Comparison of Prague and Warsaw Stock Exchange and the Assessment of their Possible Merger

Abstract

Financial system helps to transfer money in the economy from those who want to invest to those who need them. Part of this system are stock exchanges which went through big changes since the start of developed financial markets. Few decades ago in the US were many stock exchanges, now there are only the big ones. This is starting to happen in Europe. Consolidation is often mentioned term and it is also one way to overrun competition and to survive. This study is focused on two market in Central and Eastern Europe, Prague Stock Exchange and Warsaw Stock Exchange. The objective is to compare them, analyse how effective there are and also to analyse whether they should merge or not. This study researched that main thing that affects competitiveness of stock markets is their liquidity. Liquidity affects all other factors like number of issues, or market capitalization. With this finding, study is mostly focusing on liquidity in analysis and comparison of the two markets. For this analysis were used official statistics from stock exchanges and also to validate or disprove our findings, two Czech stock market experts were interviewed. This also helped to answer the question about possible consolidation. The conclusion of this study is that the Prague Stock Exchange should focus on its strategy and effectiveness. One possible way could by consolidation with Warsaw Stock Exchange, but the most important thing is strategy. Consolidation offers opportunity for restructualization to increase effectiveness and liquidity. There is no effective merge without effective new strategy, but there could be effective strategy without merger. PSE needs to explain the advantages of public offers to private companies, needs to be attractive form of access to new money. With strategy comes improved presentation, with effective presentation come new investors and companies and with that comes improved liquidity. In addition stock exchanges should focus on increasing their efficiency, rather than raising more capital.