Central and Eastern European Stock Exchange Group united by upgrade

As credit continues to dry up, with increasing regulatory pressure on banks' capital requirements, the ability to raise funds on a stock exchange is becoming more crucial for businesses. For Michael Buhl, joint-CEO of Vienna Stock Exchange (VSE) and Central and Eastern European Stock Exchange Group (CEESEG) – which consists of the exchanges in Budapest, Ljubljana, Prague and Vienna – being part of a capital-raising process from the beginning to end in a diverse micro-climate such as central and eastern Europe (CEE) is what makes his job “incredibly exciting”.

The odd pairing, of individual market conditions in CEE and its collective growth potential as a dynamic region, requires an understanding of local cultures and histories of particular markets. “You have to understand the micro-climate of the exchanges in these individual markets," says Mr Buhl.

"Some markets are not up to European standards yet. We have to accept that and work around the regional capabilities. We [also] need local market makers, local banks and investors, but also international investors. So we have to create international top-notch conditions in order to attract local and foreign investors and businesses to list on the exchange.”

Cross-CEE insight is something that Mr Buhl undoubtedly has. As well as his positions as co-CEO at VSE and CEESEG, Mr Buhl is also a member of the board of directors of the Budapest Stock Exchange (since 2006), vice-chairman of the exchange chamber of the Prague Stock Exchange (since 2008), chairman of the board of directors of the Budapest Stock Exchange (since 2001) and member of the supervisory board of the Ljubljana Stock Exchange (since 2012).

Mr Buhl also has a wealth of banking experience, having previously held the position of managing director and head of investment banking at Erste Bank, and having been a supervisory board member of the local investment banking units in Czech Republic, Slovakia, Hungary, Poland and Croatia.

Bulk upgrade

One of the most pressing projects for Mr Buhl recently has been upgrading the stock exchanges' systems. As propriety systems near the end of their lifecycle, CEESEG is updating to Xetra, the trading system of Deutsche Börse. The Vienna Stock Exchange was the first to adopt the system in 1999, Ljubljana Stock Exchange has been operating Xetra since December 2010, and the Prague Stock Exchange went live with it in November 2012. The Budapest Stock Exchange will follow suit in the third quarter of 2013, meaning that by the end of next year, all four exchanges will be using Xetra.

“It is important for us to keep local individuality, but in the background, we centralise the systems wherever we can,” says Mr Buhl. “Furthermore, we have an index co-operation with many countries, including the Istanbul Stock Exchange in Turkey, and those in Croatia, Bulgaria, Serbia and Romania. We have created a state-of-the-art index family and the majority of all structured products that we have issued on the CEE markets use these indexes.”

This way, both exchanges benefit. While selling index licences creates a source of income, Mr Buhl finds the fact that its partners can hedge products on their respective exchanges, creating more liquidity and volume in the market, more important.

Maintaining this individuality while creating an international appeal can be difficult sometimes, according to Mr Buhl. But the biggest challenge as a group of smaller exchanges is competing with multilateral trading facilities (MTFs) and over-the-counter trade exchanges. Since their introduction into the trading market under the Markets in Financial İnstruments Directive, MTFs have grown in use, although Mr Buhl says that they do not offer the same capabilities as on a traditional exchange.

“We can only succeed through better service and quality. So we go on road shows with businesses on our exchanges and meet institutional investors. In December, we will be in Zurich and after that in New York, for instance. We are taking Austrian businesses to the most important financial centres worldwide so that they have an opportunity to present themselves to and liaise with institutional investors. We have been doing this for a few years now,” he says.

Pragmatic approach

Mr Buhl is confident that the exchanges are doing enough to ward off the threat of MTFs and over-the-counter trade exchanges. “I am a pragmatic person," he says. "I value commitment and focus on achievement as crucial."

Mr Buhl looks set to maintain this pragmatic thinking for the year ahead and beyond. He says that he expects “some” revival of the initial public offering market in 2013. In Austria especially, he sees “an enormous privatisation potential”. But there is also a cause for concern: the possible introduction of a financial transaction tax across Europe. France has already gone ahead with it and other governments are at various stages of implementing or discussing it.

“The governments in three of our four countries – Austria, Hungary and Slovenia – said they would introduce it. This would impact our business negatively as it makes raising capital on exchanges for businesses more difficult, which would result in fewer investment activities, less economic growth and, ultimately, job losses.”

But Mr Buhl focuses on all possibilities. “We have started discussions with the local and European regulators and we will continue to try to convince them to abolish this tax. I think there is a good chance that there won’t be a European transaction tax, at least not for a while, as the local regulators are still yet to find a common ground.”