Investor’s Manual

Stock Market is a market on which, transactions of sale and buying of shares, bonds (corporate and government bonds), warrants, options and investment certificates takes place. It is also a „place” where securities trade takes place in such a way, that when conducting sale and buyout contracts every participant of the transaction is equal and has equal access to information. Stock Market is a form of market commonly known as an institutional form of capital market. Currently the Warsaw Stock is the biggest stock market in the Middle-Eastern Europe and it organizes trade on one of the most dynamic capital markets in Europe. Warsaw Stock is a regulated market for shares and derivatives and NewConnect alternative stock market for growth companies. Warsaw Stock is also developer of Catalyst – a market for companies emitting corporate and municipal bonds in the energy market.

Since November 9th 2010 Warsaw Stock Market is a public company, noted on the Stock Market in Warsaw. The subject of trade on that market are shares, bonds, allotment certificates, rights to shares, investment certificates and derivatives: future contracts, options, indexes and structured products.

Shares can be noted on the basic or parallel market, depending on the requirements of the market’s rules. Share trading is conducted continually (from 9AM till 5.35PM) or in a single-price system with two fixings at 11AM and 3PM. Owners of shares, shareholders are co-owners of the company. Buying actions is a way to have some sort of influence on company management and to have a share in the company’s income. We differentiate two types of shares: bearer instruments and registered shares, but only the bearer instruments can become a subject of stock trade. Another relevant differentiation when it comes to the stock trade is is division in between physical shares and dematerialized shares. Only dematerialized shares existing only in a digitalized form can become a subject of stock trade.

Allotment Certificates – PDA

Allotment Certificates are financial instruments which come together with some new emissions of shares. They allow to shorten a time that passes by between subscribing to the new emission and noting it on the stock market. Allotment Certificates can be a subject of trade as early as a few days after assigning new shares for emission, before being registered by the court. They, even before the new shares enter the market, allow the investor to back out, allowing at the same time the people who did not buy the shares in a public subscription to get them.

Bonds

Bonds are financial instruments being in emission by government or other subjects, such as companies (corporate bonds) or municipal administration (municipal bonds). The person who issues bonds takes a loan from the buyer. Bonds are issued for a specified period of time. The issuing party agrees to buyout the bonds (paying off the debts) after that period of time. Stock bond trade takes part on the Catalyst Market. This market has started in September 2009 in order to create organized and transparent market for the bonds issued by companies and municipalities in Poland. Catalyst is an authorization and secondary trade platform for corporate bonds, municipal bonds, communal bonds, covered bonds and other bonds.

Warrants

Warrants are derivatives which are simplified version of options. Parties issuing warrants are usually financial institutions. Investor may acquire buying warrant or sale warrant, thanks to what he gets a right (not an obligation) to buy or sell the base instrument, at a specified price and with a specified deadline. Warrants present in the stock market are usually replaced with money. Investor may sell warrant before the deadline, not after it.

Future contracts WIG20 and WIG40 indexes, currencies and shares of 23 companies are also present in stock market trade. Stock Market, as an organizer of the future contracts trade develops a contract standard – a detailed characteristics of the given contract. The procedures of calculating, filing records and the height of security deposit is defined by the National Securities Deposit, which is a form of clearing house. Trading the future contracts takes place continually from 8.30 AM till 5.35PM. Fixing takes place on opening and closing, similarly to the continuum system.

Options

Options are derivative instruments value of which is dependent on the base instruments (e.g. currencies, stock indexes, shares). Option give the buyer a right, but not an obligation to buy (call type option) or sale (put type option) defined base instruments, at specified price and specified time or to do a relevant financial settlement. At the same time the second party (option seller) has an obligation of selling (call type) or buying (put type) specified base instruments, at specified price, at specified time or conducting a relevant financial settlement.

Rights Issue

Rights issue is a right ascribed to the current shareholders, who have precedence when it comes to buying new emissions. This right is relevant in a sense, that if such emission would be taken by a new circle of shareholders so called dilution of capital – a decrease in percentage of share of the present shareholders in relation to the total value. Using the rights issue they have an opportunity to keep the share they had before.

Index Participation Units

Index participation units are instruments price of which is in relation with the changes in given stock index value. This instrument allows an investment which is equal to buying out whole wallet of given index without any need of buying separate shares that are included in that index. The Warsaw Stock Market features MiniWIG20 index participation units, which are a mirror image of WIG20 index changes, which consists of twenty biggest and most fluid stock market companies.

Investment Certificates

Investmen certificates are the securities issued by closed investment funds. A certificate is a sign of investor’s participation in the assets of the estate of given investment fund. Similarly to other securities taking part in the stock market, investment certificates undergo everyday pricing on the stock market sessions. The issuing party regularly announces a price based on the valuation of assets in the fund. The aim of investment funds is finding a way to invest the assets provided by the participants with a biggest profit. Specialized subjects are responsible for management of the assets – investment funds companies.

Structured Products

Structured products are financial instruments price of which is dependent on a defined market index (e.g. share price, share basket price, indexes values, currency rates). They are issued by financial institutions, mostly banks or brokerage houses. The issuing party is obliged to pay the investor an amount calculated according to a defined model. The formula defining the rules of payment makes it easier for instrument owners to stay up to date with a value of the given instrument. The legal form of structured product varies, e.g. it may come in a form of a bond, certificate or warrant.

Two main types of structured products exist:

  • products which guarantee capital protection
    (they give a specified share in income that are generated by market index which is part of the product and at the same time they give full or partial guarantee of invested capital yield – usually on the buyout date)
  • products which do not guarantee capital protection
    (more risky instruments, with a higher share of the investor, both in income and in losses generated by the market index)