Implementation of the GPW Group Strategy in 2017

The key elements of the GPW Group’s strategy include the development of technology and infrastructure and the extension of the range of investment instruments available on the GPW markets. Such efforts provide long-term benefits as they allow the GPW Group to reach out to new groups of investors and secure additional sources of revenue. This section describes the initiatives taken in 2017 under the strategy GPW.2020 in support of the development of the markets operated by the GPW Group.

Technology and security

  • 100 percent availability of GPW’s trading system: In 2017, similar to previous years, GPW maintained 100 percent availability of the services provided by GPW’s trading system (defined as the ability to place orders, execute trades, set prices, and publish market data).
  • Colocation and support services: The colocation service was opened to GPW’s clients in Q1 2016 and the first client, ERSTE Securities Polska, started to use the service in April 2016. The service is dedicated to algorithmic traders seeking latency sensitive access to GPW markets for themselves and for their clients. As the client base grew, GPW launched new services including remote hands and precision time protocol. In view of growing demand from clients, another 6 full racks were added in the colocation service.

In 2017, GPW established relations and signed a contract with PICO Global, the technology provider of leading investment banks globally.
The colocation service is a key part of the capital market infrastructure which supports the prop and algo trading segment and improves liquidity of the order book.

  • Development of a proprietary system for GPW Benchmark used to compile bank quotes and process fixings of WIBID/WIBOR reference rates. With the fully automated state-of-the-art solution, GPW Benchmark no longer uses the services of Thomson Reuters and performs the function of Calculation Agent.
  • New trading systems on TGE: On 31 May 2017, TGE launched a new trading system from Nasdaq. The new technology supports TGE’s markets with top quality service and are scalable to new commodity and derivative instruments. X-Stream Trading allows TGE to operate many markets, support a broad range of orders and assets, serve market makers, execute strategies on the derivative market, process market data, operate an integrated index calculator, manage risks, maintain real-time positions, control and supervise the market.

On 15 November 2017, TGE launched as a PCR co-ordinator and operator on the European market Multi-Regional Coupling (MRC). With its new technology, SAPRI, provided by Nasdaq to support cross-border trade in electricity, TGE is one of few European exchanges to operate and compete on the day-ahead exchange market. As an MRC member and PCR participant, TGE can actively contribute to regional market projects and implement EU electricity market mechanisms in co-operation with European exchanges and transmission system operators. Cross-border trade in electricity under PCR is now in place on Poland’s borders with Sweden and Lithuania. The model will be used on the other borders of the Polish energy system.

Equities

  • Trading fee reductions:
    • GPW pursues a policy of gradual reductions of trading fees to support the growth of volumes and liquidity on the markets operated by GPW. The year 2017 was the first full year of application of new reduced fees for trading in shares. GPW reduced the basic fees for Exchange Members for transactions in shares and for exchange data on the GPW Main Market and in the NewConnect Alternative Trading System as of 1 January 2016 and reduced the fixed fee on an order from PLN 0.20 to PLN 0.15 as of 1 November 2016. The fee reductions were offered as a promotion with no definitive end date applicable to all broker’s orders executed on the electronic order book and in block transactions in shares, rights to shares and ETF units. The reductions were integrated into the GPW price list in 2018. The reductions mainly benefit small orders placed among others by retail investors and DMA.
    • GPW pursued an active programme in support of the market makers of shares and derivatives throughout 2017. HVP mini, a new reduced threshold of minimum trade volumes under the High Volume Provider programme, was introduced in June 2017. The new thresholds are PLN 2.5 million on the cash market and 75 futures contracts or options on the derivative market. HVP mini is an integral part of HVP which means that participants of the former automatically become participants of the latter. HVP mini rates are ca. 35% higher than HVP rates. Reduced rates of fees introduced under HVP in June 2017 are available where the average value of broker’s orders executed on the electronic order book is at least PLN 2.5 million per session or the average volume of futures contracts and options is at least 75 contracts per session during the month. The promotion previously required at least PLN 5 million per session or 150 contracts per session.
    • A promotion with no fees for market makers of non-WIG20 shares was effective throughout 2017. The promotion was designed to support liquidity of trading in shares of companies which do not participate in WIG20 and to support the local brokerage industry. The promotion is a part of the strategy encouraging investor activity with a flexible pricing policy aligned with the needs of different groups of GPW clients.
    • The promotion for market makers of WIG20 index futures was extended in 2017. The promotion offers reduced transaction fees to the most active market makers. Market makers pay PLN 0.50 per transaction in futures once they exceed the threshold of 15,000 contracts per month and PLN 0.40 above 30,000 contracts per month. The promotion encourages market makers to be active investors.
    • A promotion with no fees for exchange members for trade in bond futures and trade in WIBOR futures was extended in June 2017 until 31 December 2017.
    • The Super Market Maker programme was in effect in 2017. The programme supported liquidity of the cash market and the volume of trading in shares of the biggest companies ranking 1 to 7 in the WIG20 portfolio. The programme imposed much higher requirements for market makers’ orders on GPW (size, spread, share in turnover) but it also provided participants with reimbursement of part of transaction fees and revenue sharing with the counterparty. The programme was also offered on the derivative market.

In view of alignment with MiFID2, GPW did not introduce any fundamental changes to its price lists in 2017. However, GPW was working throughout 2017 to align its product offer and price list with the new European regulations. The changes took effect at the beginning of 2018.

The pricing policy clearly helped to grow the value of trading in shares (in EUR) on the electronic order book by 27.8% on GPW, the second best result of all European exchanges in 2017

For details of GPW’s policy in support of liquidity on the stock market, see section II.4. Market Environment.

  • 34 companies had their IPOs on both stock markets (including 7 transfers from NewConnect to the Main Market). According to PwC’s IPO Watch Europe Report, GPW ranked third in Europe on a par with the Spanish exchange by the number of IPOs and eighth by the value of IPOs. The IPO of Play Communications SA worth EUR 1.0 billion was the eighth biggest European IPO in 2017.
  • Sustained high liquidity of the Main Market in shares as measured by velocity due to:
    • acquisition of new clients including exchange members, market makers and participants of the liquidity support programmes (HVP and HVF);
    • continuation and introduction of transaction fee promotion programmes;
    • improvement of the infrastructure and accessibility of the Polish market for global investors (Interactive Brokers, one of the world’s biggest online discount brokers, started operating on the Warsaw Stock Exchange in June 2017 as the first remote exchange member to serve retail investors. Deutsche Bank AG became a remote exchange member in June 2017. Polski Dom Maklerski was admitted as an exchange member in October 2017. Societe Generale added trading in derivatives for the account of clients to its operation on GPW in June 2017.);
    • continued extension of GPW’s product offer including three new single-stock futures and structured certificates issued by BNP Paribas Issuance N.V., the fifth issuer of structured products active on GPW;
    • new Independent Software Vendor (ISV): Embedded Software;
    • the Warsaw Stock Exchange continued its initiatives to promote the exchange as a venue to raise capital for companies and local governments. GPW with its partners (Bank PKO BP, Private Equity Fund Enterprise Investors, law firm Gessel) organised a series of business breakfasts for companies in the main cities in Poland devoted to raising capital for growth in order to discuss different forms of financing and their complementarity. GPW held one-on-one meetings with more than 60 companies not yet listed on the GPW markets. In 2017, GPW finalised the Polish-Belorussian IPO Centre project including six training sessions in Minsk which introduced the details of raising capital on the GPW markets to Belorussian companies. In 2017, GPW continued the Ambassador Programme launched in 2016. The programme participants were the 11 biggest banks present in Poland. The programme promotes the capital market among bank advisors to help them
    • communicate the opportunities of investing on GPW among their retail clients and other bank officers. The Polish capital market was promoted among international institutional investors at seven investor conferences organised in partnership with leading banks and investment firms in seven European countries;
    • continued training dedicated to products offered to individual investors in partnership with brokerage houses: 42 training sessions were attended by 3,322 participants.
  • Continued initiatives making NewConnect more attractive for investors

NewConnect celebrated its tenth anniversary in 2017. The capitalisation of companies listed on NewConnect is ca. PLN 10 billion. The companies have raised ca. PLN 4.7 billion in IPOs and SPOs on NewConnect over the decade. Sixty companies have transferred from NewConnect to the GPW Main Market over those years, representing ca. 14% of all domestic companies listed on the Main Market. In 2017, GPW continued the promotion of NewConnect among smaller companies which are considering to raise capital in the alternative trading system. The activities included one-on-one meetings and initiatives addressed to start-ups such as IPO workshops and participation in conferences dedicated to start-ups and new technologies.

Debt market

In 2017, Catalyst continued to pursue its strategy of promoting bonds among SMEs, including one-on-one meetings with companies and local governments and GPW’s participation in conferences across Poland where it promoted financing with debt issues.

  • 154 series of PLN bonds and 12 series of EUR bonds were introduced to trading in 2017.
  • 21 new issuers issued and introduced bonds to trading on Catalyst.

The year 2017 brought big issues of banks and insurers including:

    • PZU – PLN 2.25 billion
    • PKO BP – PLN 1.7 billion
    • EIB – PLN 1.5 billion
    • Pekao S.A. – PLN 1.25 billion

GPW pursued a policy in support on investing in public issues on the bond market. Last year set a historical record of public bond issues. The value of public bonds issued under a prospectus and addressed to individual investors was PLN 1.849 billion, 21.6 percent more than in 2016.

Derivatives market

New single-stock futures: to address investor demand, GPW introduced several new classes of single-stock futures in 2017:

    • futures on the shares of POLIMEX-MOSTOSTAL S.A. were introduced to trading on 20 March 2017;
    • futures on the shares of DINO POLSKA S.A. were introduced to trading on 9 May 2017;
    • futures on the shares of PLAY COMMUNICATIONS S.A. were introduced to trading on 10 August 2017.
  • Intensified promotion and education concerning interest rate futures. In 2017, GPW in partnership with brokers offered more than 40 training sessions for individual investors devoted to derivatives and other market segments.

Commodity market

Main pillars of TGE’s strategy:

The direction of developmental programmes of TGE and its subsidiaries must match the strategy of the GPW Group, the government programmes supporting the development of the Polish energy industry, market conditions, and the EU’s proposed implementation of the European internal energy market. Well-designed mid-term and long-term strategies of the company pursued with determination will help to achieve the business goals which include the following:

  • Strengthening TGE’s position as the biggest trading venue in electricity, natural gas and energy commodities in Poland and in the region by attracting new members, developing diverse products and aligning the organisation with the EU requirements;
  • Implementation of MiFID2 by aligning the organisation of the derivative markets in electricity and gas;
  • Active participation in the development of the European electricity and gas market.

Electricity market

  • Development of the spot electricity market:
    • Maintaining the position of TGE as Nominated Electricity Market Operator (NEMO) on the local energy market, safeguarding the Polish market against acquisitions by the largest foreign exchanges (EPEX Spot and Nord Pool Spot are NEMOs on the Polish market).
    • Participation in European energy market integration projects: Market Coupling trade on new cross-border connections.
  • Forward electricity market: harmonisation with MiFID2, maintenance and development of liquidity: Preparation of the Commodity Forward Instruments Market to become an OTF (Organised Trading Facility) under MiFID2. Discretion, which is a specific property of OTFs under MiFID2, was introduced on the Commodity Forward Instruments Market on 29 December 2017. Discretion implemented by TGE means that TGE may increase liquidity of less liquid instruments on the market. Discretion allows TGE to continue the operation of trade on the Commodity Forward Instruments Market and to attract OTC trade in the future. Following the effective date of the law implementing MiFID2 (amendment of the Act on Trading in Financial Instruments, UC86), TGE has 12 months to apply to PFSA for a licence to operate an OTF which will replace the Commodity Forward Instruments Market.
  • Conditions of liquidity necessary to offer acceptable market-based energy prices on the Polish market:
    • Concentration of trade in energy and maintenance of market liquidity including mandatory sale of electricity on the exchange;
    • Active acquisition of new market makers and new exchange members (domestic and international).

Gas market:

  • Develop of the spot gas market:
    • Continued development of liquidity of trade to improve security of deliveries for market participants;
    • Maintenance of liquidity of the Intraday and Day-Ahead Market in gas to ensure balancing of gas market participants in order to retain the status of liquid balancing platform;
    • Collaboration with the operator Gaz-System to implement the requirements of BAL NC.
  • Forward gas market: harmonisation with MiFID2, maintenance and development of liquidity: Preparation of the Commodity Forward Instruments Market to become an OTF (Organised Trading Facility) under MiFID2. Discretion, which is a specific property of OTFs under MiFID2, was introduced on the Commodity Forward Instruments Market on 29 December 2017. Discretion implemented by TGE means that TGE may increase liquidity of less liquid instruments on the market. Discretion allows TGE to continue the operation of trade on the Commodity Forward Instruments Market and to attract OTC trade in the future. Following the effective date of the law implementing MiFID2 (amendment of the Act on Trading in Financial Instruments, UC86), TGE has 12 months to apply to PFSA for a licence to operate an OTF which will replace the Commodity Forward Instruments Market.
  • Conditions of liquidity necessary to offer acceptable market-based gas prices on the Polish market:
    • Continued operation of the Energy Law requirement of mandatory sale of gas on the exchange at the current level of 55%;
    • Active acquisition of new market makers and new exchange members (domestic and international).
  • Development of TGE registers:
    • Increase of the volume of white certificates in the extension of the support system for energy efficiency certificates and simplification of issuance procedures: at this time, the white certificate system is available with no end date;
    • Marketing and information communications to introduce Polish companies and local governments to the benefits of energy efficiency initiatives;

The system of certificates of origin, in particular green certificates, will be gradually phased out in the coming years. Some of the clients of the Register of Certificates of Origin will participate in the new auction system operated outside TGE.

Information services

  • Taking over the function of the organiser of WIBID and WIBOR reference rate fixings: GPW Benchmark took over the function of organiser and calculation agent of WIBID and WIBOR reference rate fixings. Real-time, delayed and historical reference rates are available on a commercial basis. GPW is responsible for the distribution of GPW Benchmark data as it integrates information services within the GPW Group.
  • Addition of WIBOR data to the GPW Group’s product offer: In 2017, GPW acquired 4 new clients of real-time data, 7 clients of delayed data, 1 client of WIBOR historical data, and 2 clearing houses which use WIBOR in clearing.
  • Continuation of initiatives boosting the sale of non-display data: In 2017, following focused acquisition initiatives, GPW attracted 11 new clients for non-display data (used in algorithmic trading, risk management, portfolio valuation, and other non-display applications).
  • Client acquisition: New clients include 4 data vendors in Western Europe and the USA, 1 Belgian operator which uses GPW indices to issue financial instruments, 1 UK operator which calculates indices using GPW data, 7 clients in Poland, Western Europe, USA and Canada using processed data.
  • Continued increase in the number of subscribers of TGE and BondSpot data.
  • Development of indices: In pursuit of the strategy of development of indices, GPW introduced a new sector classification of exchange issuers and started to publish three new sector sub-indices: pharma, moto, and clothing. GPW started to publish total return indices mWIG40TR and sWIG80TR; as a result, investors have access to both price and total return indices on GPW including WIG20, mWIG40 and sWIG80.
  • Modification of the product offer and the business model under MiFID2 requirements: GPW aligned its agreements and price lists with the new regulations and implemented a model of fees for the distribution of delayed data and data used by contractors of data vendors supporting the distribution of data to subscribers. GPW developed a new service: KID (Key Information Document), which facilitates investor access to the documentation of structured products, certificates and derivatives.

New initiatives

  • GPW decided to amend the Articles of Association of GPW Centrum Usług to the extent of its core business and to change the name of the company to GPW Benchmark. A newly launched project will develop a system of contribution, calculation and distribution of WIBID/WIBOR reference rate fixings and activate the process. GPW Benchmark S.A. became the Administrator and Calculation Agent of WIBID/WIBOR reference rates as of 30 June 2017.
  • On 28 November 2017, GPW, the Polish Development Fund (PFR) and the Credit Information Bureau (BIK) signed a co-operation agreement to create a joint rating agency based on Instytut Analiz i Ratingu. The objective is to close the gap in ratings available in particular in the SME segment. The development of the agency is in line with the Plan for Responsible Development. The agency will launch in H2 2018.
  • GPW introduced its own sector classification of issuers on the Regulated Market, NewConnect and Catalyst. The new rules are in line with international standards and best practice. The new classification of companies is accompanied by new sector indices: WIG-pharma, WIG-clothing, and WIG-moto.
  • GPW started to calculate and publish two new total return indices, mWIG40TR and sWIG80TR. Total return indices track the performance of stocks in the portfolio including income from corporate actions. Total return indices can be used in other financial instruments including ETFs and investment certificates. GPW calculates price and total return indices WIG20, mWIG40 and sWIG80.
  • GPW launched a new service which provides key information documents (KID) of instruments where the underlying is an index or other financial instrument. GPW’s service provides current information for instruments traded on the exchange and offers a repository of historical information. GPW’s service is competitive to similar services offered by foreign operators.
  • Gas Hub: The gas hub became a government project in 2017 as the Council of Ministers adopted the Strategy for Responsible Development. The Strategy provides for the preparation and submission to the Council of Ministers of a gas hub model including regulatory and legislative solutions by the end of 2018. The project is co-ordinated by the Ministry of Energy’s Oil and Gas Department. In early 2017, the Ministry of Energy published Project Sheet 176 which names TGE as a project participant. The gas hub is defined as a gas distribution and trade hub in Central and Eastern Europe and the Baltic States. In the project, TGE is responsible for the development of an offer of wholesale trade.

In 2017, TGE undertook a study of the hub project focusing on trading solutions and structures of existing gas hubs. TGE representatives participated in a gas hub seminar at the Zeebrugge gas hub in Belgium.

The gas hub project is complementary to the diversification project Northern Gateway and the regional co-operation initiative Three Seas. The success of these endeavours will improve the technical capacity of gas supplies from different sources to Poland. The capacity is expected to increase to 61 bn m³ of natural gas per year after 2022. The gas hub and its integral part, a gas exchange operated by TGE, will in the future concentrate trade in gas in the region. The project in 2018 will be co-ordinated by the Ministry of Energy’s Task Force.

Operational excellence

  • Cost optimisation: The GPW Group’s operating expenses increased by PLN 15.6 million year on year, mainly as a result of one-off events, i.e., expenses related to additional external services in the preparation of the GPW Group for MiFID2/MiFIR. The strict cost discipline is a fundamental principle of GPW’s financial policy; as a consequence, in spite of a nominal increase of expenses year on year, the C/I ratio was 47.1% compared to 48.3% in 2016.
  • Integration of the GPW Group: In 2017, GPW continued the Group’s programme launched in 2015 to ensure effective and efficient services for GPW Group companies in different areas with improved quality, standardised methods and scope of work, elimination of duplicated processes, adequate use of available resources, cost reductions, standardisation and simplification of information flows. The following projects were initiated among others: unification and centralisation of accounting and financial processes, HR and payroll processes, development of a single controlling methodology, a single office environment, a shared system of electronic document flows, and common rules of corporate identity across the Group. The relocation of all GPW Group companies to a single location was completed in 2017, optimising the cost of lease and rent of office space. All projects scheduled for 2017 under the programme were completed. In 2018, integration initiatives will continue, including unification of administration, communication and network services.

2017 in the GPW Group v. ambitions under the strategy

Strategy implementation

In 2017, the GPW Group focused on the development goals of the GPW.2020 strategy and continued to grow shareholder value. According to the strategy, the Group’s consolidated revenue will grow at 7% CAGR while the cost/income ratio will drop to less than 50% by 2020. The Group expects to double its EBITDA in 2020 compared to PLN 144 million in 2013. The development strategy and the development initiatives defined for 2017 contributed to dynamic growth of the Group while the financial targets were exceeded. The GPW Group’s sales revenue increased by 13.2% and the C/I ratio was 47.1%.