Brokerage Takes Stock of Poland

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Brokerage Takes Stock of Poland
Andrew D. Filipek

Downtown L.A. stock brokerage Wedbush Securities Inc. is expanding overseas, building a presence in a nation with an economy practically untouched by the recession and a stock market that’s growing fast where communism once ruled.

Next week, Wedbush plans to conduct its first trades on Poland’s Warsaw Stock Exchange, one of two international exchanges Wedbush has joined in the past two years.

Company founder and President Edward Wedbush said the Warsaw exchange, Eastern Europe’s largest, could draw big interest from American investors – and generate new revenue for his company as a clearinghouse for international trades.

“Poland is economically thriving and they’ve escaped this downturn,” he said. “It’s a nation of 40 million people who are very capitalistic. Their securities could be very attractive.”

Wedbush has big plans for Warsaw. The firm hopes to process stock transactions for American brokers buying and selling Polish equities, do the same for Polish investors trading American shares, offer research and analysis on Polish companies and even help American companies list on the exchange.

Andrew D. Filipek, vice chairman of Wedbush subsidiary Wedbush Securities Europe SP in Warsaw, said the firm already has clients – including a hedge fund – prepared to start buying Polish stock.

Wedbush will try to boost demand for Polish equities among American investors by organizing a conference in the United States for companies listed on the Warsaw exchange. Filipek, who was born and raised in Warsaw and retains a distinctive accent, is tentatively planning one for next year.

“We want to give them visibility in the United States,” Filipek said. “We will get investors interested. Then we can say, ‘Just place the order and we can execute it for you.’”

While the Polish operation will make it easier for Wedbush’s U.S. customers to invest in Polish companies, the moneymaker for the firm is processing and clearing stock transactions for other firms. Stock clearinghouses act as a sort of escrow agent for stock sales, ensuring shares and money are transferred to appropriate parties in exchange for small fees.

Warsaw is an attractive market for those services, as trading volume on the exchange has quadrupled in the past 10 years. That compares nicely with U.S. exchanges, where trading volume has fallen in recent years as more stock changes hands in private exchanges called dark pools.

Wedbush made his first international move two years ago when he bought a brokerage in London and joined the exchange there last year.

He will have to compete with other U.S. firms, including Goldman Sachs and JP Morgan Chase & Co., both of which have offices in Warsaw and offer similar services.

When asked how he’ll take on those larger firms, Wedbush only said, “My best answer is better service.”


New market

Wedbush has been considering a move into Warsaw since 2008, when Filipek acquired an independent Wedbush brokerage in Northern California. After joining Wedbush, Filipek promptly pitched the company on expanding into Poland.

“The exchange is modern and Poland is a safe European haven,” Filipek said in a phone interview from the Bay Area, where he lives when he’s not in Poland. “Ed really liked the idea and gave me the assignment to establish the company.”

The Warsaw exchange is small by U.S. standards, with 438 listed companies and a combined market capitalization of about $221 billion. But it is both the largest and fastest growing in Central and Eastern Europe. What’s more, Poland, a European Union member, has its own currency, the zloty, which has insulated it from economic woes in the euro zone.

In 2011, Wedbush acquired a stock brokerage in Great Britain and a seat on the London Stock Exchange. That allowed the firm to gain access to the Warsaw exchange as a remote member, the same kind of membership held by Goldman and JP Morgan.

As remote members, those firms can execute stock transactions in Warsaw for U.S. customers, but trades first have to pass through the London exchange.

Now, Wedbush is negotiating to acquire a brokerage in Warsaw, which would give the firm a local membership on the exchange. That would mean Wedbush could execute transactions directly between Poland and the United States, without stopping in London. While Ed Wedbush said he plans to compete by offering better service, that direct connection to the United States could give his firm a big advantage over Goldman and other U.S. firms.

By bypassing London, Filipek said electronic trades could be sped up by about 27 milliseconds. Those extra fractions of a second could help Wedbush attract business from high-frequency traders, who make money by rapidly buying and selling large volumes of stock, taking advantage of tiny price fluctuations.

Processing and clearing high-speed transactions is a low-dollar business, but one that produces a solid revenue stream because of the huge volume of trades, he said.

“It’s like McDonald’s: small money but many times,” he said.

Still, becoming a local member of the Warsaw exchange could be a long way off and, for now, Wedbush will be focused on more basic lines of business.

“That’s out there, downstream,” Wedbush said. “But that’s not the main driver.”

Filipek said a more immediate priority is to initiate research on Polish companies.

“If we provide resources on Polish companies, then the public will be interested, I believe,” he said. “Investors in the U.S., they’re always looking for new ideas and new investment possibilities. We’ll open the infrastructure for business and orders should be coming.”

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