1. Impact on Capital Markets from EU Accession

2. © Catalyst Development Ltd 2002 AGENDA Introduction Current Status Expectations Special problem areas Cross-market linkage Next steps

3. © Catalyst Development Ltd 2002 Trading Technology Specialists in Exchange Technology Exchanges survey Consultancy, not development  People are the challenge, not the technology! Business analysis Program and Project Management IT Marketing and Research Cross-market linkage expertise Europe, Far East, US

4. © Catalyst Development Ltd 2002 EU Accession countries - status Emergence from predominantly communist economics Mass privatisation  Bulgaria  Czech Republic  Lithuania  Romania  Slovakia Initial Public Offerings  Estonia  Latvia  Hungary  Poland  Slovenia  Malta

5. © Catalyst Development Ltd 2002 EU Accession countries - status Differing economic and monetary policies Pension reform  Example Poland  Adoption of Chilean model Free market economies Banking vs public corporate funding

6. © Catalyst Development Ltd 2002 EU Accession countries - status Confidence in Capital Markets is LOW! Privatisations bungled – voucher system  Modelled on Russia/Czech Republic  Widely dispersed certificates  No established trading system!  Oligarchs purchased all certificates  Now control significant portions of former state-run industries Lack of stocks to invest in  Typical emerging market  Polarised to few stocks  Presents unacceptable risk

7. © Catalyst Development Ltd 2002 EU Accession countries - status Hyperinflation  Bad experiences with respect to investments  Investors lost savings  Forced investors towards property  Thankfully looking towards Euro = low inflation  Brings other problems.. Boom and bust bubbles

8. © Catalyst Development Ltd 2002 EU Accession countries - status Regulation  Generally weak  Undermines local confidence  Forces larger floatation to London, NASDAQ  Investment advice  Directors shareholdings and dealings  Corporate news disclosure Over-regulation  Malta – world standard  BUT – Caused problems  “Right-size” regulation

9. © Catalyst Development Ltd 2002 Expectation “The size of the financial sector might rise by as much as a factor of 15 in absolute terms during the catch-up process” - European Central Bank 2001

10. © Catalyst Development Ltd 2002 Expectation Pension/Health welfare reforms Increasingly aging population Require liquid capital markets for investment State funded at present Previously mentioned Chilean Model? Much of Western Europe has not decided on this yet!

11. © Catalyst Development Ltd 2002 Expectation – Foreign interest Investment will come from west Speculative interest Economic shift from Western Europe Manufacturing, petrochemicals, technology, property Educated population May force bubble… Net purchases of shares by non-Slovenian residents

12. © Catalyst Development Ltd 2002 Specific Issues / Problems Invasion of Western Europe: Broker level  Fears that local brokers will be forced out Listing  Estonia example  Acquisition and de-listing Exchanges merging/acquisition  Deutsche Borse Group  ATOS Euronext  Austrian Stock Exchange  Ireland?

13. © Catalyst Development Ltd 2002 Specific Issues / Problems Regulation tightening/harmonisation: Moving target!  ISD2  Basle 2  IOSCO No central School for learning! Danger of over-regulation Lack of expertise/practise in designated countries  Experiences of middle-east… World Bank, IADB, ADB are already funding projects  Caribbean, South America, India

14. © Catalyst Development Ltd 2002 Specific Issues / Problems Euro Conversion Specific Project All Stocks to be changed to different currency Big Bang approach Historical prices also need conversion Payment, deposition and registry information also Dividends, etc

15. © Catalyst Development Ltd 2002 Specific Issues / Problems Technical infrastructure Most systems are old or small No commonality Reliance on the RTS Future needs will be  Upgrading of depository  Exchange linkages  Market Surveillance  Internet-facing activities  Business continuity plans

16. © Catalyst Development Ltd 2002 Cross-border trading Cross border trading  Needed to improve liquidity  Access to other EU markets  Re-orientation of funds  Reduce market polarisation  Temptation to merge…

17. © Catalyst Development Ltd 2002 Cross border trading Local Alliances Slovenia leading alliance with:Bosnia Herzegovina, Montenegro, Macedonia and Srpksa stock exchanges Other international interest  Athens, Italy  Deutsche Borse Group  Austria, Hungary Likely targets for mergers/takeover  Euronext

18. © Catalyst Development Ltd 2002 Summary Confidence in Capital Markets Low Requirement for development from:  Accession criteria  Pension reform  Local economy  Cope with demand  Low inflation Specific issues in  Regulation  Technology  Cross-border trading  Euro conversion

19. Impact on Capital Markets from EU Accession