The operation of the Warsaw Stock Exchange Group is exposed to various risks, both external related to the market, legal and regulatory environment, and internal related to the operating activities. In pursuit of its strategic goals, the WSE Group actively manages its risks aiming to mitigate or eliminate their potential adverse effect on the Group’s results.


The goal of WSE risk management is to ensure that all material risks of WSE’s activity are properly measured, reported and controlled and do not pose a threat to the operational stability and continuity of the Company. The risk management system includes a range of processes, organisational solutions, technology tools and documented rules for risk management. All assumptions and principles of the Company’s risk management system derive from the WSE Risk Management Strategy approved by the WSE Management Board and regularly reviewed to bring it in line with changes of the WSE risk profile and the market environment.

The key role in the risk management system is that of the Exchange Supervisory Board supported by the Audit Committee in supervising the WSE risk management system through on-going monitoring and assessment. Risk management is a responsibility of the Exchange Management Board supported by the Risk Management Committee. The Company’s Management Board drafts, approves and implements WSE’s risk management strategy and takes the key decisions affecting the risk levels. The WSE risk management process is monitored and controlled by the Risk Management and Organisation Department. Business process owners and participants are responsible for on-going risk management, including identification of risks in the area of their responsibility, monitoring, controlling and taking actions to mitigate such risk. Effective operations and assessment of the risk management system as well as its adequacy for the WSE risk profile are regularly reviewed by the Internal Audit Department.

WSE builds an organisational culture which focuses on effective risk management, compliance with procedures, as well as enforcement of the rules of conduct. For this purpose, steps are taken in order to raise WSE employees’ awareness of risk management responsibilities at each level of the WSE organisation, including training and a dedicated section of the corporate portal available to employees.

WSE risk management process

WSE risk management process

The WSE risk management process is continuous and includes the following elements:

  • Risk identification – identification of existing and potential sources of risk which impact or may impact WSE’s financial position.
  • Risk assessment – analysis of internal and external threats to WSE’s operation in order to determine the risk profile.
  • Risk prevention or acceptance – application of any of the following strategies:

               - risk mitigation;
               - risk transfer, e.g., transfer of risks of a threat in whole or in part to a third party;
               - risk avoidance by taking no action involving the threat;
               - risk acceptance.

  • Risk review – periodic review of the effectiveness of the existing risk management system and its adequacy for the WSE risk profile.
  • Risk monitoring – monitoring the gap between risks and projections or benchmarks. Risk monitoring is an early warning system and triggers management actions when adverse change to the WSE risk profile is identified.
  • Risk reporting – regular reporting of risk measurements, actions taken or recommendations to withhold actions to the WSE authorities.

The risk management system described above is being implemented in WSE Group companies to ensure shared standards of risk management across the Group.


The key risk factors which impact the operation of the WSE Group and consequently its financial position are divided into four categories:

  • risks related to the market environment
  • operational risks
  • risks related to the legal environment
  • financial risks

The order in which individual risks are discussed below does not reflect the extent of their relative importance for the Group, the probability of their occurrence or their potential impact on the Group’s operations.


Risks of the economic situation and market conditions in Poland

The WSE Group’s business is highly dependent on the performance of the Polish economy. Changes in the state of the Polish economy affect the business and investment activities of issuers whose securities are listed on the markets organised and operated by the Group, including their financial results, which in turn may affect the prices of these securities, the volume of transactions, as well as activities related to issuing new securities and the number of market debuts. Deterioration of market conditions in Poland also has a material impact on the activity of investors and consequently on the turnover on the Group’s markets.

WSE’s listing revenue depends directly on the level of listed asset prices and the frequency and volume of trading on the WSE markets depends on investor activity. Consequently, during periods of economic volatility and risk aversion, the Company’s revenues may decline; combined with a stable cost level, this could reduce WSE’s potential profit or cause a loss.

Risk of market and political events beyond the WSE Group’s control

The volume of trading, the number of new listings and demand for the WSE Group’s products and services are affected by economic, political and market developments, both domestic and global, that are beyond the Group’s control, including in particular:

  • general trends in the global and domestic economy and on financial markets;
  • changes in monetary, fiscal and tax policies;
  • the level and volatility of interest rates;
  • inflation pressures;
  • changes in foreign exchange rates;
  • adoption of the euro as the currency of Poland (causing potential changes to monetary and fiscal policy or causing changes in the allocation of investor portfolios);
  • reclassification of Poland from Emerging Market to Developed Market in global benchmarks;
  • institutional or individual investors’ behaviour;
  • volatility in the prices of securities and other financial instruments;
  • availability of short-term and long-term funding;
  • availability of alternative investment opportunities;
  • legislative and regulatory changes; and
  • unforeseen market closures or other disruptions in trading.

These events could have a significant impact on the activity of WSE Group clients, mainly issuers and investors. Their low activity could affect the Company’s trading and listing revenue, revenue from introduction of financial instruments, and consequently information services, and it could affect WSE’s profit.

Risk of the economic situation and market conditions outside Poland

Economic situation of other countries impacts the perception of the Polish economy, business prospects of the region, and consequently WSE’s operations. The market conditions of other countries could affect the perception of the Polish economy and financial markets, especially in periods of weak market conditions. 

In view of a significant share of foreign investors in trading in financial instruments on WSE, their low activity and risk aversion could directly affect the Company’s trading revenue on WSE markets.

Remote members are an important group of the Company’s clients, accounting for 21.7 percent of trade in equities in 2014. Considering that the revenue from trade in equities represented 33.1 percent of WSE’s revenue in 2014, low activity of remote Exchange Members and foreign investors could largely affect the Company’s financial results. 

Risk of competition from other exchanges

As a part of the global economy and a beneficiary of free flow of capital between European and global economies, WSE is exposed to the risk of competition from other exchanges and alternative trading platforms. The Company’s sector is highly competitive especially in view of increased consolidation and globalisation of exchanges in the last few years. 

Consolidation in the industry could impede the planned strengthening of WSE’s international position and affect the implementation of the Company’s strategy to become a market of first choice for investors and issuers in Central and Eastern Europe, affecting the Company’s financial results.

Risk of competition from alternative trading platforms

As a result of regulatory changes introduced in the last few years, a number of alternative trading platforms have emerged in the exchange sector, including multilateral trading facilities (MTFs) in Europe. The fees charged by MTFs are in general relatively low compared to those charged by exchanges, which is their main competitive advantage over exchanges and could lead to price pressure on exchanges including WSE. In addition, there is a risk that trade will move from exchanges to less expensive platforms.

As a result, WSE clients could exert pressures on WSE to reduce listing and trading fees, affecting WSE’s revenue. These factors could strongly affect the Company’s financial position and results.

Risk of price competition

The trading cost on large foreign exchanges and MTFs is lower than on WSE, mainly due to the relatively small size of the market in Poland and the rules of financing supervision. Consolidations in the global exchange sector and the development of MTFs may increase pressures to reduce fees charged for trade on the global financial markets.

Risk of low activity of issuers and investors

The WSE Group’s revenues and profits largely depend on the activity of WSE Group market members, in particular the volume, value and number of financial instruments traded; the number and market capitalisation of free float shares on the WSE markets; the number and value of new issues and new issuers; and the number of market participants.

A lower number of listed financial instruments, a lower number and value of IPOs and lower investor activity could strongly affect the WSE Group’s operations, financial position and results.


Risks related to WSE Group employees

The WSE Group’s operations and its ability to achieve the strategic objectives are strongly dependent its employees, their skills, availability, loyalty, and engagement in the Group’s objectives. Effective management of the WSE Group companies’ business requires recruitment of highly qualified employees. The skills of the Group employees are scarce due to the unique nature of the WSE Group companies’ operations.

Any increased turnover of key employees, their unavailability or overwork could temporarily affect the WSE Group’s effectiveness. Employee engagement and identification with the Group’s mission and strategy are also key to the WSE Group’s productivity and operational efficiency. Low engagement of employees, their unavailability or insufficient skills could affect the Group’s operation, financial position and results, as well as its ability to achieve the strategic targets.

Risk of contractors and business partners over which the WSE Group has limited control

The WSE Group’s activity depends on several third party service providers, including KDPW, KDPW_CCP as well as IT service providers. The ICT systems operated by the WSE Group companies for trading in financial instruments and commodities are highly specialised and customised, and are not widely used in Poland or elsewhere. Consequently, there is limited choice in service providers for such systems. There can be no assurance that any of the WSE Group’s providers will be able to continue to provide their services in an efficient manner, or at all, or that they will be able to adequately expand their services to meet the WSE Group’s needs. 

System interruption or malfunction or the cessation of important services by any third party in whole or in part and WSE Group companies’ inability to make alternative arrangements in a timely manner could strongly affect the Group’s operation, financial position and results.

Risk of trading system malfunction

Safety and continuity of trading are among the key functions of WSE. The Group’s operations are strongly dependent on the effective functioning of its trading systems, which are subject to the risk of outages and security breaches. The reliability of the Group’s trading systems is as important as their efficiency. 

In the event that any of the WSE Group’s systems, or those of its third-party service providers, fail or operate slowly, it may cause any of the following to occur: unanticipated disruptions in services provided to the Group’s market members and clients; slower response times or delays in trade executions; incomplete or inaccurate recording or processing of trades; financial losses and liability to clients; litigation or other claims against the Group, including formal complaints with PFSA, proceedings or sanctions.

Malfunctions in the trading system and other integrated IT systems could delay a trading session and therefore cause a reduction in the volume of trading and affect confidence in the market, which could have a material adverse effect on the Group’s results, its financial position or development prospects.

Risk of security breach in the Group’s IT systems caused by third parties

The WSE Group’s electronic trading platforms involve the storage and transmission of its clients’ proprietary information. Secure transmission of confidential information is a crucial element of the Group’s operations. A failure of a platform, including a security breach, could expose the WSE Group to a risk of loss of such information, and, in consequence, the risk of litigation and possible liability. 

The WSE Group may be required to expend significant resources to protect against the threat of security breaches or to mitigate occurring problems, including reputational harm caused by any security breaches. The above factors may strongly affect the WSE Group’s operation, financial position and results.

Reputation risk

WSE’s operation relies on safety and continuity of trading ensued by operational excellence and highly qualified employees. The specificity of the WSE Group’s business requires unique confidence of clients, which may be breached due to events which undermine or impair the WSE Group companies’ reputation. 

If the WSE Group’s security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, a third party obtains unauthorised access to trading or other confidential information, the reputation of WSE could be damaged, its business may suffer and the WSE Group could incur significant financial liability. If a breach of the WSE Group’s IT systems security occurs, the market perception of the effectiveness of its security measures could be harmed and could cause market members and clients to either reduce or stop use of its electronic trading platforms. Any events affecting the WSE Group’s image and its credibility could reduce the number of issuers and investors and consequently the WSE Group’s revenue. Any actions to rebuild reputation and client confidence would affect the WSE Group’s expenses and financial results.


Regulatory risk related to the Polish legal system

The WSE Group operates primarily in Poland where the financial market and the commodity market are widely subject to government regulation and strict regulation. The Polish legal system and regulatory environment can be subject to frequent and sometimes significant unanticipated changes and its laws and regulations may be subject to conflicting official interpretations.

Regulatory change may affect the WSE Group as well as existing and prospective customers of its services. For instance, regulatory changes may affect the attractiveness of listing or trading on the markets organised and operated by WSE, which could affect the WSE Group’s financial position.

Regulatory risk related to EU law

The financial market in Poland is subject to European Union regulation which will have a material impact on the WSE Group both as an organiser of trading and a public company. The following EU regulation may have a special impact:

  • Market in Financial Instruments Directive (MiFID II) and Market in Financial Instrument Regulation (MiFIR) with implementing regulations:

             - implementation date – 3 July 2016

             - application date – 3 January 2017

  • MAD/MAR (Market Abuse Directive and Market Abuse Regulation) with implementing regulations:

             - application date – 3 July 2016.

Changes to these and other EU regulations and their implementation could strongly affect the WSE Group’s operation. They would force the Group to implement specific solutions, which would affect its expenses and financial position.

Risk of the cost of supervision

WSE is required to contribute monthly payments to PFSA’s annual capital markets supervision budget, which is based on the expected costs of supervision over the Polish capital market for a given year and estimated PFSA revenues from market participants. WSE cannot predict the total amount it will be required to contribute to PFSA’s budget in a given year.

The cost of supervision affects the WSE Group’s expenses (fees and charges) and its profit.

Risk related to pension fund reform

A pension fund reform was implemented in February 2014, in which 51.5% of the net assets of pension funds, mainly Treasury bonds, were moved to the Social Security Institution (ZUS) and then cancelled. Until the end of July 2014, pension fund members could decide whether to keep assets under management with pension funds or have them transferred to ZUS. More than 2.5 million Poles decided to stay with open-ended pension funds while the net asset value of pension fund portfolios was PLN 149.1 bn at the end of 2014.[1]

The reform also set the minimum investment of pension funds in stocks at 75 percent of assets by the end of 2014, 55 percent by the end of 2015, 35 percent by the end of 2016, and 15 percent by the end of 2017.

Changes in fund flows to and from pension funds or their investment decisions, in particular derived from the amendment to the Pension System Act, may result in a reduction of investments in assets traded on the WSE markets, in particular on the Main Market.

In view of material investment of open-ended pension funds in shares listed on WSE, any reduction of contributions transferred to open-ended pension funds or limitation on open-ended pension fund assets allowed to be invested in securities issued by companies listed on WSE could strongly affect the level of trading and demand for shares of such companies and result in higher volatility of stocks in open-ended pension fund portfolios.

Current regulations in Poland impose a cap on investment of pension funds in financial instruments listed on foreign exchanges, which limits the opportunities of open-ended pension funds to invest in stocks listed on other exchanges to 10% of their total assets by the end of 2014, 20% in 2015, and 30% in 2016. 

In view of material investment of open-ended pension funds in shares listed on WSE, any reduction of contributions transferred to open-ended pension funds or limitation on open-ended pension fund assets allowed to be invested in securities issued by companies listed on WSE could strongly affect the level of trading and demand for shares of such companies and result in higher volatility of stocks in open-ended pension fund portfolios.

Risk of lack of formal permission for PolPX to operate a derivatives market

The WSE Group awaits permission of the Minister of Finance for the Polish Power Exchange to operate a regulated market as a condition of launch of the financial market by PolPX and opening of trade in commodity derivatives. Following MF’s approval, futures based on spot electricity prices will be launched on PolPX in the first place. Subsequently, the WSE Group plans to introduce to trading derivatives based on prices of certificates of origin of energy from renewable energy sources and on gas prices.

The launch of the commodity derivatives is a new potential source of revenue for the WSE Capital Group. The lack of formal permissions or the delay in getting them may influence the PolPX strategy execution in this area. 

Risk of legal implications of CACM (Capacity Allocation and Congestion Management) for PolPX

Under CACM, which is expected to take effect in June 2015, every EU member state is required within four months of the effective date to appoint at least one energy exchange as a Nominated Electricity Market Operator (NEMO) for every price zone of the national electricity market for the Day-Ahead Market and the Intra-Day Market. PolPX fulfils all requirements of nomination as NEMO according to the proposed provisions; however, the process of application for NEMO status and the relevant procedures of the President of the Energy Regulatory Office have not yet been defined.

The risk for the WSE Group under the CACM materialize in the risk not receiving nominations for the position of NEMO by PolPX and by the threat of foreign exchanges competition on the Polish electricity market.

[1] Source: PFSA.


Risk of interest rate hikes

The Company is exposed to a risk of interest rate changes due to debt instruments issued by WSE with variable interest.

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 WSE’s financial position and results.

Risk of changes to tax laws

Changes to tax laws may have a material impact on the business of the Company. There is a risk that the WSE Group’s particular interpretations and applications of current and future Polish tax laws may be challenged.

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 WSE’s financial position and results.


Other risks, which are unknown or considered irrelevant at this time, may also have a material negative effect on the WSE Group’s operation, financial positions and results.