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. Last Updated: 07/27/2016

New Exchange to Cap Estonia Reforms

TALLINN, Estonia -- Far away from the turbulent markets of London, New York and Tokyo, the small Baltic state of Estonia is busy working on its own stock exchange, set for takeoff at the start of June, officials said Tuesday.


Five years after it split from the former Soviet Union, Estonia is one of the fastest-growing former Communist bloc states. It wants a stock market to round off what have already been successful efforts in getting foreign investment.


"Setting up a stock exchange is rather crucial," said Ivar Lukk, exchange chairman and chairman of the Estonian Forexbank.


"A country without a clearly defined stock exchange does not exist for some investors," he said in an interview.


An informal stock market already functions on an over-the-counter basis in Estonia. Around 10 to 12 stocks are actively traded for a weekly turnover of around 20 million Estonian kroons (around $2 million), he said.


The Estonian stock market will run along the lines of the market-maker system used in London, although fellow Baltic states Latvia and Lithuania chose a French-style, order-driven system.


Lukk said Estonia chose the market-maker system as it provided a more liquid market. Lack of liquidity has dogged the development of the markets in Lithuania and Latvia, although the latter's market has only been open since summer 1995.


The Estonian market will have two lists, one for companies with 100 million kroon market capitalization and a three-year trading record, and a second list for firms with capitalization of 10 million kroons and a two-year record.


"We want to make a liquid and well-functioning small exchange," Lukk said. "We can't have a big exchange in Estonia."


Helo Meigas, the stock exchange's project manager, said all the pieces should be in place for the launch but that companies themselves are the hardest to convince of the need for a market.


"The banks want to have a stock exchange and the companies don't really care," she said.


As elsewhere in Eastern Europe, Estonian companies are sometimes reluctant and slow to release information to the public due to a suspicion that it could be used by competitors and a secretiveness over their activities that is a hang-over from the Soviet period.


The Estonian stock market is aimed at channeling more investment to the economy, expected to grow around 5 to 6 percent this year.


It already has the best track record of the Baltic states in foreign direct investment, having taken in more than $250 million in 1994.


As the market for fixed-income products is thin, banks are hoping that foreign funds will flow to equities.


But the Estonian exchange already has a competitor in Helsinki, where brokers are considering the start of a Baltic list. Estonia's largest bank, Hansapank, is already quoted there.


Meigas said turnover in Hansapank is still much bigger in the Tallinn OTC market, so the idea of quoting companies in Helsinki is unlikely to succeed.