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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2010ZAGREB STOCK EXCHANGEZagreb Stock Exchange remains confidentabout the ready and efficient response tofuture challenges.Ivana GazicGeneral ManagerDespite the demanding trading environment,Zagreb Stock Exchange remains confidentabout the ready and efficient response tofuture challenges and will continue its work onimplementation of new products and services.As in 2009, narrowing the targets and carefullyselecting priorities to stabilize the system, andregain the investors’ confidence are theprimary tasks.Year 2010 will test the capabilities of marketand stock exchange flexibility.HISTORY AND DEVELOPMENTThe ZSE was incorporated in 1991 as a jointstockcompany with 25 commercial banks andinsurance companies. From the initial 25members (brokerage companies), thanks tothe trade growth and development the numberof members has climbed to some forty-oddactive traders today: banks and privatebrokerage companies, and 43 shareholders. Atthe very beginning, trading took place at bigauctions held at the Exchange head office withall brokers actually physically present and in1994, an electronic trading system wasintroduced.In 2007, the Croatian financial marketconsolidated as the Varazdin Stock Exchangemerged with the Zagreb Stock Exchange.These new circumstances, resulting in a largernumber of listed securities and greater tradingvolume, along with a natural development ofthe financial market that saw the investmentclimate improve and gave rise to a strongerinterest of all market participants in newfinancial products, highlighted the need for theimplementation of a new system that would beable to meet the needs of the small, butextremely fast-growing Croatian market.The new trading platform, launched in autumn2007 after several months of preparations,represents an unprecedented technologicalenhancement.Zagreb Stock Exchange annual tradingreport 2009:Year 2009 was the very challenging for theCroatian capital market and its participants –Zagreb Stock Exchange was also not able tododge the effects of the global financial marketcrisis: regular turnover was cut in half regardingthe 2008 and the CROBEX index went throughdrastic oscillations of 90% between his lowestand his highest point (between 1.079 and2.318 points).Nevertheless, the prices of the majority of themost liquid stocks where increased (HT +37%,Atalntska plovidba +40%, ADRIS +34,5%, INA+40%, Atlantic grupa + 47,7% etc.) and thebiggest price gainer was JANAF with +117,2%.There was significant decline in theconstruction sector (IGH -29%, Dalekovod -15,2%, INGRA -46,8%, Tehnika -24,7%).The liquidity was consolidated into a smallgroup of stocks - the most liquid stocks (HT,Atlantska, IGH and Dalekovod) altogethergained the bigger turnover than all the other279 listed stocks.Despite the difficult capital market conditions,Zagreb Stock Exchange continued to raise thequality of the services and in 2009 had threenew listings in the highest quotation, theOfficial Market.Also, new index of blue-chip issues,CROBEX10, was launched in September 2009.The new CROBEX10 index provides a set oftools for investors to benchmark the blue-chipcompanies of the Zagreb Stock Exchange. Italso opens potential for the development ofinnovative investment products, such as indexlinkedfunds and index certificates.The new CROBEX10 index tracks 10 leadingcompanies at the ZSE in term of free-floatmarket capitalization and liquidity. CROBEX10components are selected from the CROBEXindex.The Market Making facility was also introduced.The new Capital Markets Law was introducedin the beginning of 2009 and offeredpossibilities to restructure the market, introducethe MTF, modify the shareholders structure etcand was generally a step toward the greaterharmonization with the European capitalmarkets practice. Following the new CapitalMarket Law, the new Stock Exchange ruleswere implemented in July 2009. The newlegislative changes introduced new types ofmarket stabilizers and investment tools,facilitated the access to market to anyinterested party and expanded the supply ofinstruments, while also raising transparencystandards and the requirements of informationquality for the candidates seeking a listing inthe prime market.Despite the demanding trading environment in2009, Zagreb Stock Exchange remainsconfident about the ready and efficientresponse to future challenges.FUTURE OUTLOOKThe slow recovery is ahead the globaleconomy but the concern still remains andglobal investors fear could affect domesticcapital market, liquidity and stock prices.Further policy actions, especially in thefinancial sector, will be essential to induce therecovery. We anticipate further governmentaction as well as the use of other tools tostimulate growth. Equity market valuationsacknowledge the recessionary environment.The consensus view of market participants isthat stocks are cheap, but it is possible equityvaluations could re-test lows given the pendingweakness in future corporate earnings.Positive moments undoubtedly persist butcertain risks remain, challenging sustainablemarket recovery.The Zagreb Stock Exchange will carefullyobserve global as well as regional economyand equity market trends and remain in linewith market expectations.Year 2010 will test the capabilities of marketand stock exchange flexibility. Narrowing thetargets and carefully selecting priorities tostabilize the system, and regain the investors’confidence are the primary tasks.Trading conditions for the 2010 will probablyremain challenging and the economic outlookfor 2010 is uncertain but we believe that ourleading regional position leaves us well placedfor the eventual recovery.PAGE 162