Despite the autumn’s fall in stock prices 1997 was successful both for the TSE and the whole Estonian stock market. The average daily turnover in securities was EEK 86.3 million - a 460 percent increase compared to 1996. Total turnover for the year was EEK 21,836.8 million and the stock index rose 65.5 percent, ending the year at 265.35 points.
By year-end the market capitalization of securities traded on the TSE had increased by 80 percent, from EEK 9 billion to EEK 16 billion, and accounted for 30 percent of Estonia’s GDP of 1996. There were 14 new joint stock companies listed, 6 on the Main List, 8 on the Secondary List. 2 companies entered the free market. The shares of 27 joint stock companies and nine compensation fund issues were traded on the TSE, one of which was entered on the Exchange in 1997. Three funds were listed. Ten new members joined the TSE in 1997, raising membership to 25.
New computer software was introduced to the trading system, significantly increasing its speed and efficiency. There was also a tender between the Exchange’s trading system’s network providers. The aim is to centralize network monitoring and guarantee the network’s gradual complete duplication at the physical channels and hardware level. This work should be completed in 1998.
Regulatory changes made throughout the year increased the Exchange’s transparency. The rules and regulations concerning “Listing Requirements” and “Requirements to Issuers” were significantly amended. There were 17 listing committee meetings throughout the year. Supervision has increased to guarantee availability of listed company information and the listing committee has imposed sanctions on all companies operating outside the rules and regulations. The year saw four companies fined a total of EEK 250,000 and seven were issued warnings. The TSE’s Arbitration Court started in 1997 and held two meetings.
The operating revenue of 1997 was EEK 8,848,019 which is 242% increase compared to 1996. The net profit for the accounting year was EEK 2,671,635. The transaction fees made the major part (74%) of the net sales and revenues of the Exchange in 1997 (EEK 6,321,550 were received from transaction fees). From the membership fees of 1997 EEK 435,000 were calculated as net sales and revenues which made 5% of the net sales and revenues. The listing fees in the amount of EEK 500,000 were received and the annual payments of listed companies were EEK 968,540 which made up 6% and 11% from the net sales and revenues respectively.
The TSE’s operating expenses for 1997 were EEK 4,970,173, a 61 percent increase compared to 1996. Salary costs accounted for 28 percent from operating expenses (EEK 1,386,410). There was a doubling of employees to 14 by year-end, needed for new projects and the TSE’s increased activities. The average number of employees over the year was 8.5. The chairman of the board received EEK 250,702 as salary. No salary was paid to other management board members or members of the supervisory board. Other operating expenses came from consultation and service fees owed the Estonian Central Depository for Securities.
Interest on money market funds has been recorded as financial income. Unrealized loss from stock funds investments has been recorded as financial expenses incurred through the overall stock market decline during the second half of 1997. Fund units have conservatively been recorded on the balance sheet - at net value or acquisition cost and the loss from the discount has been recorded as a financial expense.
The balance sheet total increased to EEK 9,650,284 in 1997, a 134 percent rise compared to 1996. Current assets saw the largest growth, 164 percent. The increase of cash and bank deposits was brought about by the contributions of new Exchange members to the guarantee fund (EEK 1,020,000). Short-term investments are recorded as marketable securities and saw a 279 percent increase compared to 1996. Customer receivables include listed companies’ annual payments and the amounts received from transaction fees. The main investments in fixed assets was EEK 332,235 spent on office expansion.
Supplier payables increased 42 percent compared to 1996, mainly due to an average increase in operating expenses over the year. Annual fees paid by stock exchange members in 1997 have been recorded as prepaid income. Owners’ equity at year-end was EEK 4,880,685, a 169 percent increase compared to 1996, coming mainly from the year’s profit. A EEK 200,000 increase in share capital resulted in a growth of owners’ equity.
The TSE sees member supervision as one of its primary tasks in 1998. To that end the “Membership Requirements” in the Rules and Regulations will be amended and a Surveillance Committee founded. Also the trading system will continue to be developed and there will be significant investments in the security of the system. The TSE also intends to start trading in derivative instruments in 1998.
Helo Meigas
Chairman of the Management Board
