PolskiRisk of interest rate hikes
The Company is exposed to a risk of interest rate changes due to debt instruments issued by GPW with variable interest maturing on 2 January 2017. A sharp increase of the interest rates including the base rate of the bonds could boost the cost of servicing the liabilities under the bonds and have an adverse effect on GPW’s financial position and results.
Risk of material periodic volatility of revenue and profits due to unforeseeable revenue levels and relatively high fixed costs
The Group’s sales revenue and net profit are strongly dependent on a range of external factors which are beyond the Group’s control, including the activity of investors and the prices of financial instruments listed on the markets organised and operated by the Group; consequently, the Group’s sales revenue could vary from period to period. A decrease in the value of IPOs on GPW could have an adverse impact on revenues from fees for admission and introduction to trading on the exchange and listing revenues. A significant part of the Group’s costs (salaries and other employee expenses, external service charges, rent and other maintenance fees) are fixed and do not vary significantly. Such costs represented 64.9% of the operating expenses of the Group in the period of 12 months ended 31 December 2016. If its sales revenue decreases, the Group may be unable to reduce its operating expenses, which could have a material adverse impact on its operating profit.
Risk of dependence of a large part of the Group’s sales revenue on trade in shares of a limited number of issuers and trade in futures by a limited number of Exchange Members
The Group is exposed to the risk of concentration of trade among a small number of investment firms operating on GPW. In 2016 (according to GPW data), there was one Exchange Member that had a share of more than 10% of trade in stocks on the electronic order book on the Main Market (10.3%), and another 23 Exchange Members that had a share between 1% and 10%. Furthermore, there were three Exchange Members that had a share of more than 10% each in the volume of trade in futures, jointly representing 42.3% of the volume of trade in futures. The loss of one or more of such Exchange Members could have a material adverse impact on the activity of the Group, its financial position or results.
Furthermore, the revenue from trade in equities and other equity-related securities represented 28,8% of the Group’s total sales revenue in 2016. In that period, the top five companies with the biggest share in trade on GPW generated 47.8% of the average monthly value of trade in shares on the electronic order book on the Main Market while the top 10 companies generated 64.9%. The concentration of a large part of the Group’s revenue in the context of a small number of issuers and securities generates material risks. In particular, if those and other major issuers decide to have their shares delisted, it could have an adverse impact on the activity of the Group, its financial position, results and outlook.
Risk of dependence of a large part of the Group’s revenue from derivatives on trade in WIG20 futures
Trade in derivatives is the Group’s second largest source of revenue from trading on the financial market and accounted for 10.2% of the Group’s sales revenue from trading on the financial market and 3.9% of the Group’s total revenue in 2016. The vast majority of the Group’s revenue from trade in derivatives was generated by trade in a single product: WIG20 futures. A large decrease in trade in WIG20 futures could have an adverse impact on the revenue from trade in derivatives, which could have a material adverse impact the activity of the Group, its financial position and results.
Risk of dependence of the Group’s revenue from trade in commodities on the propensity of producers to sell energy and gas on the exchange
The Group’s revenue from trade in commodities depends among other things on the propensity of producers to sell energy and gas on the exchange above the required mandatory level. The mandatory sale on the exchange currently applies to 15% of produced energy and 55% of gas. Trading on the exchange above the required mandatory volumes is up to energy and gas producers to decide. The Group has no direct control of the volume, value and number of transactions on the exchange. The Group’s revenue depends among other things on the attractiveness of trade in commodities compared to other exchanges and trading platforms. Reduced supply of energy or activity of trading participants could have a material adverse impact the activity of the Group, its financial position and results.
Risk of insufficient insurance cover
In view of the insurance cover held by the Group, certain types of damage may not be covered by insurance or may be covered by partial insurance only. Furthermore, the Group could incur material losses or damage covered by no insurance or by limited insurance only. Consequently, the Group may have insufficient insurance cover against all damage that it could potentially incur. In the event of damage that is not covered by insurance or damage exceeding the sum insured, it may erode the Group’s capital. Furthermore, the Group may be required to redress damage caused by events not covered by insurance. The Group may also have liability for debt and other financial commitments related to such damage. Furthermore, the Group cannot guarantee that there will be no future material damage exceeding the Group’s insurance cover. Any damage not covered by insurance or damage exceeding the sum insured could have an adverse impact on the activity of the Group, its financial position and results.