The choice of Rafał Antczak for the post of President of Warsaw Stock Exchange (WSE) was a pleasant surprise. Naturally, he will only take up his post after obtaining approval from Polish Financial Supervision Authority (KFN). However, even the right man in the right place will not successfully handle a difficult situation if he does not do the right thing.
For this reason, we employed our experience from writing the report ‘Wind in sails: citizens strategy for the development of the Polish capital market’ and decided to offer the new head of the stock exchange some friendly advice.
Politics is the key
Performing the functions of a company’s president involves making numerous strategic decisions concerning its operations. The Warsaw Stock Exchange is no different and new President Rafał Antczak will certainly leave his mark on its performance. Nonetheless, when it comes to long-term results of the WSE, which is a local monopolist, its way of operating as a company providing market infrastructure is of less importance. These results are determined to a greater extent by the quality of national economic institutions, particularly the effectiveness of protecting minority shareholders and regulations that affect the inflow of private savings to investment and pension funds.
As a consequence of such a broad understanding of this institution, a stock exchange is first and foremost influenced by politics, which is why its new president must also act the part of a politician. Whether the key problems hindering the development of WSE and its surroundings are solved depends, after all, on politicians’ decision.
Whereas the stock exchange, being a state institution (and thus treated by the authorities as theirs) and, at the same time, having a keen interest in market development, has the unique position to actively pursue the interest of the market, including its rightful place in the Polish public policy. In order to solve the key problems that hinder the development of the Polish capital market, the new President of WSE will have to frequently leave his office on Książęca Street and pester the Ministers and parliamentarians, who more often than not will be otherwise occupied. Not only will he need to pay visits at Three Crosses Square that is across the street (the Ministry of Development), but also he will have no choice but to pop in from time to time to the Polish Financial Supervision Authority, the Sejm (the lower house of the parliament) and Senate, the Prime Minister’s Office and the Parliament — which are, luckily, situated near.
To do list
It is possible that Rafał Antczak will have to take up the dual role: a general-strategist of the Polish stock exchange and its line officer, fulfilling strategic goals in a bad military situation. The list of the necessary changes for the Polish capital market is long, which is why we will only mention the six of them that we deem the most important – more on this can be found in our report ‘Wind in sails’.
First: there is a need for a manager that will put a capital market on a list of key priorities to Polish economic development, and see that it remain there. Otherwise, all remaining projects will be stuck midway, while other destructive suggestions will be put forward — after all, that is what we’ve grown accustomed to from our politicians.
Second: an issue of OFE (Open Pension Fund) needs to be resolved and closed — the faster their shares will be privatised, the faster a process of rebuilding trust in Polish market can begin.
Third: there is a need for tackling the problem of minority shareholders’ protection, as theory and practice in Poland with regard to this matter differ immensely. One would be hard pressed to name any well-developed market that does not have solid protections in place to shelter minority shareholders from abuse by majority shareholders — private and public alike.
Fourth: it is necessary to ensure that the Capital Development Program is finally launched and that it is well-refined, so that various critical details (the governmental investment fund company?) would not lead to its failure.
Fifth: we need to address the issue of annual asset fees collected by Investment Fund Companies (TFI), and more specifically by intermediaries distributing their units. Failing to do so will lead to the situation in which net return rates on funds obtained by investors will not encourage entrusting financial assets to the capital market.
Six: It is worth considering a reform of the Polish market surveillance, in order that the control and bureaucratic institution become an active champion for market development. It would be a smaller entity that is closer to market participants, cooperates with them, and in consequence — is more effective overall. The first step in achieving this ought to be reconsidering the incorporation of a KNF department responsible for capital market into the National Bank of Poland. A second – and more difficult – step is a fundamental change of operating philosophy.
Cooperation with the market
The political power of the head of a stock exchange should come not only from his credentials and formal empowerment, but also from the fact that he is the voice of the market. However, for this to be true, he needs to maintain a dialogue with the market and listen to its postulates.
The market does not present a united front on various issues, and that is why reaching a compromise, and relaying the results to the appropriate authorities in Poland and – increasingly often – in Brussels, should also be included in the president of WSE’s job description. His involvement notwithstanding, this dialogue requires also the participation of an impartial partner, who would provide support for all the parties involved.
Topics to discuss are numerous. Apart from the ones already mentioned, they include: product portfolio expansion for the stock exchange, revival of liquidity frozen in pension assets and the Treasury, strengthening of local brokerage houses, private equity funds and investment houses, as well as preparation to take a stand on The Capital Markets Union. The faster this dialogue begins, the better for the Polish stock exchange and its ecosystem, and in consequence — for the Polish economy.
Preserving the coalition of changes
If we optimistically assume that Polish authorities care about developing the capital market, they need to ensure that the coalition is not only formed, but also preserved. It entails wooing politicians of different political views, so that everyone can feel to have participated in the success. On the other hand, they need constant assurances that developing capital market is beneficial for Poland.
Sadly, opinions betraying a complete lack of understanding of the capital markets’ economic role – opinions that come from academic circles and influential economists as well — are not isolated. In this case, the role of a carrot play, among others, the support for innovation, the accumulation of domestic capital and higher pensions, possible thanks to voluntary investing in the stock market. A stick in this comparison would be a threat of middle income trap and foreign competition, which – due to apathy and ‘false consciousness’ of the Polish regulator – may deprive Poland of the benefits from having its own financial ‘industry’.
Watching out for the booby-traps
Although going down in history as an author of the second wave of success for the Polish stock exchange (the first one being in 1991 – 2011) ought to be an ambition for every WSE president, the experience of recent years shows that falling out of the game as a consequence of rigging a political booby-trap is just as probable. Therefore, one must sense the wind of change do not push for excessively radical ideas, while avoiding the pitfall of shilly-shallying.
A real danger here is high activity that does not bear any real fruit in the form of visibly improving the regulatory and institutional environment of WSE. However, both passivity and radicalism are very relative — the same team that, to the detriment of the market, would not support the privatization of state-owned companies, may agree to reforms strengthening corporate governance and reducing distribution costs of TFI participation units.
Thus it is unlikely that all aforementioned reforms are implemented during Rafał Antczak’s term. However, it would be a failure on his part if he handed over to his successor a Polish market that is still on the same development path as it was after president Zaleska resignation.
The stadiums of Manchester United, Barcelona and Liverpool can boast to have statues of legendary football players, who many years ago laid the foundations to the success of their clubs. Devout fans discuss with fervour who deserves this kind of honour and who can take a credit for this success. After all, many generations of trainers and chairmans, who for decades have been building the economic position of today’s football, have also contributed to its achievements.
The Warsaw Stock Exchange’s existence is too short to erect such monuments of its creators and visionaries, and its fans are substantially less zealous. However, in a few decades it may be that someone will endeavour to honour the pioneers of its formation from the ’90s of 20th century. Subsequent presidents, including Rafał Antczak presently preparing for the role, are not likely to be remembered this fondly by their successors. Still, it is their work that will determine if in, let’s say 2041, we are proud to look back on WSE’s beginnings due to the enormous achievements of half a century of its existence, or we consider this period to be insignificant economic curiosity, when we enjoy moderately high pensions in the moderately prosperous country located somewhere on the outskirts of Europe.
The authors of the text:
Maciej Bukowski, President of WiseEuropa
Maciej Bitner, Chief Economist at WiseEuropa
This text has been published in a daily newspaper ‘Rzeczpospolita’ on 10 February 2017, titled: “Six tips for the new president of WSE’.