Welcome to the 9 th CEE Summit 18 and 19 April 2013 Prague, Czech Republic 1
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Why CEE? Tomasz Grajewski Global Head GSS Unicredit
Agenda n The scale of the CEE region n The attractions of the CEE region n The special features of the CEE region n The custodian perspective of the CEE n A vision for the future 5
The Scale of the CEE Region – GDP comparison GDP (EUR b) GDP per capita (EUR k) 400 40 300 30 200 20 100 10 0 0 The potential for growth is material; these are largely emerging and frontier markets Source: UniCredit CEE Quarterly 6
The Scale of the CEE Region – GDP in further context GDP per capita (EUR k) GDP (EUR b) 3000 40 2500 30 2000 1500 20 1000 10 500 0 0 The gap in GDP per capita is a good indicator of the potential of even the regional “tigers” Source: UniCredit CEE Quarterly and UniCredit Economics Research 7
The Scale of the CEE Region – Stock Market Size Stock market size (EUR billion) versus market capitalization of major global corporates 800 700 600 500 400 300 200 100 0 Source: WFSE and FT 8
The Scale of CEE Markets – Market Cap to GDP Domestic market cap as % of GDP 180 160 140 120 100 80 60 40 20 0 Source: WFSE and Unicredit Economics Research 9
The Scale of the CEE Markets Cap (EUR billions) 160 600 140 120 100 80 60 40 20 0 10
The Scale of CEE Markets (Feb turnover EUR) Smaller markets - EUR millions 160 600 Larger markets- EUR billions 140 20 120 15 10 100 5 80 0 60 40 20 0 11
The Attractions of the CEE Markets n Best regional economic growth rates n Exporting economies n CEE adhesion and impact But Very Dependent on EU economies n IPO’s in the future? n Growing local investor bases n Infrastructure evolutionary trends 12
The Attractions of the CEE Region - Economic Growth Rates n Poor 2012 performance but GDP growth forecast generally ahead of EU average 5 4 3 2 1 0 Austria Czech Hungary Poland Russia Croatia -1 -2 -3 2011 2012 2013 Source: UniCredit CEE Quarterly and Unicredit Economic Research 13
The Attractions of the CEE Region – Exporting Economies n EU is the target of much of exports; region still tied to EU economic performance n Exports are on average 65% of GDP in CEE or CEE aspirant emerging and frontier markets countries Exports:GDP 100 80 60 40 20 0 14 Source: UniCredit CEE Quarterly
The Attractions of the CEE Region – CEE adhesion and its impact n EU is a market of 500 mio people – 10 CEE countries who are EU members/aspirants have a population of 110 mio n EU development and other funds are key drivers for growth n Euro participation is an emerging issue with currently AT, SK and SI being in countries but others plan to join “in the future” n And in the securities world harmonisation, infrastructure convergence and common regulation are prevailing trends n The MSI all country index includes AT (developed), RU, PL, CZ and HU (emerging) from the CEE with most others still classified as “frontier” 15
And the T2S development is attracting both Euro and non Euro markets and is a major enterprise Austria Rebuilding platform; project plan being implemented; details shared with users; currently scheduled for phase 3 release Slovakia T2S on top of infrastructure; total redesign of IT architecture; will retain many local unique features; currently scheduled for phase 2 release Slovenia T2S on top of current architecture upgraded two years ago; middleware decision to be made 2Q2013; currently scheduled for phase 3 release Hungary T2S on top of current infrastructure; RFP out to allow tender for major market IT re-engineering; T2S to cover EUR settlement only (not Florint); currently scheduled for phase 3 release Romania T2S on top of current infrastructure; some enhancements to be adopted; T2S to cover EUR settlement only (not Leu); currently 16 scheduled for phase 1 release.
The Attractions of the CEE Region - IPO’s? n The region is moving from state managed to market economies n We expect a greater number of new IPOs – on average markets could increase market cap by 100% to reach world “norms” n Some of the IPO’s could be substantial (On the WSE in 2011, there were 16 foreign issuers listed, of which 12 on the main list) n Align this with above average GDP growth and a more friendly global environment and market capitalisations could well rise dramatically n The region is still complex, change is country centric and local knowledge and involvement is key to managing the process 17
The Attractions of the CEE Region – Growing Local Investor Base n A recent CEESEG study showed that just 13.8% of the domestic stocks held by institutional investors in their four markets are held by domestic institutions; the balance by foreign investors with the US (33.6%), UK (18.8%) and France (5.3%) being the major investors Foreign Investment in CEE % 40 30 20 10 0 USA UK Austria France Germany Other 18
The Attraction of the CEE Region - Infrastructure is changing n The dominant players in the region are CEESEG and the Warsaw Stock Exchange 80 60 40 20 0 Securities Euro (b) MiFID liquid Int Members CEESEG WSE 19 Source: CEESEG
B ut The market Infrastructure Is Bound To Change n MTF’s are syphoning off some of the more liquid stock activity to the detriment of the traditional Exchanges n Many regional markets are small; many markets have low liquidity n A regional grouping makes sense and the major impediment will be political � Can it be structured around a CEE regional grouping: an expanded CEESEG, a hub from Moscow or the sometimes debated Polish/Austrian alliance? � Will it be driven by an acquirer from Western Europe such as Deutsche Boerse or Euronext? � Is there enough value to attract a new entrant, a buyer from another region? 20
The Special Features of the Region n Political and economic factors drive markets (e.g. electoral change, public policy on savings) n Cost advantage over much of EU; exporters (dependent on EU economic performance, expanding markets outside EU) n Markets are adopting EU harmonization (better governance, improved transparency but still “exciting” developing markets) BUT: n Substantial diversity remains across markets ( the region will move forward at different speeds and will take a decade + long process) AND: n Unicredit GSS presence countries are 14 states of the CEE accounting for around 450 of the Deloitte CEE top 500 companies 21
The Custodian Perspective In A Changing Environment n Infrastructure consolidation likely to be Exchange led with CCPs and CSDs as slow followers n EU legislation being adopted in EU markets and becoming template for best practise elsewhere n Harmonisation (e.g. T+2) with an eye to Western Europe n Risk and cost dynamics militate for the regional custody providers with a strong regional asset gathering role n Although we can think of a “single market” for the next generation, local presence key in markets with many unique characteristics 22
My Vision For the Future Decade - Exciting Space with Challenges Macroeconomic perspective Regional Investments perspective n Faster economic growth n Russia, Poland, Czech Republic than world or European and possibly Hungary will move average from emerging to developed in MSI Capital markets perspective Infrastructure perspective n Stock Exchanges increase n CCP development and in scale but also align to interoperability with major groupings major Groupings within or n CSDs use common infrastructures outside region but retain local presences (notary n Rapid development of functions) with CEESEG, Warsaw domestic institutional and Moscow retaining independence markets n Alignment of infrastructures and adoption of EU laws across much of the region 23
Why CEE? Tomasz Grajewski Global Head GSS Unicredit 24
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The impact of EU legislation on the post-trading industry Rafael Plata Head of Derivatives and Post-trading Federation of European Securities Exchanges (FESE) 9th CEE Summit Prague – 19th April 2013
The Federation of European Securities Exchanges (FESE) FESE represents in total 46 Securities Exchanges (in equities, bonds, and derivatives) through 21 Full Members from all EU Member States and Iceland, Norway and Switzerland as well as 4 Observer Members from European emerging markets. 46 Securities Exchanges through 20 Full Members from 30 countries 4 Observer Members from 4 countries
Why a trading person in a post-trading panel? TRADING POST-TRADING
Question How many EU legislations regulated CCPs and CSDs prior to EMIR/CSD Legislation? 1. None 2. 2 3. 3 4. 5
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