Croatian Stock Exchange History


At the dawn of modern Europe, it was customary to establish exchanges at which prices were agreed and trading took place on the basis of samples. The oldest exchange was founded in Amsterdam in 1602. The first exchange of the Habsburg Monarchy was established in Rijeka for the purpose of trading in different sorts of sugar sold by the Rijeka refinery between 1750 and 1803. Subsequently, it became common practice for each state to have no more than one exchange, so one such exchange was established in Vienna in 1771. After the Habsburg Monarchy was divided into the Austrian and the Hungarian part in 1867, another exchange was also established in Budapest.

Croatian regions were split between the Austrian and Hungarian part. However, the Croatian-Hungarian Compromise granted a certain level of autonomy to Croatia and Slavonia, even though not in the field of economy, trade and transport, which were governed by the government in Budapest. Anxious to gain as much independence as possible, Croatian businessmen were striving to form the fourth economic department, so they founded an Association of Industrialists and Merchants of Croatia and Slavonia under the auspices of the Chamber of Commerce. The Association also spurred the establishment of the Commodities and Valuables Division in 1907. It was inaugurated by Milivoj Crnadak in the building of the Chamber of Commerce (in the spot currently occupied by Hotel Dubrovnik) on 15th June, 1907. S. D. Aleksander headed the division, which effectively launched the market in the stocks of local factories and financial institutions that major exchanges in Vienna and Budapest would not admit to trading. This Exchange was active until 1911, when its operations were closed down by the ruling Croatian-Serbian coalition that saw Croatia and Slavonia as constituent parts of a new Southern Slavic state with a centre in Belgrade. Since 1st January, 1895, Belgrade had had a separate Exchange that supported the expansion of Serbian capital to Croatia.

The Zagreb commodities and valuables division of the Chamber of Commerce received a new impetus secretly in the course of 1917, when plans to reorganize the Austro-Hungarian Monarchy were revived under the new emperor. But the war and requisitions restricted its operations until 4th June, 1918, when the Exchange was reopened. Its operations intensified during the short existence of the State of Slovenes, Croats and Serbs (known as the SHS) that saw the founding of the Croatian National Bank as well. A Board made up the most excellent representatives of banks, industrialists and traders was formed to draft the Rules and other essential exchange regulations, which the SHS State Government – or People’s Council, approved only a few days later. But following the unification, trading on the Exchange was suspended because of a long delay in the issuance of its operating licence by the Belgrade government of the Kingdom of Serbs, Croats and Slovenes. The Zagreb Exchange operated according to the Rules approved by the People's Council until provisions of the Serbian Act on Public Exchanges began to apply to it too under the King’s decree No. 11322, dated 11th September, 1919.

After World War I, the Zagreb Exchange actually reopened on 4th June, 1919, its securities department first. The commodities department began to operate on 1st August, 1919, followed by the Exchange Court of Arbitration in September 1919. This Exchange was subordinated to the Ministry of Trade and Industry; it held all the rights appertaining to corporations including organization autonomy and its purpose was to facilitate and regulate trade in various kinds of commodities, securities, drafts, money (foreign currency and notes) and precious metals. The Exchange was supervised by a Ministry of Trade and Industry commissioner.

The Exchange and its operations were administered by a 24-member Exchange Council, elected by the Shareholder Assembly for a period of three years, and every year a third of new members was elected. The Exchange Management Board appointed authorized brokers who had to adhere to special rules. The Exchange Council appointed a special commission to set the official rates of local securities, while the circulation of foreign securities depended on the approval of the Ministry of Trade and Industry.

The Zagreb Commodities and Valuables Exchange cooperated with the Belgrade Exchange in such a way that its daily meetings were held one hour after those in Belgrade with the rates in Belgrade affecting those in Zagreb. Access to the Exchange with a right to deal was granted to members, namely, registered firms admitted to membership by the Exchange Council that paid an annual membership fee of 1200 crowns. All the Exchange members had equal active and passive voting rights in the elections for the Exchange Council and Court of Arbitration. However, exchange deals could only be closed by brokers, who were experts supposed to draw up appropriate agreements. The Exchange welcomed guests paying a 50-crown admission fee, but they were only allowed to buy a ticket valid for three days and even then only upon reference by an Exchange member. Guests were not entitled to bid, with Exchange members able to do it any time.

Brokers were appointed in line with the 1875 Trade Act and had to pay a 10,000 crown deposit. They were not allowed to trade for their own account and they were held accountable under provisions of the Civil Code. In 1921, the Zagreb Commodities and Valuables Exchange had 18 authorized brokers in the securities, currencies and notes department, and only four in the commodities department.
Interestingly enough, almost all trace of this old Exchange has been lost in the professional literature of the Yugoslav monarchy which always mentions that the Zagreb Commodities and Valuables Exchange was established in September 1919. And it was in that year that the Zagreb Commodities and Valuables Exchange enjoyed the trust of foreign clients, those from Vienna and Prague, and a number of financial transactions were conducted through it, forming exceptionally strong foundations of banking and finance in Zagreb. However, export restrictions weakened the Exchange’s commodities business, while Minister of Finance Stojadinović’s term in office brought further restrictions on its currency department as all foreign exchange and currency operations had to be conducted through the National Bank in Belgrade, which began to operate as the central bank early in 1920. Starting from 1923, the dinar became the only recognized currency. It was exchanged at the rate of four crowns to the dinar, but the crown maintained any value in payments only in the Western half of the new Yugoslavian state. Such erratic trade and currency relations, coupled with duality of the money, had a negative impact on the Zagreb Commodities and Valuables Exchange. In 1920, its turnover stood at 2,400,000.00 crowns and continued to drop. The Belgrade Exchange monopolized foreign exchange and currency transactions, affecting the work of the Zagreb Commodities and Valuables Exchange through the Ministry of Trade and Industry.

It is interesting that in 1922 the following state securities were officially listed: coupons of the Kingdom of Serbs, Croats and Slovenes (6%), Croatian-Slavonian regal bonds, Croatian-Slavonian land bills of unlading, a lottery loan (2%), tobacco tickets, a converted loan dating back to 1895, a 1909 and a 1913 loan, a 1917 Slovene state loan, along with the stocks of 31 financial institutions and 28 factories, as well as trading and transport companies. Debentures issued by the City of Zagreb were also listed, as well as mortgage bonds and municipal bills issued by some of Zagreb’s financial institutions. The Exchange admitted to trading the sorts of commodities that were sought on the market, mostly cereal crops, flour and colonial goods, but then the situation changed markedly after 1924. The execution of contracts was defined very strictly in terms of time, and commodities in spot sales had to be delivered the very next day or within eight days if outside Zagreb. The Exchange charged a fee of 1.2 ‰ in stocks, foreign exchange and currencies trading, and brokers also paid a certain sum to the Exchange. Brokers in commodities trading were paid 2 ‰ by each side, with 0.5 ‰ going the Exchange. Meetings for stocks, foreign exchange and currencies were held between noon and 1.p.m. every day except Saturday and Sunday, while commodities meetings were held daily around noon with the exception of Sundays.

Provisional regulations on exchange operations existed until the Exchange Act was passed in mid-1930s.

Vibrant economic life of Croatia, reinforced by moderate inflation, still brought high earnings to the Zagreb Exchange. After World War I, it moved to the new Chamber of Commerce building (Jurišićeva 1) while from 1st July, 1922, it operated on the first floor of the «Isis» joint stock company premises in Hatzova 154. Despite all kinds of restrictions on the Exchange operations and the appointment of an administrator in August 1922 to prevent fictitious exchange rates and alleged money laundering, the Exchange earned sufficient amounts of money to begin the construction of its new building. In 1923, architect Viktor Kovačić won the first prize for design but since he died in 1924, the building in Ulica Račkog 1 was finished by Hugo Erlich. The new Exchange opened for business there on 18th July, 1927.

An increasingly restrictive policy towards the Exchange spurred the Minister of Trade and Industry Ivan Krajač, who was a member of Stjepan Radić's Croatian Peasant Party (HSS), to ask toward the end of 1927 that a new, comprehensive act on exchanges be drafted. Since the Novi Sad Products Exchange began operating in 1920, followed by those in Ljubljana and Sombor in 1924, Minister Krajač sought to establish an equal legal basis for the operations of all exchanges in the country. But the act was not adopted until as late as mid-1930s and granted reduced rights to the Zagreb Commodities and Valuables Exchange compared to the Belgrade Exchange. Nevertheless, the Exchange managed to survive until 1945, although a larger part of its building was being let in order to cover the losses incurred during a crisis of private banking with which it maintained very close ties.

Some of the most prominent and distinguished figures of Croatia’s financial and economic scene took part in the management and operations of the Zagreb Exchange. They included Milan Vrbanić (who subsequently headed the Chamber of Commerce and Crafts in Zagreb, and became the Minister of Trade and Industry in 1935), Stanko Šverljuga (Minister of Trade and Industry in 1929) and Ivo Belin, who was the Exchange secretary from 1924 to 1945 but also held the post of Vice-Governor of the National Bank in Belgrade between 1935 and 1945. By 1935, Belin had published a series of articles on the problems of the Croatian currency in «Nova Europa» («New Europe») magazine, and certainly helped sustain the Exchange, whose turnover vacillated from 81 million dinars in 1919 to three and a half billion in 1930, a billion and a half in 1939 and six and a half billion kuna in 1943.

Since the Exchange as a speculative institution had no place in the socialist society, its operations were suspended in 1945.


 Author: Mira Kolar-Dimitrijević

Revival of Exchange trading

Croatia’s exchange did not see its revival until as late as 1991, when 25 banks and two insurance companies established the Zagreb Stock Exchange as the central place of securities trading in the Republic of Croatia.

The Zagreb Stock Exchange has kept this role to date. From the initial 25 members (brokerage companies), thanks to the trade growth and development the number of members has climbed to some forty-odd active traders: banks and private brokerage companies. At the very beginning, trading took place at big auctions held at the Exchange head office with all brokers actually physically present. In 1994, an electronic trading system was introduced, enabling member brokers to trade on the Exchange via a telecommunications link without leaving their offices throughout Croatia.

A rapid development of share ownership and trading in Croatia is best illustrated by the fact that in the first five years following the introduction of the electronic trading system, between 1995 and 2000, the Zagreb Stock Exchange market capitalization grew almost 10 times (982.6%).

The Zagreb Stock Exchange is very active on an international level too: it is among founders and a member of the Federation of Euro-Asian Stock Exchanges and also a corresponding member of the Federation of European Stock Exchanges. It has worked with the Organization for Economic Cooperation and Development (OECD) on drafting the principles of corporate governance, while consulting or engaging the employees of the London and the Pacific Stock Exchange as well as the U.S. Securities Commission (SEC) experts on certain individual projects.

Securities (stocks and bonds) are traded on the Zagreb Stock Exchange via the OMX electronic trading system.

Brokerage companies that are Exchange members are connected with the Exchange head office via special telecommunication lines; they enter their sell and buy orders and conclude transactions with other brokers directly from their offices. This means that the physical place where securities are traded (traditional trading floor) no longer exists, but rather trading takes place among electronically connected traders. All member brokers have access to the trading system in real time (with not time delay/shift) so that they can enjoy equal status with respect to the receipt of information on the current securities offer at exactly the same time.

Trading

The Exchange is open for trading between 10 a.m. and 4. p.m. every day, with the exception of holidays listed on the Exchange's website. Trading reports with daily share prices are available to any interested party in daily newspapers, from specialist financial data vendors as well as on the Exchange's website and via a specialized exchange information distribution system, named the ZSE Monitor.

ZSE Monitor

The ZSE Monitor is a system that distributes exchange-related information in real time via the Internet. It enables users to access the information on total trade and to monitor current price movements with no delay, on-line.

It is designed for all investors, shareholders and those who still have to join their ranks, managers, analysts and anyone who wants fast, reliable and credible information on the current state and prices on the Zagreb Stock Exchange.
 

Technology Development on the Zagreb Stock Exchange – Early Days

As a relatively young exchange, the Zagreb Stock Exchange had the opportunity to use the possibilities provided by modern technology to organize trading in order to make its operations more competitive and more readily available. As the Exchange itself developed from a low trading volume to the current level, so did the technology used it.
The first trading system on the Zagreb Stock Exchange required the physical presence of brokers, who were situated in a special room during an auction, directly submitting and shouting their bids to actually trade. The auction was run by an auction leader, with bids and offers and transactions entered into a computer so that all relevant data could be displayed on monitors positioned around the hall. Only one security could be traded at any given time.
Toward the end of 1992, the Zagreb Stock Exchange started conducting public auctions on behalf of the Croatian Privatisation Fund, using new auctions software support developed by the Exchange.


Beginning of Electronic Trading

In order to reduce trading costs and simplify the trading process, in March 1994 the Exchange introduced its first electronically distributed trading system: TEST-1. For the first time, the system enabled members to trade directly from their offices, using a personal computer with a modem. Although they traded from their offices, members had a simple means of finding out what the supply and demand on the Exchange. It was done by establishing a connection with the central computer located at the Exchange premises and accepting a data package with all bids/offers and transactions. Trade was order driven and for the first time a considerably larger number of securities could be traded simultaneously and every day. The system was developed by the Zagreb Stock Exchange, and its main feature was the fact that it was available at the time when Croatia’s communication infrastructure was still underdeveloped.

• Internet

Thanks to the support of CARNET, the first Internet provider in Croatia, the Zagreb Stock Exchange has presented general information about the Exchange as well as regular daily trading reports with price movements on its official website since the beginning of 1995. At the time, the Zagreb Stock Exchange was the first stock exchange in Europe and among the first in the world to have an official website.

• TEST-1.5

In April 1997, in order to meet the needs of ever-increasing trade intensity, the Exchange launched its first electronic system that enabled trading in real-time and named it TEST-1.5. Seemingly very similar to the TEST-1 system, the TEST-1.5 system included an important upgrade: Exchange members could now be connected to the Zagreb Stock Exchange at all times, with any new bids/offers submitted to them instantly and automatically. In order to ease the transition from one system to another, the TEST-1.5 system also enabled the brokers who still used the older version of the system to participate in trading.

• MOST and MOST-ich

Late in May 1999, the Exchange introduced the third generation of its electronic trading system: MOST. MOST abandoned the old software kernel, while including a simpler user interface and also compensating for a number of limitations of the TEST-1.5 system. Most importantly, it introduced automatic matching. In addition, the MOST system was designed in such a way as to enable very simple adjustments to new demands and financial products as it expanded in the course of time.
In a bid to make information on the status of the order book available to a growing circle of investors so as to improve trading transparency and keep up with the development of the most up-to-date market information distribution systems, in May 2000 the Zagreb Stock Exchange launched its MOST-ich system. It enabled the monitoring of trade in real time on the Internet. Subscription to the system was available either through brokerage companies or directly from the Exchange. In order to meet the need for an increasing number of Croatian Privatisation Fund auctions, early in 2001 the Exchange enabled the option to conduct these auctions through the MOST system. Since their physical presence was no longer required as members could participate in public auctions directly from their offices, the costs were reduced considerably while the system also allowed a greater number of auctions to be held.

Technology of the Future

The trading systems used by the Zagreb Stock Exchange up until autumn 2007 were more than satisfactory for the state of development of the Croatian financial market at the time. Their particularly significance lay in the fact that the very concept as well as system development were the work of a team of exclusively local experts: late Professor Dean Rosenzweig; Davorin Ruševljan, Head of Trading and Technology at the Exchange of long standing; Darko Perhoč, M.Sc., also the Exchange’s long-time expert for networks and network services; and Davorin Meštrić.
In 2007, the Croatian financial market consolidated as the Varaždin Stock Exchange merged with the Zagreb Stock Exchange. These new circumstances, resulting in a larger number of listed securities and greater trading volume, along with a natural development of the financial market that saw the investment climate improve and gave rise to a stronger interest of all market participants in new financial products, highlighted the need for the implementation of a new system that would be able to meet the needs of the small, but extremely fast-growing Croatian market.

The new trading platform, developed by Sweden’s stock exchange industry expert OMX, after being readied for a number of months, was launched in autumn 2007 enabling the kind of technological advancement that will surely be remembered.