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Prague Stock Exchange--RootsPrague Stock Exchange--Roots
jwb said: "[FONT=Times New Roman][SIZE=3]Modern-day trading on the Prague Stock Exchange began in 1993, but if you search on the Internet, you’ll find almost no details about the first 10 years of its history.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]Over 1700 companies were originally listed on the Prague Stock Exchange.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]From my perspective (I invested quite heavily in Czech companies during the first three years), the Prague Stock Exchange was a paradise [B]at that time[/B].[/SIZE][/FONT]
[B][SIZE=3][FONT=Times New Roman]GOOD QUALITIES[/FONT][/SIZE][/B]
[FONT=Times New Roman][SIZE=3]1. The nominal value for one share of a company was 1000 Czech crowns. One share truly represented 1000 Czech crowns of the company’s value.[/SIZE][/FONT]
[INDENT][FONT=Times New Roman][SIZE=3](By contrast, the “par value” of a share for a typical company listed on an American market, for example, is $0.01)[/SIZE][/FONT]
[/INDENT][FONT=Times New Roman][SIZE=3]2. If too many people wanted to buy shares of a Czech company on a trading day, then[/SIZE][/FONT]
[LIST]
[*][FONT=Times New Roman][SIZE=3]No shares were traded for the company that day[/SIZE][/FONT]
[*][FONT=Times New Roman][SIZE=3]The share price went up 5%[/SIZE][/FONT]
[/LIST][FONT=Times New Roman][SIZE=3]If too many people wanted to sell shares of a Czech company on a trading day, then[/SIZE][/FONT]
[LIST]
[*][FONT=Times New Roman][SIZE=3]No shares were traded for the company that day[/SIZE][/FONT]
[*][FONT=Times New Roman][SIZE=3]The share price went down 5%[/SIZE][/FONT]
[/LIST][FONT=Times New Roman][SIZE=3]This approach gave stability to the Prague Stock Exchange. Moreover, it added a limited amount of predictability to the course of a company’s share price.[/SIZE][/FONT]
[INDENT][FONT=Times New Roman][SIZE=3]HIGHLY IMPORTANT—this approach prevented price manipulation to a large extent.[/SIZE][/FONT]
[/INDENT][FONT=Times New Roman][SIZE=3]3. Most companies had less than 1 million outstanding shares. (To put that number into perspective, by owning less than 10,000 shares, you could have more than 1% of almost any Czech company. As an extreme example, I have more than 1% of a Czech company by owning only 717 shares!)[/SIZE][/FONT]
[B][SIZE=3][FONT=Times New Roman]NEGATIVE QUALITIES[/FONT][/SIZE][/B]
[FONT=Times New Roman][SIZE=3]1.The architects of the Prague Stock Exchange made one [B]deadly[/B] mistake. Specifically, they set the starting share price for each company at 1000 Czech crowns.[/SIZE][/FONT]
[INDENT][FONT=Times New Roman][SIZE=3]Thus, for most companies, from Day 1, the share price had no place to go but [B]DOWN[/B].[/SIZE][/FONT]
[/INDENT][INDENT][FONT=Times New Roman][SIZE=3]Czech citizens, who had zero experience with equities after 40+ years of Communism, panicked. They lined up outside fly-by-night “offices” to dump their shares at [B]below market[/B] prices. They became very distrustful of Czech companies and the Prague Stock Exchange.[/SIZE][/FONT]
[/INDENT][INDENT][FONT=Times New Roman][SIZE=3]If the architects had been a little more intelligent, they would have set the starting share price for each company at 0 (zero) Czech crowns, and completely opposite reactions would have occurred.[/SIZE][/FONT]
[/INDENT][FONT=Times New Roman][SIZE=3]2. From the beginning in 1993, the Czech Republic actually had [B]TWO[/B] stock markets: the Prague Stock Exchange and RM-System.[/SIZE][/FONT]
[INDENT][FONT=Times New Roman][SIZE=3]Rumors circulated at the time that the Prague Stock Exchange served professionals and RM-System served normal people. The rumors were lies. Almost no differences existed between the two markets. Anybody could trade on either market, and both markets listed the same companies.[/SIZE][/FONT]
[/INDENT][INDENT][FONT=Times New Roman][SIZE=3]Why, then, did two markets exist? Personally, I think that the architects of the Czech equities markets recognized the huge potential for corruption in their society. Therefore, they created a redundancy by having two markets. If a scandal occurred on one market, they could point to the second market and say, “Yeh, but this other market is still good.”[/SIZE][/FONT]
[/INDENT][INDENT][SIZE=3][FONT=Times New Roman]Today, both markets still exist. Officially, RM-System is described as the place where “off-exchange” trading occurs. That’s a lie, too. Off-exchange trading occurs at offices of Stredisko Cennych Papiru (SCP), which is a separate entity from the RM-System market. Recently, a Ukranian friend sold me his shares in two companies—Zbrojovka Brno and Svit Zlin (both companies are “dead”, but he needed money, so . . .). We simply went to SCP and completed a form. It was a real “off-exchange” trade, and we had no need for the RM-System market.[/FONT][/SIZE]
[/INDENT][INDENT][FONT=Times New Roman][SIZE=3]Why do I consider the existence of two stock markets from the beginning a negative quality? Well, I blame RM-System for initiating changes to its trading rules that eventually destroyed the original paradise of the Prague Stock Exchange.[/SIZE][/FONT]
[/INDENT][FONT=Times New Roman][SIZE=3]3. Vaclav Klaus, then Prime Minister now President, had a deadly combination in his personality: arrogance and naïveté. He wanted to rush the start of the Czech equities markets; therefore, the 1700+ companies went public in two waves during 1993-94. No way the government could do a good job of monitoring so many companies. Needless to say, although the two Czech markets never had a macro problem, corruption within the individual companies was widespread.[/SIZE][/FONT]
[SIZE=3][FONT=Times New Roman][B]PRAGUE[/B][B] STOCK EXCHANGE – TODAY[/B][/FONT][/SIZE]
[FONT=Times New Roman][SIZE=3]In one word, the Prague Stock Exchange today is a [B]joke[/B]. I have zero money invested in any of the companies that are currently listed (and I don’t care if my former “colleagues” run up the Index PX by 400 points tomorrow in an effort to discredit me). This market is not fun.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]Only 14 companies are listed on the Prague Stock Exchange. Only three of these companies have any semblance of a relationship to a company that originally appeared on the Prague Stock Exchange in 1993-94. The other 11 companies are actually foreign companies that have the Prague Stock Exchange as a secondary market.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]What happened to the 1700+ companies that were originally listed on the Prague Stock Exchange?[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]1697+ of those companies have been [B]DELISTED[/B].[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]Most of the 1697+ companies still exist.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]Many of the 1697+ companies are very profitable.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]I own shares in several of these companies.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]Today, in the year 2008, there is still a lot of activity related to the shares of these delisted companies, but…ahhhh…it’s off-camera.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]All of the threads that I will post on Superior Investor specifically concern this off-camera activity.[/SIZE][/FONT]
[FONT=Times New Roman][SIZE=3]The New York Times[/SIZE][/FONT]
[COLOR=gray][FONT=Arial]April 2, 2007, 6:03 pm[/FONT][/COLOR]
[COLOR=#333333][FONT=Georgia]I quickly learned that, duh, there is no Prague Stock Exchange, not physically anyway. It’s just a bunch of computer servers sitting in a backroom that match trades all day.[/FONT][/COLOR]"