Growth and Change - 2007 - W JCIK - Geography and The Future of Stock Exchanges Between Real and Virtual Space

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Growth and Change
Vol. 38 No. 2 (June 2007), pp. 200–223
Geography and the Future of Stock

Exchanges: Between Real and Virtual Space
DARIUSZ WÓJCIK
ABSTRACT This paper aims to contribute to the debate on the future of stock exchanges and
financial centres by focusing on two questions. First, whether, how, why, and which stock exchange
activities are prone to concentration in financial centres? Second, are they prone to concentration
in national or international financial centres? Through a detail-rich analysis of stock exchange
activities, including trading system, as well as relationships with members, issuers, and investors,
the paper suggests a framework for the geography of stock exchange activities based on two
dimensions—proneness to concentration in a financial centre and proneness to international
consolidation. With this framework, predictions are made about the future geography of stock
exchange activities led by the argument that while significant geographical reconfigurations are
likely to unfold, driven primarily by the development of international networks of stock market
institutions, stock exchanges, and financial centres will remain crucially important for each other.
Introduction
O nce upon a time, stock exchanges were associated with financial centres so strongly
that the two terms could be used almost interchangeably (Warf 1989). As traders had
to come together in a place and at a time to do business and exchange information, stock
Dariusz Wójcik is a lecturer at the Oxford University Centre for the Environment, and a Fellow of
St. Peter’s College, Oxford, New Inn Hall Street, Oxford OX1 2DL, UK. His e-mail address is:
dariusz.wojcik@ouce.ox.ac.uk. An earlier version of this paper was presented at the Royal Geographi-
cal Society—Institute of British Geographers Annual Conference in London, 2005, at a session
organised by Jonathan Beaverstock, James Sidaway, and me. I would like to thank Wiesław Rozłucki,
former president of the Warsaw Stock Exchange (WSE), for access to the Exchange’s resources. I have
also benefited from conversations with other executives of the WSE and capital market experts
including Lidia Adamska, Fernando Bicho, Jarosław Dominiak, Bartosz Drabikowski, Mirosław
Dusza, Raimondo Eggink, Ewa Gajewska-Markiewicz, Waldemar Ge˛buś, Krzysztof Grabowski, Marcin
Hejka, Łukasz Jagiełło, Norbert Jeziołowicz, Mirosław Kachniewski, Beata Kacprzyk, Adam Kałdus,
Stanisław Knaflewski, Alicja Kornasiewicz, Wojciech Kostrzewa, Jarosław H. Kozłowski, Jan Kuźma,
Marek Łukaszewski, Adam Maciejewski, Krzysztof Opawski, Paweł Orkisz, Jakub Papierski, Wojciech
Sadowski, Ludwik Sobolewski, Andrzej Sopoćko, Iwona Sroka, Piotr Szeliga, and Andrzej Szerszeń.
I would also like to thank Gordon L. Clark, Thomas R. Leinbach, and two anonymous referees for their
comments. Financial support from Jesus College, Oxford, is gratefully acknowledged.
Submitted January 2006; revised August 2006, November 2006; accepted

November 2006.
© 2007 Blackwell Publishing, 350 Main Street, Malden MA 02148 US and 9600
Garsington Road, Oxford OX4, 2DQ, UK.
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GEOGRAPHY AND STOCK EXCHANGES 201
exchanges depended on the concentration of trading in space and time (Laulajainen 2003).
With time, technology has provided computers and their networks to match buy and sell
orders, making physical places for trading redundant. Stock exchanges, however, persisted
in national financial centres for a period until the regulatory barriers to trading, clearing,
and settlement across borders were effectively demolished, exposing national exchanges
to genuine competition (Lee 2002). Now, the only constraint left was time, with each
major eight-hour time zone willing to start trading when the other zones want to go
home or to sleep. With more time, however, even the physical geography was partly
overcome by concentrating trading within systems operated by global financial firms
present in all major time zones, allowing trading for twenty-four hours a day (Clark and
Thrift 2005).
Will this fairy tale be true? Can we observe or expect the fate of stock exchanges to
be divorced from the fate of financial centres? This paper is an attempt to contribute to
the debate on the future of stock exchanges and financial centres by focusing on two
questions. First, whether, how, why, and which stock exchange activities are prone to
concentration in financial centres? Second, are they prone to concentration in national or
international financial centres? Due to the scarcity of geographically focused research on
how stock exchanges actually go about their business (Laulajainen 2001), the paper takes
an empirical, bottom-up approach, and its core is based on the case of the Warsaw Stock
Exchange (WSE or the Exchange). With the relatively small size of the exchange located
in the largest economy that joined the European Union (EU) in 2004, the paramount role
of foreign ownership in the financial sector of Poland, and the process of adopting EU
regulations, Warsaw is a hotly debated spot on the map of European stock exchanges
(Claessens, Lee, and Zechner 2003). The main objective of the paper is to provide
an empirical, detail-rich account of the geographical nature of stock exchange activities
and then use this account to draw some general implications about the relationship
between geography of stock exchange activities and geography of financial centres. This
relationship is significant not only for academics but also for finance practitioners and
public policy makers trying to understand the factors affecting the interrelated futures
of finance and economic development in space (Budd 1995; Leyshon 1995, 1997;
O’Brien 1992).
The following section defines stock exchanges and their activities as well as identifies
the literature relevant for analysing the geographical nature of these activities. Section three
introduces the WSE, describing its development, position in the European stock exchange
landscape, structure, as well as detailing the research methods used to gather information
on the activities of the WSE. Sections four to six investigate the geographical coordinates
and characteristics of various activities of the WSE, starting with the trading system and
relationships with exchange members, through relationships with issuers, to interactions
with investors. Section seven attempts to draw some implications from the case study for
the debate on the future geography of stock exchanges and its continued or discontinued
links with the future geography of financial centres. Section eight summarises and con-
cludes the paper.
202 GROWTH AND CHANGE, JUNE 2007
Geography of Stock Exchanges—Insights from Research Literature

A stock exchange can be defined as “an organised market for the buying and selling of
securities” (Moles and Terry 1999:520). In order to organise the market, the business of
exchanges precedes the instant of trade order execution and extends beyond. The World
Federation of Exchanges (WFE) lists the following major stock exchange activities: writing
the rules for market activity and their enforcement, admitting intermediaries, admitting
securities to listing, assuring disclosure of corporate information, setting up information
technology (IT) and communication systems facilities, diffusing market information to a
wide public, trading, assuring prompt and final clearing and settlement of orders, providing
for securities registry, transfer agent, and depositary activities (WFE 2003b:3). To be sure,
the scope of activities varies from one exchange to another. Moreover, there is a heated
debate whether stock exchanges should be required by law or regulation to perform certain
functions, e.g., admission to listing, or whether they should be allowed to focus as closely
as possible on trading itself (Lee 1998; Steil 2001).
Research on the geography of stock exchanges has to consider the fundamental con-
cepts of economies of scale, scope, and agglomeration. There is a large body of literature
in financial economics and economic geography that demonstrates the significance of these
economies in the financial services sector (Davis 1990; Gehrig 2000; Kindleberger 1974;
Porteous 1999). It explains the vertical (across products and services) and horizontal
(across places) consolidation of financial services firms, and their concentration in financial
centres, based mainly on the sharing of wide and deep labour pools, sets of suppliers of
advanced services (including law and IT firms), telecommunications infrastructure, and
information spillovers.
Economies of scale, scope, and agglomeration are all relevant for stock exchanges.
Their core functions, i.e., the matching of buy and sell orders and price discovery,
involve large fixed expenditure on technology, leading to significant economies of scale
(Pirrong 1999). Economies of scope are significant as well, with the trading of equities,
for example, creating opportunities for the creation and trading of derivative financial
instruments based on individual equities and equity indices.1 The existence of economies
of scale and scope in stock exchange activities has been proven by empirical research
(Hasan and Malkamäki 2000). In particular, Malkamäki’s (2000) analysis covering
thirty-eight exchanges between 1996 and 1998 suggests that while significant scale
economies exist with respect to trading, the scale advantages in activities involving issuer
specific information are not clear. Based on these findings Malkamäki argued the benefits
of centralisation of the electronic trading function and continued realisation of other
functions on a decentralised basis.
With regard to external economies of scale and scope as well as agglomeration econo-
mies in stock exchange industry, there is rich literature demonstrating that proximity breeds
stock market relationships (Green 1993; Klagge and Martin 2005; Martin and Minns
1995). In particular, it shows that investors tend to hold, trade, and obtain superior returns
from securities, the issuers of which are “close” to investors in such terms as distance and
language (Grinblatt and Keloharju 2001; Hau 2001; Wójcik 2002). While evidence is
offered on the significance of proximity between issuers, investors, and traders, the litera-
ture remains silent about the role of a stock exchange. In an attempt to fill this gap Lo and
Grote (2002) suggest that in contrast to the mutual proximity of traders, investors, and
issuers, which remains important, the location of the stock exchange will lose significance
in the future. This is however a partial answer, as Lo and Grote restrict their analysis to the
trading function of a stock exchange, a virtual space in which sell and buy orders are
matched. In order to test the proneness of stock exchange activities to the concentration in
financial centres, another important question needs to be tackled. How does a stock
exchange, as an operator of the trading system, make companies enter their securities into
the system, and make investors and traders use the system? A geographical analysis of the
relationships of a stock exchange with issuers, investors, and traders is one way to address
this issue.
There are many aspects of relationships between stock exchanges and issuers, investors,
and traders that can affect the location of a stock exchange. These include the sharing of
infrastructure, labour pool, suppliers, and customers. The strategy of this paper is to focus
on the role of face-to-face contact between a stock exchange on one side and traders,
issuers, and investors on the other. It is well established in literature that business organi-
sations in financial centres are sociable, with contacts being “crucially important in gen-
erating and maintaining a flow of business and information about business” (Thrift
1994:333). While these organisations spend huge resources on communications technol-
ogy, the technical connectivity does not lessen but rather adds to their hunger for social
connectivity (Gaspar and Glaeser 1997; Lee and Schmidt-Marwede 1993; Sassen 2005).
Thus, one way to analyse the proneness of stock exchange activities to concentration in
financial centres is to document the nature of their external contacts, and the relative role
of technical vs. social connectivity. Another major observation from this literature is that
financial centres must not be reduced to sites of a myriad of financial and related businesses
engaging in relationships with each other. What must be added to this picture is the
increasing role, if not dominance of, a handful of international financial corporations
spanning various financial centres (Amin and Thrift 1992; Clark 2002). The lesson for this
paper is that following the contacts between a stock exchange on one side and the traders,
issuers, and investors on the other, it must be remembered that all of these actors, including
the stock exchange itself, can be members of international networks based on ownership,
strategic collaboration, or other links. It should be added that while the network approach
has been applied to study financial centres (Beaverstock et al. 2003; Faulconbridge 2004;
Taylor, Walker, and Beaverstock 2002), no existing work focuses on stock exchanges.
Research questions addressed in this paper refer to the proneness of stock exchange
activities to concentrate in financial centres. The term “stock exchange activities,” not
“stock exchange” is used, as the paper focuses on the location of people and equipment
carrying out stock exchange functions, not on the location of the headquarters of a stock
exchange. In other words, the emphasis is on where and how stock exchanges operate, not
on their ownership structures. This distinction is particularly important given the existence
of international stock exchange structures such as the Euronext, integrating stock exchange
activities in many places, or the possibility of stock exchanges becoming subsidiaries of

global investment banks. Such developments will be discussed in the penultimate section
of the paper.
A review of relevant literature could be extended in at least three directions: one is by
being concerned with liquidity in stock trading; another is by stressing the political nature
of stock exchange business, its relationships with the state, including legal and regulatory
issues (Majury, forthcoming; Tickell 2000); and yet another is by focusing on the labour
markets of financial centres (Leyshon, Thrift, and Justice 1993). These themes, although
addressed where most relevant, are not the main focus of this paper. To summarise, the
intended contribution of the paper is, first, to “animate” stock exchanges as actors in
relation to other major actors in the stock market—i.e., members, issuers, and
investors—by focusing on stock exchange activities that involve these actors. Second, the
paper analyses the geographical nature of stock exchange activities by describing where
and how they take place in virtual or real space. Third, stock exchange activities are put in
the context of location of other actors on the stock market, recognising that the latter can
be part of international networks. As this contribution is offered mainly through a case
study of the WSE, the following section introduces the WSE, presenting its origins,
development, position within the structure of the Polish capital market, and internal
organisation.
The WSE and the Polish Capital Market

The WSE was first created in 1817, ceased its operations in 1939, and was recreated
after the fall of communism in 1991, when it started an electronic trading of shares of five
formerly state-owned companies. Although in the first half of the 1990s, the Exchange was
admitting mostly privatised companies, in the second half of the decade, companies that are
private from their inception started to dominate at least in terms of numbers. Table 1
presents the recent development of the WSE in comparison with other major exchanges in
Central and Eastern Europe in Budapest and Prague. The WSE is by far the largest of the
three exchanges. At the end of 2005, market capitalisation of domestic companies at the
WSE was higher than the combined figures for Budapest and Prague, but behind Vienna,
Athens, or Dublin, and accounting for approximately 0.8 percent of the total market
capitalisation for all European stock exchanges.2 All three exchanges have been developing
rapidly, with no slowdown in the recent years, indicating significant growth potential of the
domestic stock markets. In 2004 and 2005, the WSE recorded seventy-one newly listed
companies, and in this respect, in Europe was outperformed only by the London Stock
Exchange. At the end of 2005, the WSE listed 255 companies, including 248 domestic and
seven foreign. The WSE trades not only equities—i.e., shares of companies—but also
treasury and corporate bonds, as well as derivative and other financial instruments.
As the paper is based on the analysis of the activities of the WSE that involve other
actors on the capital market, it is useful to present its position within the structure of the
Polish capital market (Figure 1). To start with the WSE has an ownership stake in the
MTS-CeTO, a company organising a regulated off-exchange market, conducting mainly
TABLE 1. RECENT DEVELOPMENT OF THE MAJOR EXCHANGES IN CENTRAL AND

EASTERN EUROPE.
2000 2001 2002 2003 2004 2005
Domestic market capitalisation at year end (millions €)

Budapest 12,810 11,565 12,493 13,228 21,039 27,586
Prague N/A 8,999 9,796 12,288 21,720 31,059
Warsaw 33,761 28,846 27,055 29,350 51,888 79,353
Number of domestic equity trades (annual)
Budapest N/A N/A N/A 710,757 728,110 1,104,824
Prague N/A N/A N/A 161,759 233,464 442,064
Warsaw N/A N/A N/A 2,660,975 3,632,477 4,652,116
Source: My compilation is based on the data from the Federation of European

Stock Exchanges.
N/A, not available.
FIGURE 1. THE BASIC STRUCTURE OF THE POLISH CAPITAL MARKET

Source: WSE (2005).
wholesale transactions in treasury bonds and bills. The WSE is also a co-owner of the
National Depository for Securities (NDS), which handles clearing and settlement for
securities and maintains securities in the form of computer records. Only institutions
admitted by the Exchange, called exchange members, mainly brokerage houses and banks,
TABLE 2. THE NUMBER OF MAJOR INSTITUTIONS ON THE POLISH CAPITAL MARKET

ACCORDING TO THE LOCATION OF HEADQUARTERS AT THE END OF JUNE
2005.
Group of institutions Warsaw Total Foreign Warsaw/total

domestic domestic
Issuers 83 238 6 0.35

Members of the Warsaw Stock 18 24 4 0.75
Exchange
Brokerage institutions 30 40 218a 0.75
Custodian banks 13 16 0 0.81
Investment Funds Management 17 20 19a 0.85
Companies
Pension Funds Management 15 15 0 1
Companies
a
These figures refer to notifications received by the PSEC, and so do not neces-
sarily represent institutions operating in Poland. In particular, nineteen foreign
investment funds from the EU member countries notified the PSEC about their intent
to sell investment units in Poland, and 149 investment firms and 69 banks from the
EU notified the PSEC about their intent to render investment services in Poland.
Notes: Issuers—issuers whose shares are traded on the main and the parallel
market; Brokerage institutions—brokerage houses and banks with permission to
conduct brokerage activities.
Source: My calculations are based on the data from http://www.gpw.com.pl and
http://kpwig.org.pl.
PSEC, Polish Securities and Exchange Commission; EU, European Union.
may operate on the Exchange. This means that investors and intermediaries (e.g., brokerage
houses that are not members) must send their orders to the Exchange via an exchange
member. Exchange members use custodian banks to handle the records of securities on
their proprietary accounts and the accounts of their customers. Finally, the overall super-
vision of capital market institutions is conducted by a state administration agency, the
Polish Securities and Exchange Commission (PSEC). The supervision is intended to ensure
universal access to reliable information on the securities market and observance of fair-
trading and competition rules by entities operating in that market.
Table 2 presents the location of headquarters for major groups of institutions operating
on the Polish capital market, including the management companies of investment funds and
pension funds as major institutional investors. Regarding domestic institutions, Warsaw,
which accounts for less than 5 percent of Poland’s population, is the seat of approximately
35 percent of listed companies, and between 75 and 100 percent of other types of
institutions. The remaining organisations from Figure 1, i.e., the MTS-CeTO, the NDS, and
the PSEC are also located in Warsaw, with the MTS-CeTO and the NDS housed in the same
building as the WSE. Turning to foreign-based institutions, the WSE listed six foreign
companies and in the first half of 2005 admitted four foreign members, the first of which
started operations in July 2005. The numbers of foreign brokerages and foreign companies
managing investment funds exaggerate the role of foreign-based institutions, as the figures
stand for firms that merely registered their intent to operate in Poland. There are further
reasons to interpret the results of the table with caution. First, if the size of the analysed
institutions or some measure of their activity were considered, e.g., revenues, the concen-
tration of capital market functions in Warsaw would be even more striking. On the other
hand, many domestic institutions covered in the table have branches spread throughout the
country. Finally, a decisive majority of the institutions counted as domestic is controlled by
foreign owners (Rogowski 2005). While a study of the branch networks as well as the
ownership and control links of Polish capital market institutions is beyond the scope of this
paper, Table 2 offers a quantitative background for a qualitative analysis of the relation-
ships of the WSE with both domestic and foreign actors on the capital market.3
To complete the background for the analysis of the WSE activities, its internal structure
has to be added. The WSE was founded by the State Treasury, which still holds a
98.8 percent stake in the Exchange, making it the only state-owned stock exchange in
Central and Eastern Europe. In 2005, the Treasury was intending to privatise the WSE and
it commissioned a privatisation advisor, a consortium of McKinsey & Company Poland,
Ernst & Young Audit, and CDM Pekao SA (brokerage house of a leading Polish bank, now
a part of Unicredito HVB Group). Minority shareholders consisted of banks, brokerage
houses, and a listed company. The highest decision-making body of the Exchange is the
General Meeting of Shareholders, which among other powers can amend the WSE Articles
of Association, and elects the members of the Exchange Supervisory Board as well as the
President of the Exchange Management Board. While the Supervisory Board controls
exchange operations, granting and revoking Exchange membership, the Management
Board coordinates the day-to-day operations, admits securities to trading, and supervises
the trading activity of members (WSE 2005). The Exchange employs a total of approxi-
mately two hundred people, divided into nine departments. The functions of the Trading
and Market Development Department include the supervision of trading sessions; the
development of indices, information products, and derivative instruments; and relation-
ships with members. The Information Technology Department looks after trading and
operating systems, databases, network management, and security; the Listing Department
handles relationships with issuers. The remaining departments are Market Promotion,
Legal, Financial, Strategic Development, Administration, and Secretariat of the Exchange.
I use insights gained through a total of twenty interviews with members of the Exchange
Management Board, Supervisory Board, directors, and employees of individual depart-
ments, devoted to both strategic issues as well as everyday activities of the Exchange.
Interviews with insiders were complemented by over twenty interviews with the executives
of other institutions on the capital market such as issuers, banks, brokerages, pension, and
investment fund management companies, and were focused on these organisation’s rela-
tionships with the WSE. All interviews were conducted in March and June 2005. In
addition, I participated in two conferences organised by the WSE, one on derivatives,
addressed to investors, and the other on the access of small- and medium-sized firms to
capital market, addressed to issuers. The forthcoming sections summarise activities of the
WSE under three headings: the trading system and the relationships with members, rela-
tionships with issuers, and relationships with investors.
The Trading System and Relationships with Members

Since November 2000 trading on the WSE has taken place using the Warsaw Stock
Exchange Trading System (WARSET). Similar systems are in use on a number of
exchanges worldwide (WSE 2005). A simplified description of the architecture of
WARSET, illustrated with Figure 2, starts with an investor placing an order at a brokerage
house (or a bank offering brokerage services). In 2004, approximately 50 percent of
transactions were placed via Internet, with the other half placed at a customer service point
of a brokerage house. Next, the order is forwarded via interface software to the central
computer Tandem, which is the heart of WARSET receiving all orders, checking their
validity and matching them. Order matching is subject to one of two systems. In the first
system, called a single price auction and applied to shares and other instruments for which
liquidity is relatively low, all transactions are executed at a single price determined on the
basis of all orders entered into the system. The procedure of price determination and
transaction execution takes place twice a day. In the second system called continuous
trading, and applied to instruments that sustain higher liquidity, an order can be executed
any time during a trading session between 10:00 a.m. and 4:00 p.m., once there is an
appropriate opposite order in the system. In addition, on an ongoing basis Tandem calcu-
lates the value of indices, including WIG20 index based on the stock prices for twenty
largest companies listed on the WSE in terms of market capitalisation and liquidity.
Information about executed transactions is sent by Tandem to the NDS, which ensures
clearing and settlement. Information about executed transactions and indices is sent by
Tandem to a satellite market data distribution system, whereby it is forwarded to brokerage
houses, the PSEC, and information vendors including Reuters and Bloomberg, the Polish
Press Agency, as well as Internet portals.
Thus far, the technical aspects of the connections between the building blocks of the
WSE trading system have been described. The question is whether any social connectivity
is needed on the top of technical connectivity for the trading system to function properly.
In order to tackle this issue, the paper will focus on the relationships that are central to the
architecture of the trading system—those between the Exchange as the system operator and
Exchange members. Recall that only Exchange members can operate on the WSE; i.e., only
they can trade on their own or their client’s accounts. Recall also that a typical Exchange
member is a brokerage house or a bank offering brokerage services. In 2004, however, the
list of entities entitled to become members was extended to include banks not offering
brokerage services as well as foreign investment firms conducting brokerage business in
FIGURE 2. THE BASIC ARCHITECTURE OF THE TRADING SYSTEM AT THE WARSAW

STOCK EXCHANGE.
Source: WSE (2005).
Poland from abroad using remote communications systems without obligation to have a
branch in Poland. While the former have been admitted to membership only to engage in
the trading of one specific type of instrument—treasury notes futures—the access of
remote members to trading is in legal terms equal to the access of Polish brokerage houses.
One other category of members, which is important for our analysis, is that of market
makers, which undertake to place sell and buy orders for a given security on their own
account with a view to maintain and increase its liquidity.
Remote membership represents an important step in the adoption of EU regulation on

the single passport for investment services firms, and is of particular significance for the
WSE.4 The pool of domestic members is limited, with the ensuing consolidation of bro-
kerage industry driving the number of brokerage houses as well as banks offering broker-
age services down. Regulatory issues aside, the consolidation trend implies a growing
potential for an individual member or a group of members to match sell and buy orders
internally, without using the services of the Exchange. Given the pressure to acquire remote
members, the WSE does not simply wait until foreign investment firms knock at its door.
Instead, the Exchange seeks remote members among other means by approaching foreign
investment firms during road shows and financial trade fairs, e.g., in the City of London. In
the process of remote members’ acquisition, the role of facilitators may be performed by
Polish banks that render custodian services to foreign investment firms active on the Polish
stock market. By the end of June 2005, one Swedish, one German, one Czech, and one
Hungarian firm were admitted to the membership of the WSE, and the first started opera-
tions in July 2005. There were several more companies applying for remote membership.5
Interactions between the WSE and current Exchange members refer to both day-to-day
and routine operations as well as business development. Every day, a team at the WSE
oversees the trading session and has to react quickly to any technical issues or procedural
irregularities. Their decisions, e.g., about the suspension of trading in a particular instru-
ment, have to be communicated instantaneously to members. Another team is a help desk,
which communicates with members in order to resolve issues regarding the interface
between Tandem and members’ software as well as any problems regarding the distribution
of information from the WSE to the members. Again, the speed of problem resolution is of
paramount importance, and if a WSE employee knows a member employee well, it can be
helpful. Other not day-to-day but still routine activities include the renewal of contracts
between the WSE on one side and members and market makers on the other, as well as
involvement in the training and examinations for licensed brokers. In addition, there are
regular quarterly and extraordinary meetings of the Committee for Market Indices,
gathering mainly stock market analysts and investment advisors employed by Exchange
members, in order to advise the WSE on such issues as index methodology and changes in
the composition of financial instruments in an index.
To sum up, while remote membership implies that foreign investment firms do not need
to set up branches or subsidiaries in Poland in order to trade at the WSE, it does not
automatically lessen the need for social connectivity between members and the Exchange.
In a sense, domestic members of the WSE could also be called remote members, because
they do not need to be physically present at the WSE in order to trade. Social connectivity
between the Exchange and the members plays a particularly large role with regard to
activities aimed at business development of the WSE. While the acquisition of new
members has already been discussed, one should also consider activities related to the
design of information products, the derivative instruments, and the operations of the WSE
team responsible for the general development of the trading system. It has been stressed in
interviews that for these activities to be effective, people in those units have to know the
needs of the market, and to recognise these needs, they need good relationships with all
users of the Exchange services including members and market makers.
Relationships with Issuers

This section describes the relationships of the WSE with companies that issue securities
traded on the Exchange. It starts with the acquisition of new issuers, then discusses the
process of admitting new securities to listing on the WSE, and finally analyses relationships
with issuers whose securities are already listed.
To attract new business, the Exchange actively searches for potential issuers. The
Exchange maintains two databases: one with companies that have expressed their interest
in listing but have not yet applied for it, and the other with firms that have not expressed
such interest but due to their size and/or other characteristics are recognised as potential
issuers. Both of these groups, totalling hundreds of firms, are contacted by the WSE on a
regular basis with promotional materials, including success stories about recent issuers, as
well as invitations to events organised by the WSE. Apart from correspondence, the WSE
advertises itself to potential issuers through media, including trade press, both national and
regional in coverage. Together with trade press, associations of entrepreneurs, or indepen-
dently, the Exchange organises conferences and meetings with potential issuers. In 2004
alone, under names including “Road to capital” and “Small and medium firms in EU,” such
events numbered over twenty and took place in ten cities around Poland. The acquisition of
new issuers is a long-term process, and at the end of the day a company has to be convinced
that the benefits of listing on the WSE exceed the costs. Considering that each case is
specific, meetings of experts from the WSE with key representatives of a potential issuer,
including the chief executives, board members, controlling owners, and influential advisors
are crucial and indispensable. It may take many meetings spread over a couple of years
before a company decides to list if at all. The Listing Department holds on average three
meetings with potential issuers weekly, with an absolute majority of these meetings taking
place in Warsaw.
Admission of a company and its securities to the listing of the WSE is a process that
involves a number of legal and other formal requirements as well as various intermediaries.
Here, a simplified picture of the process is presented focusing on the relationships between
the issuer and the WSE. First, to have its securities traded in the WSE, a company must
prepare a prospectus, including the presentation of its financial situation and risk factors for
potential public investors, and apply to the PSEC, which makes the decision regarding
admission to public trading. The WSE receives the draft prospectus from the PSEC and
takes part in a meeting convened by the PSEC together with the representatives of the
applicant, its advisors including a brokerage house that assists the company in the going-
public project, the NDS, and other relevant regulatory authorities, with the objective of
discussing any issues that the applicant should address before the PSEC makes its final
decision. Provided that the decision of the PSEC is positive, the company can apply to the
WSE for admission to listing. An application is available online but a firm usually has
numerous questions for the WSE before its submission. Next, the Listing and the Legal
Departments of the WSE prepare opinions, which are considered along with the prospectus
and company’s application by the Exchange Management Board at a meeting usually
gathering the president of the Management Board of the applicant, its advisors, chief
financial officer, and representatives of the relevant brokerage house. A company can be
admitted to listing on the official (main) or unofficial (parallel) market, with requirements
on the former segment being stricter in terms of company’s size, track record, and expected
liquidity of shares.6 If the decision of the Exchange Management Board is negative, a
company’s shares can still be traded off—Exchange on the MTS-CeTO. If it is positive, a
company can make a debut in the WSE. The first day when a company’s shares are traded
in the WSE can be a colourful event, with new issuers celebrating their first step in the
world of “high finance,” not least for marketing purposes. Some executives are reported to
say that the debut of their company on the WSE is the happiest day of their life.
After the debut, interactions between the issuer and the Exchange revolve around
further capital market activities of the issuer as well as reporting. The former may involve
the issue of new shares or corporate bonds, a merger with a different company, or the
launch of an employee share ownership plan. E-mail communication is sufficient to assist
standard operations such as the division of the nominal value of shares. With non-standard
tasks such as the division of a company into parts, numerous meetings between the WSE
experts, company representatives, as well as financial and legal advisors may be necessary.
Moving on to reporting, the WSE receives all reports from issuers via a special purpose
electronic mail system. Issuers are obliged to submit periodic financial reports as well as
reports on relevant events, e.g., significant changes in ownership, changes in the compo-
sition of the decision-making bodies, or large contracts signed by the company. In the first
five months of 2005, the WSE received over eight thousand reports. Every employee of the
Listing Department is assigned between twenty and thirty companies and is responsible for
reading all reports coming from these companies, as well as deciding whether any action
should be considered in response to new information. Since the time allowed to make a
decision, e.g., to suspend the trading in some shares so that the public has time to learn the
news, is only a matter of minutes, it is crucial that the respective employee of the Listing
Department knows their companies well. The same news may trigger different decision
depending on the context. For example, if a company signs a large sales contract relative to
its size, the suspension of trading may be in order, unless the contract is a part of a series
of contracts that has been announced by the company earlier.
Reacting to corporate news may require consulting the source of information. Every
issuer has a person assigned as the contact person for the WSE. As the contact person needs
to be not only competent but also have some decision-making power, the role is usually
performed by a member of the management board or a person in charge of investor relations.
Moving on to another aspect of the relationship between the WSE and current issuers, special
treatment is afforded to the largest twenty of them, constituents of the WIG20 index, also
referred to as the “golden corporations.” Each of these companies has a contact person in the
Listing Department, referred to as a carer; has free-of-charge Internet access to real-time
quotations; and can organise a quarterly conference with analysts and investors free of charge
on the premises of the Exchange. Some other companies also organise their conferences with
analysts and investors at the WSE, and the latter organises seminars and conferences open to
all issuers on such topics as the International Financial Reporting Standards, corporate
governance, or the EU capital market regulations. Some of these conferences and seminars
are organised jointly with the Association of Issuers.
Summarising the section, the WSE is definitely not a passive provider of a trading system
for equity. Instead, it takes an active part in the creation of equity, thus creating demand for
its own services. Lowering the price of listing is not a sufficient tool to increase demand. In
fact, one of my interviewees cited a study according to which many companies stated the cost
of listing as the factor preventing them from approaching the WSE, but when asked about
their estimates of these costs, most companies did not have a clue. In a similar vein, other
interviews stressed that many potential issuers fear an entry into “high-finance” associated
with the “aggressive” world of scrutiny and professional advisors. In this context, the WSE
needs to reach to potential issuers and communicate with them as directly as possible. In
addition, the WSE attempts to ease the capital market entry by facilitating relationships
between companies and capital market intermediaries. In 2005, the Exchange introduced a
programme called “Partnership on the way to the exchange” aimed at small- and medium-
sized companies, with legal and financial advisors, auditors, brokerage houses, and public
relations agencies acting as partners of the programme. The analysis of relationships with
firms that already have their securities traded in the WSE also points to an indispensable role
of direct communication, combined with, but not substituted by, the use of technology.
To be sure, one must not forget the international factors affecting the relationships of the
Exchange with issuers. In the middle of 2005, there were six foreign issuers listed on the
WSE and a number applying for admission, taking advantage of simplified procedures
following the adoption of a single passport for issuers principle prescribed by the EU
regulation. On the other side, a number of large Polish companies listed on the WSE had
portions of shares listed and traded abroad, mainly in the U.S. and the UK. Not surprisingly,
the Exchange pays particular attention to tightening its relationships with the largest
issuers, and as it turns out, this involves intensified contact in both virtual and real space.
Relationships with Investors

Prior to an analysis of the relationships between the WSE and investors it needs to be
explained who the latter are. In 2004, foreign, domestic individual, and domestic institu-
tional investors accounted for 33, 35, and 32 percent of the total value of trading in shares,
respectively (http://www.gpw.com.pl). The structure of trading by investor group has been
quite stable since 2001. No definite data on the origin of foreign investors are available, but
it is safe to say that they are predominantly institutions operating from London. Regarding
domestic individual investors, at the end of 2004, there were approximately eight hundred
thousand individual investment accounts out of which approximately 30 percent recorded
any transactions in 2004. Among institutional investors, management companies investing
the assets of pension funds play the largest role and, at the end of 2004, were estimated to
hold at least €5 billion worth of Polish shares listed at the WSE. Their assets are not only
growing quickly, but are also captured in Poland, as foreign investments are not allowed to
exceed 5 percent of managed assets. Other institutional investors or individuals do not face
any major regulatory restrictions on their foreign investment.
Day-to-day interaction between the WSE and the investors involves the flow of stock
market information. To be sure, information needs vary from one investor to another. Many
individual investors are content with end-of-day summaries of price levels and indices.
Sophisticated investors, including most institutional investors, need to evaluate their port-
folios on an intra-day basis, minute by minute. Investors can obtain information directly
from the WSE or from one of the information vendors, to whom the WSE sells its
information. A considerable amount of information about all aspects of the WSE activities
including trading is available at its website, which contains approximately seven hundred
web pages with between two thousand and three thousand A4 pages of text and graphics.
In 2004 and 2005, the website had, on average, five hundred thousand visits a month. Data
on the latest prices and executed transactions are available online free-of-charge with a
fifteen-minute delay, or in real time at a fee. The website contains a price list of information
products, but the delivery and price for any non-standard products can be negotiated with
the Exchange experts.
While the flow of information products is mediated by telecommunications technology,
certain less day-to-day activities bring investors and the Exchange closer to each other in
real terms. On some occasions, representatives of the WSE go to meet investors, e.g., by
attending outside conferences and trade fairs for financial products or organising road-show
conferences abroad. The latter had the general objective of promoting the Polish capital
market and in 2004 took place twice in London and once in Boston. On a regular basis,
investors come to the premises of the WSE, whether to take part in conferences, seminars,
workshops on such issues as new financial instruments or taxation of capital gains, or to
attend an open day dedicated mostly to beginning investors. The Exchange also offers its
premises for meetings of investors themselves as well as meetings of investors and issuers.
Examples include meetings co-organised by the WSE for the Association of Individual
Investors, or for the issuers’ conferences with investors and analysts. Regarding the latter,
an interesting initiative called Infogiełda (Info-Exchange) offers investors an online real-
time access to broadcasts of issuers’ annual general meetings as well as issuers’ meetings
with analysts. Thus, whether in virtual or real space, the WSE offers a contact point
between issuers and investors.
Another side of the WSE activities with regard to investors concerns education, which
is particularly important in the context of a country where stock market did not exist for
over half a century before 1991. The educational strategy targets mainly young people and
is conducted partly via a separate, although wholly owned by the WSE, entity called the
Foundation for Capital Market Education. The largest ongoing project is the Exchange
School, a series of courses on the basics of capital market and investing. In 2004, over sixty
courses were organised around Poland, for approximately one thousand six hundred par-
ticipating students, with course materials also available on the Internet. In addition, on
a daily basis, the WSE hosted at their premises groups of high school students totalling
approximately eighteen thousand in 2004. Other educational activities include publica-

tions, lectures at universities, Internet-based stock market games and competitions, and
input into the design of economics curricula for high schools.
Summarising the relationships between the WSE and investors, at the first glance, one
notices the flow of market information from the Exchange to investors, which does not
require proximity. At a closer look, however, one needs to appreciate the significance of
information that flows from investors back to the Exchange concerning their feedback on
services received as well as needs for new information products or investment instruments.
To be sure, some feedback is obtained at a distance. For example, the Exchange’s website
features surveys on such issues as the timing of trading sessions or the popularity of various
indices. Such surveys, however useful, can only cover standardised issues and are targeted
at individual, geographically dispersed investors. In contrast, to gain insights from the
opinions and ideas of institutional investors, the WSE is likely to engage with them on a
more personal, face-to-face level. It is also likely that formal contacts between the WSE and
institutional investors at conferences or seminars are only the visible top of an iceberg of
informal relationships. In this context, it may be useful to mention that the Exchange is
located in the very heart of Warsaw, within a short distance to bars, restaurants, and other
meeting places of the Warsaw financial sector elite. It is also relevant that a significant
portion of the financial sector employees, including those working at the WSE, graduated
from the leading, and until several years ago one of few, institutions offering economics
education in Poland—Szkoła Główna Handlowa (the Warsaw School of Economics).
Towards the Future Geography of Stock Exchanges

On the completion of a tour of the WSE activities, this section answers the research
questions and attempts some predictions about the future geography of stock exchanges.
The first question is whether, how, why, and which stock exchange activities are prone
to concentration in financial centres. A financial centre is defined here as a city with
concentration of headquarters of companies issuing securities, firms trading securities, and
institutional investors such as pension funds and mutual funds. The assumption underlying
the question is that financial centres will exist in the future, which can be supported with
prolific literature on the subject (Clark 2002; Sassen 2005; Thrift 1994). The tool used to
assess the proneness of stock exchange activities to concentration in financial centres was
the extent to which particular activities involve close social contacts for the sake of
exchange and interpretation of information. Figure 3 illustrates the degree to which stock
exchange activities depend on close social contacts. The classification, based on the
analysis of activities of the WSE, is not meant to be complete or strict, but rather illustrative
in indicating two types of activities. On the one side, there are facilities for trading and
distribution of standard information, which require state-of-the-art technical connectivity
but little in terms of social connectivity. Consequently, the computers as well as back-office
IT facilities supporting these activities can be located anywhere in relation to members,
issuers, or investors. Other groups of activities, which were not the focus of the WSE case
study but can be classified as requiring little in terms of close social contact, are clearing
Communication with market Acquisition and admission of new Communication with investors,
High dependence on makers and other members needed issuers including analysts and investment
close social contacts for the development of the trading Complex capital market activities of advisors, needed for the development
system current issuers of information products, e.g., indices,
Reacting to news from issuers and the development of the trading
Facilitating issuers’ relationships system
with other intermediaries including
legal and financial advisers,
brokerage houses, PR firms
Acquisition of new members Sale of advanced information products
Communication with members Simple capital market operations of to investors
needed for a smooth conduct of a current issuers Investor education
trading session Organising training, conferences, Facilitating relationships between
Renewal of contracts with and seminars for issuers investors and issuers
members
Training for brokers, market
makers, and other members
Flow of standard information from Flow of standard information to
Low dependence on Trading system and back office IT issuers to the exchange investors, including internet based
close social contacts information
Trading system Relationships with issuers Relationships with investors

and relationships with members
FIGURE 3. STOCK EXCHANGE ACTIVITIES ACCORDING TO THEIR DEPENDENCE ON

CLOSE SOCIAL CONTACTS.
and settlement of securities transactions. On the other side, activities that require a high
degree of face-to-face contact make an exchange gravitate towards a place where members,
issuers, and investors concentrate. Many of these activities cluster within the category of
relationships with issuers, which require not only close social contacts but also expert
knowledge in terms of the local regulation and local corporate law. This is consistent with
the analysis of Malkamäki (2000), suggesting that listing and surveillance of issuers are
labour-intensive and involve complex information. Nevertheless, among relationships
with members and investors, there are also activities that require close social contact.
These concern communication needed for the development of the trading system and
information products. It is typical for the financial services sector that innovation occurs
through close interaction with customers, and stock exchanges seem to be no exception in
this regard.7
Thus far, it has been suggested that stock exchange activities are prone to concentrate
in a financial centre depending on the degree to which they rely on close social contacts
with members, issuers, and investors. It should be added that the proximity factor in the
relationships between an exchange and other key players on the stock market is asymmet-
ric. While for an exchange the relationships with members, issuers, and investors constitute
raison d’etre, for the latter relationships with an exchange in most cases represent a small
part of their overall business portfolio. As a consequence, if a stock exchange wants to
cultivate non-standard relationships with key players on the stock market, it needs to adjust
to their location. This observation has important implications for the follow-up question. If
certain stock exchange activities are prone to concentration in a financial centre, are they
prone to concentration in an international or a national financial centre? A stylised answer
to this question, combined with an answer to the preceding question, will lead to a basic
High Activities requiring close social Activities requiring close social

contacts with domestic members, contacts with international members,
Proneness to concentration
issuers, and investors issuers, and investors

in a financial centre
Facilities for trading,

distribution of
standard information,
clearing and settlement
Low High
Proneness to international consolidation
FIGURE 4. FRAMEWORK FOR THE GEOGRAPHY OF STOCK EXCHANGE ACTIVITIES.
framework for the geography of stock exchange activities presented in Figure 4. An inter-
national financial centre will be defined as a city with a strong presence of issuers,
investors, and securities trading firms (including banks and specialised securities trading
firms) with extensive international activities, while national financial centres are dominated
by firms with domestic scope of operations. While the distinction is not sharp, according to
these definitions, London, Paris, and Frankfurt am Main would be considered as interna-
tional and Warsaw, Budapest, and Prague as national financial centres. In the light of these
definitions, the answer to the second question is that activities that require close social
contact with members, issuers, and investors with a domestic orientation need to be
maintained within their domestic environment, with the necessary knowledge of this
environment, and thus such activities are prone to concentrate in a national financial centre.
On the other side, activities that rely on face-to-face contact with international members,
issuers, and investors need to take place where the latter concentrate, i.e., in international
financial centres. Since there are fewer international than national financial centres, the
question about proneness to concentration in an international vs. a national centre is a
question about the scope for international consolidation of stock exchange activities.
Translated this way, the question can also be applied to activities that are not prone to
concentration in a financial centre. And so, given the absence of social connectivity and the
presence of scale economies, facilities for trading and distribution of standard information,
as well as clearing and settlement, can be regarded as highly prone to international
consolidation. To be sure, the relative horizontal position of activities requiring close social
contacts with international actors would depend on the level of international centres
analysed. Relationships with global traders, issuers, and investors would be more prone to
international consolidation than relationships with market players whose activities span
several neighbouring countries.
How does the framework for the geography of stock exchange activities relate to the real
world? Consistent with the framework, international competition between stock exchanges
is centred on activities that are prone to international consolidation. One major form of
competition is offering cross-listing to large international companies. Another involves
alternative trading systems (ATS) that restrict their activities to the provision of facilities
for trading and distribution of standard information. The only group of activities left
relatively sheltered from international competition are those requiring close social contact
with domestic members, issuers, and investors. Some degree of monopoly, however, does
not imply a safe future for domestically focused stock exchanges, since they are still
exposed to international competition with regard to the provision of facilities for trading
and distribution of standard information, a core group of activities of today’s stock
exchanges in terms of their share in income generation (WFE 2003a). Another major
source of pressure on national stock exchanges is the growing role of international in
relation to domestic members, issuers, and investors. Statistics on cross-border mergers and
acquisitions alone suggest that the share of financial and non-financial companies with
international orientation in the total population of companies, particularly the large ones, is
growing. This implies that stock exchanges face growing competition in building and
maintaining income-generating relationships with members, issuers, and investors.
How can stock exchanges address the competitive pressures? To start with, the pressure
is largest for small exchanges. Large exchanges, and particularly those in international
financial centres can actually benefit from the growing internationalisation of members,
issuers, and investors, at the expense of smaller exchanges. They still, however, face the
threat of competitive systems for trading and distribution of standard information from
other large exchanges or ATS operators. In addition, if large stock exchanges take over the
entire array of activities of smaller national exchanges, they are likely to face difficulties
establishing relationships with domestic members, issuers, and investors, which are not
prone to international consolidation. Thus, there are benefits for both small exchanges in
national financial centres and large exchanges in international centres to build networks.
Notwithstanding the legal format of such networks, their objective consistent with the
framework would be to exploit the potential for consolidation with regard to activities
prone to consolidation, but at the same time to cultivate strong non-standard relationships
with domestic members, issuers, and investors.
Thus the prediction based on the framework is competition between international
networks of exchanges linking national and international financial centres as well as
non-central locations hosting facilities for trading and distribution of standard information.
This scenario has already started to materialise. Europe in the last decade has witnessed the
emergence of networks of stock exchanges such as Euronext in Paris, Brussels, Amster-
dam, and Lisbon; Norex Alliance; the OMX in the Nordic and Baltic countries; and the use
of Xetra trading system spreading from Frankfurt am Main to Dublin, Vienna, Prague,
Bratislava, Budapest, and Malta. The sustainability of this scenario, however, rests on a
certain assumption about vertical consolidation of stock exchanges, namely that all or at
least most activities described here are performed by stock exchanges. In an alternative
scenario, one can imagine global financial information vendors distributing standard infor-
mation, and investment banks dominating relationships with potential issuers and investors.
Considering Figure 3, notice that international investment banks, such as Merrill Lynch or
MSDW, trade securities, conduct capital market transactions for issuers, and render ser-
vices to institutional investors. As such, they have established close relationships with all
major stock market actors, which is essential for successful stock exchange activities. The
feasibility of different scenarios of vertical integration depends on complementarities
between different activities as well as regulation. The more various stock exchange activi-
ties complement each other, the more they should concentrate within one organisation, thus
indicating a potential advantage of integrated stock exchanges over providers of individual
services. Regulation may also favour incumbent stock exchanges in relation to investment
banks out of concern that the latter may not assure equal access and treatment for small
individual investors. While further investigation of these scenarios is beyond the scope of
the paper, it should be stressed that they can still be consistent with the framework of
Figure 4. This is because the framework attempts to capture the nature of the analysed stock
market activities irrespective of whether they are performed by an entity called stock
exchange or not.
Summarising the section, it is important to acknowledge that there are significant
factors that affect the proneness of stock exchange activities to concentration in a financial
centre as well as their proneness to international consolidation, which have not been the
focus of this paper. The former include access to a large and diverse pool of specialised
labour, and proximity to service providers such as legal, IT, financial, management con-
sulting, or public relations. The latter include continued regulatory fragmentation, proxim-
ity to political decision-makers, as well as the perception of a stock exchange as a symbol
of national identity. Altogether these factors would make stock exchange activities more
prone to concentration in financial centres and less prone to international consolidation
than my analysis would indicate. This observation combined with the predictions of my
framework suggest that the future of stock exchange activities is unlikely to be divorced
from the future of financial centres whether national or international.
Conclusions and Final Remarks

While the financial sector is in the forefront of globalisation, stock exchanges are
probably one of the favourite types of financial institutions referred to in literature on
globalisation. This may be due to the hybrid nature of stock exchanges. On the one hand,
they are described as symbols of market economy and agents of shareholder capitalism
(Dore 2000). On the other hand, they are considered central parts of national economic
infrastructures, and symbols of national financial centres or even national identity. An
additional reason for the popularity of stock exchanges in research might be the fact that
while global finance is difficult to follow in quantitative terms, data on and from stock
exchanges are relatively easy to obtain. In particular, data on stock exchanges are one of
very few easily available types of financial data that can be assigned to cities. But can they?
Let us say that one considers market capitalisation of companies traded on the New York
Stock Exchange and the London Stock Exchange. Is it clear what these figures really have
to do with New York and London? And what places does one assign to figures on the
Euronext, NASDAQ, or Archipelago? Where are traders, investors, issuers, or computers

matching orders? Where will stock exchanges be in the future?
In the context of the growing difficulty to understand stock exchanges in terms of
geography, this paper has addressed two questions. First, whether, how, why, and which
stock exchange activities are prone to concentration in financial centres? Second, are they
prone to concentration in national or international financial centres? The strategy of the
paper has been bottom-up, starting with a detailed case study of the WSE, analysing its
activities with focus on the geography of trading system, members, issuers, and investors
at a local, national, and international scale. The case study provided guidance and illustra-
tion for a classification of stock exchange activities according to their dependence on close
social contact, which along with consideration of factors other than social connectivity led
to a framework for the geography of stock exchange activities based on two
dimensions—proneness to concentration in a financial centre, and proneness to interna-
tional consolidation. The main finding suggested within the framework is that while trading
system and distribution of standard information are not prone to concentration in a financial
centre but prone to international consolidation, activities relying on non-standard relation-
ships are likely to concentrate in national financial centres—for relationships with domestic
members, issuers, and investors; and in international financial centres—for relationships
with international actors. Paraphrasing one of the interviewees, the value added of a
financial centre lies not in offering a location for computers, but in the circulation of
information.
The paper also makes some speculative predictions about the future geography of stock
exchanges. One possible scenario is competition between international networks of stock
exchanges linking international with national financial centres as well as locations outside
centres. In a different and extreme scenario, alternative international and national providers
would perform stock exchange activities without the participation of stock exchanges.
International networks of stock exchanges and alternative providers are yet another possi-
bility. Whichever scenario comes to fruition, stock exchange activities are not dissolving
into a virtual space. Whoever delivers stock exchange functions in the future, their geog-
raphy will increase in importance inside and outside the stock exchange industry, as well as
inside and outside financial centres. Inside the industry, managers face challenges of
international competition and consolidation. Outside the industry and financial centres,
there is more opportunity for various parts of the world to attract stock exchange activities
that do not need to concentrate in financial centres. Witness the development of back office
functions of international financial institutions in India or competence centres for IT and
accounting developed by international corporations in Poland. Significant geographical
reconfigurations are likely to appear on the map of stock exchange industry.
With time, the future becomes the present. In the last several years, major international
networks of stock exchanges have emerged, with Euronext and Norex Alliance in the lead.
Another relevant phenomenon are initiatives that aim to align the development of cities
with the development of capital markets for which these cities serve as centres. Examples
include Paris Europlace and Finanzstandort Deutschland in Frankfurt am Main. Stock
exchanges are active players in these initiatives and the WSE is no exception. There is a
strategy for the development of the Polish capital market called Agenda Warsaw City 2010,
and plans to create Foundation Warsaw City, which could be funded by the Ministry of
Treasury with a part of the proceeds from the privatisation of the Exchange. The view that
development of the WSE is linked with the general development of Warsaw not only as a
financial centre is strongly represented in the Polish economic press and was commonly
expressed by my interviewees both inside and outside the Exchange. To be sure, the extent
to which local initiatives can harness the forces of global finance to their own advantage
may be minute. Nevertheless, the emergence of such initiatives is consistent with the
findings of this paper. Stock exchanges remain important for financial centres and financial
centres remain important for stock exchanges.
NOTES
1. I would like to thank an anonymous referee for the comment on the significance of scope
economies.
2. These estimations are based on data from the WSE on http://www.gpw.com.pl and the Federation
of European Stock Exchanges on http://www.fese.be. For more discussion on the development of
the Polish capital market see, e.g., Köke and Schröder (2002) or the website of the WSE at
http://www.gpw.com.pl.
3. For an analysis of the spatial distribution of capital market services within an urban hierarchy see,
e.g., Budd (2000).
4. The source of regulation introducing the idea of a single passport for investment services firms is
the Investment Services Directive, after modification known as the Markets in Financial Instru-
ments Directive (http://europa.eu.int/comm/internal_market/securities/isd/index_en.htm).
5. Remote members accounted for approximately one-third of the total number of members at each of
the three leading European stock exchanges: Deutsche Börse, Euronext, and the London Stock
Exchange.
6. The expected liquidity is assessed on the basis of three criteria: the absolute value of admitted
shares owned by shareholders holding less than 5 percent of total voting rights each, the share of
such shares in total equity of the company, and the number of shareholders owning the admitted
shares.
7. The distinction between stock exchange activities based on the degree to which they rely on close
social contacts resembles the distinction between front-office and back office, common in the
literature on offshoring of financial services. Figure 3 shows that each of the three groups of stock
exchange relationships contains activities that have back-office and front-office characteristics.
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14682257, 2007, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/j.1468-2257.2007.000364.

Geography and the Future of Stock

Submitted January 2006; revised August 2006, November 2006; accepted

Geography of Stock Exchanges—Insights from Research Literature

activities in many places, or the possibility of stock exchanges becoming subsidiaries of

The WSE and the Polish Capital Market

TABLE 1. RECENT DEVELOPMENT OF THE MAJOR EXCHANGES IN CENTRAL AND

2000 2001 2002 2003 2004 2005

Domestic market capitalisation at year end (millions €)

Source: My compilation is based on the data from the Federation of European

FIGURE 1. THE BASIC STRUCTURE OF THE POLISH CAPITAL MARKET

TABLE 2. THE NUMBER OF MAJOR INSTITUTIONS ON THE POLISH CAPITAL MARKET

Group of institutions Warsaw Total Foreign Warsaw/total

Issuers 83 238 6 0.35

The Trading System and Relationships with Members

FIGURE 2. THE BASIC ARCHITECTURE OF THE TRADING SYSTEM AT THE WARSAW

Remote membership represents an important step in the adoption of EU regulation on

Relationships with Issuers

Relationships with Investors

approximately eighteen thousand in 2004. Other educational activities include publica-

Towards the Future Geography of Stock Exchanges

Trading system Relationships with issuers Relationships with investors

FIGURE 3. STOCK EXCHANGE ACTIVITIES ACCORDING TO THEIR DEPENDENCE ON

High Activities requiring close social Activities requiring close social

issuers, and investors issuers, and investors

Facilities for trading,

Proneness to international consolidation

FIGURE 4. FRAMEWORK FOR THE GEOGRAPHY OF STOCK EXCHANGE ACTIVITIES.

Conclusions and Final Remarks

Euronext, NASDAQ, or Archipelago? Where are traders, investors, issuers, or computers

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