Mid-June 2010 in Slovenia could be summed up as a collision between a wave of optimism and a wave of negativity. While the football team's trip to South Africa was cause for happiness, turning to the financial pages of the newspapers couldn't help but lead to depression. Day after day there was news of losses on the Ljubljana Stock Exchange. When it closed on 12 June, so too did its fourth negative week in a row. The SBI TOP index of big companies was hit particularly hard.
So what is the problem? Why are the losses so consistent and the gains so shortlived? According to Heinrich Schaller, head of Wiener Boerse, the issue is clear: it's a matter of liquidity. Speaking in Vienna at the beginning of June, the Chairman of the Stock Exchange's majority owner argued that the solution is more international institutional investors.
The fact is that Ljubljana Stock Exchange is not exactly short on institutional investors: such organisations own 48 percent of free circulation shares on the market. But more than 69 percent of them are domestic. It is this which Schaller believes must change. Attracting foreigners, Schaller argues, will prevent the Exchange's existing big players from moving to other markets.
So if this is the solution, the question quickly becomes clear: how does the Exchange attract the foreign institutional investors? Ljubljanska Borza, the owners of the stock market operator, hope one answer to that question might be electronic securities trading system Xetra. The system, which is already used by more than 250 financial firms and more than 4,800 stock brokers, can be directly accessed by investors from 18 countries in Europe and the Middle East. It should help expand the selection of market orders, in turn contributing to the internationalisation of the LSE, so making it more competitive.
No magic wandThe current plan is to introduce the system, expected to cost a few hundred thousand Euros, on 17 September. But Schaller says expecting an immediate improvement in the Exchange's liquidity is foolish: "It is a process that takes months, even years," he warns.