Drasko Veselinovic
President and CEO, Ljubljana Stock Exchange
When referring to the Slovenian capital market, 1995 was marked by the following events:
- the beginning of dematerialisation and consequently the establishment of the Central Securities Clearing Corporation, which as an independent legal entity started functioning at the end of 1995;
- the commencement of the project on derivatives trading on BIS;
- the introduction of the money and foreign exchange market on BIS;
- the introduction of the off-the-exchange organised market C;
- the transition to completely computerised daily trading;
- the Task Force Meeting of the Federation of European Stock Exchanges in Ljubljana and in Bled;
- the second revised edition of the LSE Handbook for people interested in the securities business;
- the introduction of the project on assessing best issuer information disclosure.
A project on derivatives trading was introduced in 1995, after having gained strong support from LSE shareholders and members. Although the idea of organisation of trading in derivatives was approved at the very establishment of the LSE in 1989, the project was not realised before 1996.
A conference of the Federation of European Stock Exchanges (FESE) in Bled and in Ljubljana, organised by the LSE, was officially opened by Janko Dezelak, Deputy Prime Minister of the Republic of Slovenia. At the conference reception members of the FESE Emerging Markets Task Force were hosted by Milan Kucan, President of the Republic of Slovenia. Two issues were raised at the conference related to the importance of international standards of operation and fiscal policy as an incentive for the development of new and emerging stock exchanges.
Due to a delay in dematerialisation there were no shares resulting from privatisation listed or traded on the LSE in 1995. The situation finally changed on 8 January 1996 - a historic moment in the modern history of the Slovenian capital market - when three completely dematerialised securities were listed on LSE: shares of Kolinska, which were the first privatisation shares listed on LSE, and bonds of Abanka and Development Fund of the Republic of Slovenia. Just a month before, LSE completely abolished floor trading and joined the stock exchanges that trade exclusively in an electronic environment.
In the first half of 1995, the development of the capital market was affected by strong intervention by the Bank of Slovenia, which issued short-term treasury bills with attractive rates in order to mitigate the effects of a surplus of foreign currency on the Slovenian foreign currency market. The measures, taken by the Bank of Slovenia, contributed to the development of the short-term securities market, but disadvantaged the development of the capital market.
In 1995, the total turnover of the LSE reached SIT 88 billion, with turnover in shares amounting to 49.4 per cent, in bonds to 26 per cent and in short-term securities to 24.6 per cent of the total. BIO, the new bond index, has been published since October 1995. At the same time, the structure of SBI, the Slovenian stock index, was amended. SBI, after a significant fall in the middle of the year (1,017 index points), increased tremendously in the second half of the year and by the end of the year had reached 1,448 index points.
1996 finally saw the full turnaround of the capital market, especially on the secondary market which has the best infrastructure (dematerialisation, fully computerised trading and clearing, 45 LSE members located throughout Slovenia, Securities Market Agency, etc). By adopting laws on financial operations abroad and take-overs, the missing link in the regulatory infrastructure was achieved and will most probably attract several foreign investors.
A stronger swing of trading in derivatives on the Derivatives Exchange Ltd. can be expected. As already mentioned, the establishment of the Derivatives Exchange was initiated by the LSE and now operates on the technical infrastructure of the LSE and a complex electronic settlement support from Rolfe & Nolan of London.
Floor trading abolished
By organising its last floor trading session on 14 December 1995, LSE ended the six year tradition of open outcry trading sessions and moved to a completely electronic trading on a daily basis. The decision to abolish floor trading resulted from a low turnover on days of floor trading compared to a much higher turnover on days of electronic trading, as well as through the efforts of the LSE to achieve greater transparency of the market and lower operational costs at the same time. There were 33 trades to the tune of SIT 31 million concluded that day, the very last having been done in shares of Hmezad Banka by brokers of CBH from Celje and BPH from Ljubljana.Electronic trading on BIS takes place every day from 9.30 to 13.00 on the basis of continuous automated trading: a trade is concluded when an ask order matches a bid order, priority being given to previously entered orders. Trading is subject to surveillance by the LSE and the Securities Market Agency.
Central Securities Clearing Corporation (KDD)
In 1995, the Central Securities Clearing Corporation (KDD) was established, its main activities being running of the central registry of dematerialised securities and clearing trades that are concluded on the LSE electronic trading system BIS and transferred to KDD automatically. Clearing and settlement take place on day T+2.Dematerialisation
Issuers of publicly offered securities have to issue dematerialised securities. The same is required for banks and insurance companies regardless of whether their shares have been publicly offered or not.In compliance with the law on privatisation and decree on dematerialisation, dematerialisation is mandatory for all companies going public and privatised companies that have over 50 shareholders.
LSE and KDD are closely connected
Both institutions, LSE and KDD, are regulated by the Securities Market Act and controlled by the Securities Market Agency. They are separate individual legal entities with separate members and corporate bodies. They are, however, interlinked. Concluded trades are transferred in real time from the central LSE computer to the central KDD computer and are then ready to be cleared.Derivatives Exchange Ltd.
On the initiative of the Ljubljana Stock Exchange, the Derivatives Exchange Ltd, a separate legal entity, was established in October 1995 by banks and brokerage firms - members of the Ljubljana Stock Exchange.Thirteen members of the Derivatives Exchange Ltd began trading on 28 March 1996.
The Derivatives Exchange Ltd:
- organises derivatives trading and informs the public of market events;
- performs market surveillance, ensures market liquidity, transparency, effectiveness and fairness and organises seminars on derivatives trading for its members;
- prepares and conducts clearing and settlement of trades and organises educational presentations of use of derivative products for corporations and other customers.
Future development
Ljubljana Stock Exchange was officially the first bourse in any of the ex-socialist countries in the world, listed its first fully privatised (and also dematerialised) stock only on 8 January 1996. Since all the necessary infrastructure is now in place, the stock market is ready for many new companies to be listed. Out of 1,300 companies which will be privatised in the very near future, about ten per cent of them have decided to go public. This means that these companies will be seeking a listing on the so-called organised market (A, B, C) - whether on the stock exchange segments (A, B) or the so-called OTC segment, which is sort of the third-tier (free regulated) fully electronic market. There are also about 60 closed-end privatisation funds, which (according to the legislation) have to be listed in the stock market, when their shares become transferable. There are also some huge governmental debt instruments approaching the market. This means that the market is slowly gaining depth and breadth. The estimated market capitalisation will represent about 40 per cent of GDP (equity and debt each representing approximately half of this amount).Slovenia is the best performing emerging country in the region, what gives it a good chance of joining the EU, where all its orientation to international operations could be fully realised.
Slovene Stock Market Capitalisation
(Listing quotations A, B & C)
| Additionally | Total (Cumulative) |
| (in billions US$) | (in billions US$) |
| per 31 December 1996 | |
| EQUITIES | |
| 0.3-0.7 | 0.6-1.0 |
| DEBT | |
| 0.2-0.3 | 0.6-0.7 |
| per 31 December 1997 | |
| EQUITIES | |
| 0.7-0.8 | 1.3-1.8 |
| DEBT | |
| 0,5-0.9 | 1.1-1.6 |
| per 31 December 1998 | |
| EQUITIES | |
| 0.9-1.1 | 2.2-2.9 |
| DEBT | |
| 0.9-1.3 | 2.0-2.9 |
Drasko Veselinovic has been LSE President & Chief Executive Officer since 1989. He was Assistant Professor - International Finance in 1990-93 at the Faculty of Economics, University of Ljubljana, a non-professional Member of the Slovenian Parliament in 1990-93 and Adviser to the Slovene Government
