The year 1996 was the penetration year in the development of the Estonian securities market, marked as it was by the opening of the Tallinn Stock Exchange on 31 May. By year-end its TALSE index had risen 60.3 percent.

Trading grew considerably and the environment became more regulated over the year. Shares and bonds became a real alternative to bank loans for companies seeking new capital and the number of firms providing investment and securities mediation services increased.

This momentum continued into 1997 but by spring the stock market was showing signs of overheating. A lot of cheap loans had come into Estonia via the country’s commercial banks and a significant amount of that money found its way into the exchange. The leading banks had also begun to write share options, increasing the role of financial leverage on the stock market.

The rise in share prices peaked in September. But in late autumn the south-east Asian financial crisis and foreign investors’ concerns over the Estonian current account deficit tipped the balance. The flow of cash to Estonian banks stopped. The crash came in October. But even so the TALSE index increased by 63.6 percent over the whole year.

The fact that investors did not lose the trust towards the Estonian stock market can be proved by the figures showing remarkable rise of activity in opening securities accounts at ECDS. During the period from August 1996 to August 1997 the number of valid securities accounts rose by 19,088 (from 32,922 to 52,010), while the number of securities accounts with positive balance by 12,073 (from 24,989 to 37,062). At the end of last year 94% of valid securities accounts belonged to individuals. Individual investors’ share in the market capitalisation of Tallinn Stock Exchange reached from 9% in summer 1996 almost to 13% by the end of 1997.