The key drivers to the development of the Group include:

External Drivers

Macroeconomic situation in Poland and worldwide

According to the Eurostat forecasts,¹ Poland’s GDP growth will be 2.5% in 2014 (average forecast for EU is 1.4%) and 2.9% in 2015 (average forecast for EU is 1.9%). The above-average dynamics of Polish economy growth creates favourable conditions both for price increases of shares listed on WSE and for increased interest in securities listed on WSE on the part of domestic and international investors. WSE growth is also determined by the global economic situation and the conditions on foreign financial markets, which may impact the perception of the Polish economy and financial market by foreign investors.

Thus, the economic situation has a direct impact on the activity of issuers on the primary and secondary market as well as the level of turnover, mainly on the stock market, and on revenues from the segments. Revenues from trading on the stock market represent 38% of the total revenues while revenues from the entire financial market represent 72,3% of the total revenues in 2013.

Changes in infrastructure, laws and regulations

Pension funds

The Act amending certain Acts in connection with the determination of the rules of payment of pensions from the resources of open-ended pension funds, which provides for a reform of the pension system, came into force in December 2013. The Act imposed a ban on open-ended pension fund investment in Treasury bonds and other debt instruments guaranteed by the State Treasury. Under the Act, 51.5% of the assets of open-ended pension funds as at 31 January 2014, i.e., PLN 153.15 billion, were transferred to the Social Security Fund (FUS) on 3 February 2014 (mainly bonds guaranteed by the State Treasury and cash). Following the transfer of part of their resources to the Social Security Institution (ZUS), the assets of open-ended pension funds stand at ca. PLN 145 billion, of which ca. 87% are stocks and ca. 8% are non-Treasury bonds.

The new Act requires open-ended pension funds to maintain a minimum investment in stocks at 75% of assets by the end of 2014, 55% by the end of 2015, 35% by the end of 2016, and 15% by the end of 2017. The proportion of contributions transferred to open-ended pension funds was amended to 2.92% of gross salaries (compared to 2.8% in 2013). The Act raised the limit on open-ended pension fund investment in financial instruments denominated in foreign currencies (open-ended pension funds’ foreign investments) from 5% to 10% in 2014, 20% in 2015 and 30% beyond 2015. Legislative solutions are now in the drafting which should enable open-ended pension funds to engage in securities lending on the public market and to hedge risks with derivatives listed on the local regulated market and cleared by the central clearing house.

The investment of open-ended pension funds in Polish stocks listed on the WSE regulated market was PLN 120.5 billion as at 31 December 2013, representing 40.2% of the value of domestic free-float shares on WSE. Open-ended pension funds reported an inflow of assets every year until 2013; consequently, the net balance of shares bought and sold by open-ended pension funds on WSE was positive every year, which had a positive impact on stock prices. In the future, open-ended pension funds will suffer outflows of assets, which may result in a bigger supply of shares from open-ended pension funds on WSE. The development will occur the earlier and at the greater scale the more Poles decide to remain members of open-ended pension funds. Between 1 April and 31 July 2014, every existing member of open-ended pension funds may decide whether their pension contributions should still be paid into the fund or only to the Social Security Institution.

Changes to open-ended pension fund investment policies derived from the Act may have a material impact on the activity of funds as investors on WSE and, consequently, on the future of the WSE secondary market, stock prices and IPO activity. Open-ended pension funds may want to diversify their portfolios further, which could reduce their investment in stocks listed on WSE in favour of non-Treasury bonds and foreign investments. The scale and scope of such impact will depend on the final regulatory solutions (securities lending and hedging with derivatives) as well as decisions of open-ended pension fund members as to whether their pension contributions should still be paid into the fund or only to the Social Security Institution.

Privatisation

The State Treasury held significant stakes of shares in many listed companies at the end of 2013  (e.g., 35.2% in PZU, 31.4% in PKO BP, 61.9% in PGE, or 31.8% in KGHM). The share of the State Treasury in the capitalisation of companies listed on WSE was 20.8% at the end of 2013.

The Ministry of the State Treasury earned a privatisation revenue of PLN 4.4 billion in 2013. The estimated privatisation revenue is PLN 3.7 billion in 2014.

WSE expects that in the coming years the State Treasury will be still privatising through WSE, both by reducing the stake of the State Treasury in companies already listed and by floating new companies on the Exchange. However, the process will decelerate with the falling number of companies, especially large companies, to be privatise.

Support for the production of electricity from high-efficiency cogeneration and the “exchange obligation” for gas

The activity of PolPX is largely impacted by national regulations. The provisions of the Energy Law establishing a support system for the production of energy in high-efficiency cogeneration expired as of the end of March 2013. In 2013 and 2014, the Polish Parliament was working on an Act that would re-introduce support for high-efficiency cogeneration. Depending on the final wording of the provisions, the activity of market participants on the Polish Power Exchange segment of certificates of origin from cogeneration may recover.

The Gas Act enacted in September 2013 impacts the volume of trading on the gas exchange. The Act imposes the obligation to sell 30% of natural gas introduced to the distribution network in 2013, 40% in 2014, and 55% in 2015 and beyond.

Selection of TBSP as the electronic market in Treasury securities for the next two years

On 30 January 2014, following the selection procedure of an electronic market in Treasury securities, Treasury BondSpot Poland was once again selected by the Treasury Securities Dealers as the preferred market for the next two years from 1 October 2014 to 30 September 2016. The decision is relevant to further development of TBSP.

Internal Drivers

Level of fees

The level of fees is an important driver of business. Changes to exchange fees are mainly aimed at incentivising investor groups and building the required liquidity of WSE markets.

WSE operates in a competitive environment where price pressures exerted by competitors and market participants are an important factor, especially in view of the activity of multilateral trading facilities which offer lower fees than exchanges. Hence, the recent trend in the exchange industry to reduce fees on the stock market in the past few years.

WSE amended its pricing policy in early 2013 by reducing fees on the stock and derivatives markets. In 2013, WSE opened several major fee promotions which reward the most active trading participants. In May 2013, operating fees for session transactions on Catalyst were reduced for Exchange Members who generated at least PLN 150 million of turnover within a month. In July 2013, some fees were waived for a period of three months for new Exchange Members on the derivatives market. In October 2013, the High Volume Provider programme introduced reduced transaction fees for entities investing only on own account which generate turnover above a set threshold on the stock and derivatives market.

All price incentives and promotion programmes are offered by WSE in part as a response to expectations of market participants but their overarching objective is to enhance the activity of investor groups in trading so as to improve the liquidity on the WSE markets. However, the level of fees is only one of many factors which determine investor activity on the market; hence, the effect of fee incentives may be difficult to measure in the long term.

New strategy

The strategy WSE.2020 for 2014-2020 was adopted in December 2013 and reflects the Exchange’s ambition to generate long-term stable shareholder value by improving the security of the business model and seeking new long-term sources of growth. The position of the Company in the coming years will largely depend on its ability to implement the strategy, both by way of organic growth and through mergers and acquisitions depending on the timing and the selection of partners in such projects.

In organic growth, the important factors include the investment opportunities available to investment funds and pension funds as well as the activity of banks as investors. Direct participation of banks in the market and the ability of open-ended pension funds to engage in securities lending and market hedging depend on the legislative process in which WSE is actively participating. In the opinion of the Company, these and other initiatives outlined in the strategy may help to maximise the existing sources of growth for the Group (especially the potential of the local investor and issuer base).

WSE’s growth through mergers and acquisitions should diversify revenues and enhance internationalisation. Diversification of revenues aims mainly to reduce the dependence of the WSE Group’s financial results on the trends and investor activity on the stock market, which is currently the dominant source of revenue of the WSE Group. Depending on the speed and the ability of implementing joint projects with selected partners who offer innovative products, with established market positions, unique resources and growth perspectives, diversification and internationalisation of WSE’s business may proceed at a different speed.

The implementation of the strategy may involve higher costs, especially in the first years of the process and at an early stage of strategic projects. WSE expects that the implementation of the projects and increased costs will provide benefits in the future thanks to long-term growth.

Reorganisation of the Group on the commodity market

In 2013, WSE initiated reorganisation of the Group’s companies active on the commodity market. The reorganisation involves concentration of commodity market activities under the umbrella of a holding company, WSE Commodities. WSE expects that the concentration of commodity market activities under the umbrella of the holding company will provide potential business benefits. In addition, aiming at tax optimisation, a tax group was established including WSE and WSE Commodities.

Second stage of implementation of the new trading system

Competitiveness of stock exchanges largely depends on the level of technology involved: efficiency, capacity and speed of the trading system and infrastructure. After the implementation of WSE’s new trading system, available since 15 April 2013, the next stage of WSE’s technology development is the implementation of a specialty derivatives trading module to begin in 2014, making the WSE derivatives market more attractive to investors.

Continued talks with CEESEG

In 2013, WSE and CEE Stock Exchange Group AG (CEESEG) opened preliminary talks on co-operation. The strategic goal of the Exchange is to integrate stock markets in the CEE Region under conditions supporting the growth of the WSE Group and generating benefits to WSE Group stakeholders. In 2014, WSE will work to arrive at a clear decision, both at Exchange Management Board level and among WSE shareholders, on potential co-operation and its conditions. A decision to open co-operation in any form may require WSE, especially at an early stage, to delegate significant resources to the project and to incur one-off costs, and may involve major organisational changes.