registration in the IPO (purchase of shares on the company’s debut) worth up to PLN 50,000 The investor could throw himself into the costs in PIT. And when paying out from IKZE, there would be no more than 10% tax. To top it all, the issuers could account for as much as 150 percent in tax deductible costs. the value of expenditure actually incurred on the IPO.

The revolution would affect not only the WSE or the sphere of investment taxes, but also the Polish Financial Supervision Authority or the National Depository for Securities. The PFSA would consider applications of issuers (companies, funds) within a few days at most, thanks to the simplification in the form of ready-made templates of documents (in Polish and English).

On the other hand, there would be a solution in KDPW that would make the brokerage account not necessary for trading shares on the stock exchange. In this way, brokerage houses could get rid of the activity they have been losing on for years.

You also need to improve the image of the Polish stock market, both at home and abroad. According to “Puls Biznesu”, BTA Consulting advises for this purpose, among others creating a new flagship index for the Warsaw Stock Exchange. He also points out that it is necessary to improve the quality of corporate governance in state-owned companies listed on the Warsaw Stock Exchange, which could increase their valuation by about PLN 42 billion.

The implementation of the strategy is to be supervised by a special office – “Puls Biznesu” revealed in mid-November. Let’s hope that in the first quarter of 2019, the first employees will move into it. Even if approved, the strategy will only remain on the paper. The most important thing will be whether it will be possible to implement the truly revolutionary changes in the law and in the functioning of the institution – for the benefit of the Polish economy, Polish companies and Polish investors.

Piotr Rosik