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The Warsaw Voice » Other » May 28, 2008
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NewConnect: A Viable Alternative
May 28, 2008 By A.R.    
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In the first eight months since its launch on Aug. 30 last year, the Warsaw Stock Exchange's alternative market, NewConnect, attracted 47 companies. That number is expected to grow to about 100 by the end of this year.

NewConnect has the status of an organized market but is run by the WSE outside the regulated market system-in the form of an alternative trading platform. It is targeted at both institutional and individual investors interested in higher-risk investments offering above-average profits. The market is intended for small and medium-sized companies with high growth potential. Companies listed here must be no more than three to four years old and are expected to represent chiefly innovative sectors, particularly those based on intangible assets, such as IT, electronic media, telecommunications, biotechnology, environmental protection, alternative energy and modern services.

Similar markets are available in a few other countries in Europe. Examples include the Alternative Investment Market (AIM) in London and First North, a part of the Scandinavian OMX. NewConnect is also similar to the U.S. Nasdaq.

NewConnect is intended for companies that need an injection of capital in order to tap their potential and secure a chance to develop. NewConnect has more liberal reporting requirements for issuers. As a result, companies find it cheaper to raise capital here.

In its first eight months, the NewConnect alternative market attracted 47 companies with a total capitalization of nearly zl.1.4 billion. In terms of new listings, New Connect is successfully competing with London's AIM, Europe's largest alternative market. In the first quarter of this year, NewConnect and the AIM reported the same number of new listings, 14 each. According to a forecast for the Polish stock market, this year NewConnect is expected to see more new listings than the WSE's main market. WSE President Ludwik Sobolewski says that 100 new companies will be listed on NewConnect by the year's end.

The NewConnect market has its own NCIndex. The index includes all the companies listed on NewConnect.

Companies can enter NewConnect through what are called private placements, or share offerings intended for no more than 99 investors, both institutional and private. Another method of entering NewConnect is through a public offering. A company adopting this form of entry is subject to the same procedures as those used on the regulated market, including the need to prepare a prospectus and submit it for approval to the Financial Supervision Commission.

Overall, NewConnect is intended for investors who expect higher returns in exchange for higher risks. The new market is an effective and cheap source of capital for the development of small and medium-sized companies, says Sobolewski.

NewConnect offers simple procedures, reduced formal requirements and low cost of entry and trading.

The decision to bring together many young and dynamic companies on a single market was designed to encourage increased spending on new technology and promote the use of research results in business. NewConnect is also expected to stimulate investment by both institutions and individuals.

NewConnect aims to increase the importance of the capital market for the economy, WSE executives say. They add that the market has become an important part of the Polish economy and a major pillar of ambitious plans to turn Warsaw into a regional financial hub.
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