1Budapest Stock Exchange

Reinventing capital marketsin Hungary

The strategy of the Budapest Stock Exchange

International roadshow, June 17, 2002

György Jaksity

Member of the Board of the BSE Ltd.

2Budapest Stock Exchange

Key points

The growth and development of the Hungarian capital market has reversed in the last 2-4 years

The BSE has adapted to the new situation but was unsuccessful in govt. lobby

There is an opportunity that the new government and financial intermediaries work together to develop capital markets in Hungary

The new Board aims to increase domestic capital market investments, new listings and integrate the BSE with European stock exchanges

3Budapest Stock Exchange

Why has the growth of BSE stopped?

Overly biased development of the banking sector at the expense of capital markets and long term savings in the last ten years

Former government’s unfriendly attitude to markets and issuers, halting of pension reform

Slow and inappropriate enaction of modern financial regulation and supervision

Continuous financial market crises (Far East, Russia, Brazil, Argentina, Nasdaq etc.)

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Capitalisation and turnover of BSE

0

500

1 000

1 500

2 000

2 500

3 000

1995 1996 1997 1998 1999 2000 2001 2002

US

D m

illi

on

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

US

D m

illi

on

Monthly equity turnover (left scale) Equity capitalisation (right scale)

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Performance of BUX and MSCI emerging market indices

0%

20%

40%

60%

80%

100%

120%

140%0

5.9

7

08

.97

11.9

7

02

.98

05

.98

08

.98

11.9

8

02

.99

05

.99

08

.99

11.9

9

02

.00

05

.00

08

.00

11.0

0

02

.01

05

.01

08

.01

11.0

1

02

.02

EM Global EM Eastern Eu BUX

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The BSE’s reaction Reshuffling of management

Cost cutting and rationalisation stabilised the financial situation

Generating more revenues from information vending, transaction and issuers’ fees did not compensate for a 60% fall in trading in 2001

Easier facilitation of listing and marketing, still no new listings

New products resulted in marginal activity

Continuous lobby and support of the legislative process

International co-operation and preliminary talks about the European integration progressing well

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The tasks of the new BoardThe BSE was converted into a limited liability company and a new

Board was elected in April 2002 Campaign aimed at domestic investors to enhance long term savings

and investing in capital market instruments

Co-operate with new government in helping capital markets develop further in Hungary and continue support to improving financial regulation

Strengthen the integrity of the BSE and KELER

Integrate the BSE (co-ordinated with KELER) into the framework of European stock markets

Continue with active marketing and investor relations on an international level together with all market participants (eg road-shows)

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Hungarian savings structure

380 1 406 40 150 120 85

425 1 766 78 218 135 134

554 2 193 206 408 283 211

657 2 614 268 571 302 341

828 2 927 365 730 240 551

875 3 271 463 819 273 818

979 3 767 573 877 177 1 076

0% 20% 40% 60% 80% 100%

1995

1996

1997

1998

1999

2000

2001

Cash Deposit investment fund

Government sec. Listed shares Insurance/pension f.

Source: NBH statistics

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Domestic campaign and marketing

First of all unite the efforts of ALL financial intermediaries to achieve a common goal

Increase people’s awareness for self care and need to save for long term, and invest in private plans

Convince savers about the need for higher risk and higher real return instruments such as equities and mutual funds

Inform households about how financial institutions can help them optimise on financial planning

Promote long term saving and investment instruments and services

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Working with the new government

Continuing support to the development of the Hungarian financial regulation

Help the new government enact steps to improve The attractiveness of capital markets for investors and issuers Motivation of local institutions to be more active in the equity

market Taxation for capital market participants The profile and efficiency of the Hungarian financial industry and

markets The international image of the Hungarian economy and markets

11Budapest Stock Exchange

Increase integrity with KELER

The Hungarian market has a modern trading, settlement and clearing system which operates with a clean history

There are opportunities for joining forces in technology, administration, joint product development and seeking of synergies

European integration requires harmonised strategies, development and operation

The shareholder structure of both firms may change in the future, but should support the above goals

12Budapest Stock Exchange

International and EU integration

Our aim is to increase both inward and outward business through the BSE, and improve services provided to our clients

The BSE has actively sought strengthening relations with stock exchanges in the region and Europe.

We have investigated ways to co-operate with alternative markets and technological platforms

We have held discussions with representatives of most European exchanges and alliances

We are looking at all alternatives jointly with KELER

We can conclude our first agreement within a year

13Budapest Stock Exchange

The network of European markets

London

NASDAQ

NOREX

Stokcholm, Koppen-hagen, Oslo, Izland

Amsterdam

Brussels

Paris

Frankfurt

HelsinkiBaltics

Ireland

EuroNext

Portugal

Italy

Vienna

NEWEX

Warsaw

Budapest

Prague

Ljubljana

Bratislava

Madrid

XETRA

Virt-X

Tradepoint

SWX

New York, Toronto, Mexico, Tokyo,

Australia, Hong Kong

EASDAQ

EUREX

DB, HEX, SWX

GLOBEX: MATIF, CME,

Montreal

GEM

?

?

iX

Neuer Markt

Jiway

Luxemburg?

LIFFE