Capitalism’s leading lady

Stock markets have always seemed to represent a world of high finance and speculative trading frenzy. In the Baltics, NASDAQ OMX Baltic, a part of the NASDAQ OMX Group, the world’s largest stock exchange company with capabilities in trading, technology and services that reach across six continents listing almost 4,000 companies, is generating its own market excitement. From the investors’ and shareholders’ perspective, NASDAQ OMX in Latvia provides a transparent and well regulated marketplace, ensures supervision over trading and company disclosures and enables investors to freely trade shares and bonds through the exchange members’ network using its extremely reliable and fast electronic trading system. Linked with other Baltic exchanges, NASDAQ OMX Riga, which was established in the capital of Latvia in 1995, provides investors a one-stop-shop for trading and settlement in the Baltic region, thereby making the region more accessible and attractive to foreign and local investors.

aiga Auzina-Melalksne, the chairwoman of the NASDAQ OMX Riga, sat down with The Baltic Times in her office in Riga’s Old Town to talk about the exchange and the financial markets in the Baltics.

What is the importance of NASDAQ for the economy of Latvia?
We provide companies with the possibility to attract capital; we also have the exchange and we provide listing services. So, it means that we provide an alternative to bank loans for companies who want to attract capital for development. The other important aspect of NASDAQ, already for quite a few years, is that we are conducting auctions of government debt securities. In total we have 560 options and the total capital attracted through our trading system is 2.6 billion lats (3.7 billion euros), which means that we provide equal access to all the members, leading banks in the Baltics, in Latvia and in the Nordics. They can participate in these auctions and take part in the process.

You were elected a member of the board of directors of the American Chamber of Commerce in Latvia. What are your responsibilities there?
Yes, I am on the Board of the American Chamber of Commerce since spring this year. We are an organization which represents our members’ interests. There are a number of issues we have taken up, and we are promoting our position in those. We have a good corporate system statement which our members have signed. We stand for transparency, openness and good corporate citizenship, because these are the values the American Chamber of Commerce represents here in Latvia. We also have open events for our members where we have luncheons where we invite prominent speakers from Latvia and other places that are of interest for our members. We organize American Chamber Outlook media events. For example, this year one was devoted to development of capital markets in Latvia, and just a few days ago one was devoted to freedom of the press in Latvia.

What has been the evolution of the exchange in the Baltics in these last months?
Exchanges are developing and [share] prices have increased all the time. The lowest point we had during the crisis was in 2009. Since then, our stock exchange index in the Baltics has recovered quickly. For example, in NASDAQ OMX Riga the index has grown almost by 100 percent since then. We continue providing government bond auctions, several IPOs have taken place in the Baltic markets. 

How many companies from Latvia are in NASDAQ?
We have 33 or 34 companies with shares, and then there are companies with bonds, debt securities. In total in the Baltics it is around 100 companies. We have a shared market between the Baltic States. We also trade government bonds in Latvia and Lithuania, and also corporate bonds from all three countries.

Does the NASDAQ Riga work in cooperation with NASDAQ Tallinn and NASDAQ Vilnius?
Yes, of course. First, we have the same owner, NASDAQ OMX Group. However, a few years ago we established a joint Baltic Market, which means that all companies that are listed on the individual exchanges are accessible to all investors; we have pan-Baltic membership, which means that all the members are leading Baltic and Nordic companies. So it means that any investor in the Baltics can have easy access to Baltic listed securities, also information disclosure is similar and online and all the companies disclose in the local languages and in English. We have a common Web site where all the information published is available to all investors.

Is the exchange here looking to new directions? Maybe euro trading…
Yes, during the past three months we have been very actively working in the development of the capital markets and have approved several initiatives, one of them is listing state-owned companies on the exchanges in the three Baltic countries. We were working towards improvements of infrastructure, which means euro trading and settlement. We, also in cooperation with other institutions, published the Baltic Institute of Corporate Governance. Finally, we have published guidelines for state and municipality-owned companies. Also, in Latvia and Lithuania, Latvia last month, and Lithuania a little earlier, we have published in cooperation with this Institute a report on state-owned assets. This is a very unique document because prior to this no such publications have been made, and now this report is available in both the local language and in English to everybody and it reflects joint information on all state-owned assets in Latvia and Lithuania. It increases greatly the transparency of state-owned companies, and one of the conclusions from the Latvian report is that if we improve the governance of state-owned assets, the profits could increase by 150 million lats annually, and  dividend payouts to the Latvian state could be 75 million lats more, annually. This means state-owned assets should be transferred to professional ownership, professional management, the supervisory board level should be elected, and safeguard the state-owned assets from political influences and politicized decisions. 

How has the financial crisis affected the NASDAQ shares in Latvia?
Like any financial turbulence it affects the stock market. Of course, uncertainty, which we faced a few years ago, the government budgetary cuts, potential devaluation of the lats, it all affected stock exchange volumes and it affected stock exchange prices. So we, like every participant in the financial markets, suffered in this crisis, but now we have recovered and see some growth coming.

What can the affect of Estonia’s entrance into the eurozone be on financial markets?
I think it is very positive, it is a good sign. Hopefully Latvia and Lithuania will follow very soon. We think that that increases the attractiveness of the Baltic region and, of course, also Estonia as a destination for foreign investments.

Is there much interest from international investors in Latvian and Baltic companies?
Yes, there will always be interest to invest in Latvian and Baltic companies. The problem of Latvia has been the limited possibilities of investment. The government still owns a lot of large, valuable companies which have been at least partially listed, also in the Baltic States, but this is not the case in Latvia, so we’re actively working with the government to improve the situation and to list partially the state-owned assets on the stock exchange. This would greatly influence the development of the local capital markets and would provide foreign investors with more investment possibilities.

NASDAQ OMX Baltic gives out, every year, the Baltic Market Award. Could you talk about this prize?
Yes, for the last five years we have recognized the best investor relations’ practice in the Baltics. We give the prize for the best investor relations, in large cap, small cap, the best improvement over the year. We also give praise for the best annual report, so yes, we award our companies for good performance, and also for 2010 results the company would be awarded.

What is your opinion regarding the privatization of national companies here?
I think the time has come for better governance of state-owned assets, and I think one of the ways that this could be developed would be a partial listing of state-owned companies on exchanges, it means the state still is the majority owner, but 25, 15 percent could be listed on the exchange, which would give a good opportunity for local pension funds, which currently hold around 1 billion euros in assets; they could invest more in the local stock market and it will give the possibility to every resident of the Baltics, of Latvia, to invest in those securities, to save for their future, pensions, and so on. And this would increase greatly the transparency of the state-owned companies; it would attract the foreign investments and many other benefits. It would actually create the critical mass so the many privately owned companies could also consider listing, because of the state-owned large infrastructure companies. That means that lots of institutional investors could come in and, then [when] they are in this market, they would also readily buy the smaller, privately owned companies as well.

Could Grindeks be a model?
Yes, Grindeks is one of the leading pharmaceutical companies in the Baltics and it is also listed on NASDAQ OMX Riga. The private companies could follow this example with the trade capital on the stock exchange that Grindeks had done a few years ago.

How is corruption affecting the companies here in Latvia? What is the position of NASDAQ about this topic?
I think it is no different from any other place. I think it is important to understand that if we implement good guidance of state companies that will greatly improve the situation, and give more transparency about the company operations, management, [leading to] better return on assets. So I think the Baltic guidance on the government-owned enterprises is a beginning and as far as I know the prime ministers have committed, and government has started working in this direction.

This year you are celebrating the 15 year anniversary of NASDAQ in Riga. How do you value these years? What are the aims for the next years?
We have provided capital transaction possibilities for companies; we have executed government bond auctions in the amount of 2.6 billion lats, clearing and settlement of securities has taken place without any problems… exchanges in infrastructure, we have granted pan-Baltic access for investors, from Scandinavia, for Baltic securities, and also have taken active leadership of government issues, transparency and also today are actively working with government in listing of state-owned companies that would promote the local capital market. This introduction of I-net, the Australian system, it took 18 months to implement; other initiatives are long term, such as the Guidance. It’s important to consider we are very small countries, and we have a globally known exchange brand implemented here. That is a very great achievement. These are major investments, competitive advantages for the Baltic States compared with other places in the world. So now, it is up to the Baltic governments to take action and use this infrastructure for the benefit of the development of the economies. The next goals for NASDAQ OMX Riga are to increase transparency on the state level, listing of state-owned companies, having Latvian second-level pension assets invested here in the Latvian economy.