& 2002 FACTS FIGURES. on the Italian Exchange.

Transcription

1 & 2002 FIGURES on the Italian Exchange FACTS

2 FACTS 2002 FIGURES &on the Italian Exchange

3 Writing and Paging: Borsa Italiana Spa, Research & Development Illustrations: Davide Zanetti English version: SIMBA LANGUAGE SERVICES di Barbara Potton Print: Tipografia Milanese September 2003 Borsa Italiana Spa All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage or retrieve system without prior permission from the copyright owners. The publication of this document does not represent solicitation, by Borsa Italiana Spa, of public saving and is not to be considered as suggestion by Borsa Italiana as to the suitability of the investment, if any, herein described. Trademarks Borsa Italiana, MIB30, MIBTEL, Midex, Nuovo Mercato, NUMEX, NUMTEL, NUMTES, STAR, MIBSTAR, IDEM, MiniFIB, MCW - Mercato dei Covered Warrant, EuroMOT, MTF, BIt Club, ITEX, Academy e Borsam@t are owned by Borsa Italiana S.p.A. Trademark BIt Systems is owned by BIt Systems S.p.A. Trademarks Cassa di Compensazione e Garanzia and CC&G are owned by Cassa di Compensazione e Garanzia S.p.A. Trademark Monte Titoli is owned by Monte Titoli S.p.A. Trademarks Piazza Affari Gestione e Servizi and Palazzo Mezzanotte Congress and Training Centre are owned by Piazza Affari Gestioni e Servizi S.p.A. The above trademarks and all the other trademarks of Gruppo Borsa Italiana cannot be used without the previous written approval of the Company of Gruppo Borsa Italiana having the ownership of the same. This document has not to be considered complete and it is meant for information and personal purposes only. Borsa Italiana accepts no liability raising, without limitation to the generality of forgoing, from inaccuracies and/or mistakes, for decisions and/or actions taken by any party based on this document.

4 Introduction The year 2002 proved to be critical for the world economy and the difficult international economic situation on many occasions hampered interventions of economic policy intended to support growth. The general macroeconomic conditions adversely influenced the Exchanges, which for the second consecutive year experienced a fall-off in activity on both the primary and the secondary market. Although affected by the situation overall, Borsa Italiana was able to curb the downward trend. Listing activities brought 14 new companies to the market, taking the number of companies listed since 1998, year of the launch of Borsa Italiana operations, to 139 (compared to 101 companies listed during the previous ten years). The Stock Exchange indices showed a downward trend (-23.7% as regards the MIB), although to a lesser extent compared to the main European markets, indicating a greater resistance of prices. There was a basic stability in trading on the equities and derivatives markets, while trading of eurobonds on the EuroMOT showed substantial growth rates. Certainly, the better results achieved by the Italian markets were favoured by the widespread perception of reliability in terms of the instruments traded and the constant commitment to developing the market. The focus on the quality of the markets and the needs of participants, which has always characterised Borsa Italiana, is now more effectively reflected in the new configuration of the Borsa Italiana Group, which was completed in 2002 with the acquisition of Monte Titoli. The Borsa Italiana Group is now in a position to efficiently provide a full and complete set of services to the domestic and international financial community. The effectiveness of the model chosen by Borsa Italiana is based on the ability to combine the synergies deriving from the unified coordination of the various functions making up the core business of an Exchange, with the diversification of the activities performed by the Group. Coordination of the Group companies facilitated the management of major projects directed towards enhancing the entire product business system. In this connection, 2002 was the year of planning, while 2003 will be the year of implementation. Specifically, in addition to the central counterparty service developed with Clearnet for the Government securities market, Cassa di Compensazione e Garanzia designed the new CCP service for the Borsa Italiana cash market, which will come into operation on 23 May In September (as regards fixed income instruments) and in November (for equities) Monte Titoli will also launch the new Express II settlement service, designed to revise and structurally change the settlement procedures for the entire Italian financial system. Borsa Italiana also worked with parties outside the Group. In particular, in partnership with Standard & Poor s, the new S&P/MIB index was developed, distribution of which will

5 introduction commence on 2 June This index (representing over 80% of capitalisation, free float and value traded on the Italian stock markets), in view of its approach based on attention to ranking by sector and consideration of the free float, is designed to further meet the needs of intermediaries and investors and will potentially allow the further development of new products, such as derivatives and ETFs. Borsa Italiana s 2002 activity was not limited to just projects: several major interventions were implemented during the past twelve months. During a year that was severely affected by the crisis in terms of confidence in equity investments following the corporate scandals which, whilst they concerned above all the United States, also spread doubts throughout the European financial market system, Borsa Italiana continued to work towards consolidating and diffusing at domestic and international level the quality of the companies listed on its markets. In the front line with the Steering Committee for Corporate Governance, Borsa Italiana actively took part in updating the Code of Conduct for listed companies, readily adopted within the regulatory context of the markets based on the principle of comply or explain. This is also the direction taken by the support given to the work leading up to the realisation of the Guide to the disclosure of information to the market. The protection of transparency was also reflected in the regulatory provisions, effective as from 1 January 2003, requiring listed companies to adopt an internal dealing code for the disclosure of information on trades carried out by relevant persons. Attention to the continuous development of the markets and the satisfaction of the diversified needs of market participants (issuers, intermediaries, institutional and retail investors) led to further improvements in the market model for the stock markets and the adoption of the new trading platform for the IDEM which, in turn, enabled the introduction of single stock futures. Borsa Italiana also integrated its range of financial instruments with the admission of Exchange Traded Funds (ETFs) was thus a very demanding year and the balance can be considered positive reserves new challenges also, and above all, in view of the new competitive stimuli that may emerge from the evolution of the regulatory context, particularly at international level. In its new Group configuration, Borsa Italiana intends to transform the pressures on its business system into growth opportunities. Alongside the attention to continuous development of the markets managed and the constant search for ways to satisfy the needs of market participants, Group synergies, diversification of activities and focus on listing opportunities for small and medium sized businesses represent the guidelines for the coming year. Massimo Capuano President and Chief Executive Officer Borsa Italiana Spa

6 Contents The Stock Exchange during 2002 page 7 News in the operational framework of Borsa Italiana 12 How listing is developing: companies and securities listed 28 Raising of capital and public take-over bids 34 Equity markets performance 40 The Covered Warrants Market 48 The fixed-income markets: MOT and EuroMOT 53 IDEM: the Italian derivatives market 58 Characteristics of the demand for Italian shares 62 The intermediation of financial instruments 66 Market statistics 71 Methodological notes 103 List of intermediaries 107

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8 The Stock Exchange during 2002 In the year 2002 world domestic product increased by 2.7%, recording a growth with respect to the period of stagnation in 2001 (1.9%), but still a long way from the performances of the Nineties. The United States economy showed a similar profile, with a growth of 2.4% that was a decided acceleration on the 0.3% of the previous year. Apart from a positive inventory cycle at the beginning of the year, the improvement was supported above all by internal consumer demand. The trend in public consumption (+4.5%) was facilitated by an expansive fiscal policy, associated with a growth of over 3.0% in private consumption. The propensity to spend of United States households was supported by the availability of credit at close-to-zero actual costs and by a wealth effect deriving from the trend in real estate prices, which partly offset the negative impact of the decline in equity wealth. In fact, the Federal Reserve continued to pursue a distinctly expansive monetary policy deciding a further cut in interest rates and taking the rate on Fed Funds to 1.25%. On the other hand, the decline in productive investments continued, suggesting that the capital accumulation generated during the two-year period has than 0.8% not been entirely cleared. Based on the end-of-year surveys it would appear that a low has been reached in capital goods spending, indicating a substantial absorption of the imbalances. The financial community and the trends in share prices were heavily influenced by the effects of the series of financial scandals, which further shook market sentiment and led the US Stock Exchanges to close 2002 with a decidedly negative trend. In 2002 the United States economy gave signs of improvement due above all to expansive fiscal and monetary policies, while in Euroland there was a further slowdown with a growth in GDP of no more Again during 2002 the European economy failed to generate independent growth capabilities with respect to the United States and showed a much lower trend in gross domestic product (+0.8%). The trend for the entire area was heavily conditioned by Germany s negative performance. Adding to an already complex economic situation, there was a fall-off in consumer demand partly connected with the expectations of a rise in prices perceived by consumers following the definitive adoption of the euro, with the introduction of banknotes and coins. Towards the end of 2002 the European Central Bank cut the reference interest rate (REFI) from 3.25% at the end of 2001 to 2.75% at the end of As regards fiscal policies, the Economic and Monetary Union member Countries moved within the parameters laid down in the Stability and Growth Pact Italy stayed in line with the growth trends of the European Countries as a whole and the gross domestic product rose by 0.3% compared with +1.8% in

9 the stock exchange during 2002 The negative macroeconomic performances were generally reflected on the Stock Exchanges which showed a sharp fall-off compared with last year s levels was thus characterised by a misalignment in the growth rates of the United States and European economies: in the first case there were clear signs of improvement, while in the second stagnation prevailed. With regard to the growth prospects, still weighing on the potential of the United States economy are the imbalances that have been accumulating since the second half of the Nineties and were not recovered during 2002: the private sector is still heavily in debt, and this trend has not decreased despite the drop in share prices; problems of dependency on foreign capital flows and the indices of all current account payments deficit continue to exist. In Europe, the recent trends in the exchange rate, which saw a gradual 2002 sharply down strengthening of the euro against the dollar, can potentially reduce Europe s competitiveness and hence its ability to generate exportdriven growth. More far-reaching, on the other hand, is the matter of whether or not alternative methods should be identified for the adoption of community economic policies in order to facilitate the support of internal growth. Generally speaking, weighing on the growth potential of both the real economy and the financial markets are the uncertainties deriving from the criticality of the political situation and from the post-war management of Iraq. The financial scandals from across the Atlantic weighed on investor confidence and international markets closed The Stock Exchange indices continued to show a downward trend, closing the year at levels well below those of 2001 year-end: Italy -23.7%, United Kingdom -24.8%, Switzerland -27.8%, Spain -28.1%, France -33.7%, Netherlands -34.8%, Sweden -41.7%, Germany -43.9%. Outside of Europe, the S&P500 index closed at -24.2%, Nasdaq Composite at -32.8%, the Tokyo Stock Exchange index at -18.6% and the Toronto Stock Exchange index at -13.8%. These results were due to a substantial resistance in prices during the first half of the year and a progressive setback during the middle months when the news concerning the level of diffusion of the financial scandals and the series of downward adjustments to profit growth forecasts caused a deterioration of the United States market sentiment, the effects of which also spread to European Exchanges. The low was reached during the month of October, from which time price levels remained basically stable. At sector level, the old economy indices resisted better than the high growth segment (Nuovo Mercato -50.3%, FTSE Techmark -51.1%, Nouveau Marché -52.9%, Neuer Markt -63.1%, Nasdaq Europe -63.8%). As regards Borsa Italiana market indices, the MIB closed the year at 16,954 (-23.7% with respect to 2001 year-end) after a low reached on October 9 th (15,154), partially recovered through the October and November sessions. The Nuovo Mercato NUMEX index reached 1,308 at the end of the year (-50.3% compared with the 2001 close). On the other hand, the MIBSTAR index, dedicated to the companies of the STAR segment, limited its losses to -6.5%. The best relative performance remained constant throughout the year, outperforming the general index in ten months out of twelve. The volatility of the Stock Exchange MIB index on an annual basis was 21.8%, in line with the previous year s level (21.9%). The volatility of 8

10 the NUMEX, at 34.5%, showed a further decrease from 44.3% in 2001 and 68.2% in The MIBSTAR continues to show more contained levels of volatility (11.4%), which were also lower than in 2001 (16.2%). The industrials macro-sector declined to a lesser extent (-13.0%) compared with Services (-20.7%) and Financials (-29.9%). Among the sectors of significant size (equal to at least 1% of capitalisation), positive performances were recorded by the Machinery-Mechanical (+14.7%), Minerals-Metals-Petroleum (+7.1%), Transportation-Tourism (+4.2%) sector indices, while there was a decided fall-off in the Auto (-51.5%), Insurance (-35.4%), Textiles (-33.6%) and Chemical (-33.2%) segments. The fall-off seen in the financial markets at international level also affected the operations of the Italian stock market. Overall capitalisation showed a further decrease at the end of 2002 and Italy closed the year ranking fifth place of the European Stock Exchanges, behind London, Paris, Frankfurt and Zurich. Equity turnover was essentially stable (chart 1), confirming Borsa Italiana s fourth position in Europe in terms of turnover through its electronic trading systems. On the other hand, the EuroMOT expanded, reaching its all-time high. The introduction of the new trading platform for the derivatives market helped to promote the growth of the IDEM. At the end of 2002, overall capitalisation of the listed domestic companies amounted to billion euro (592.3 at the end of 2001), equal to 36.6% of GDP. The breakdown showed that billion euro of the capitalisation came from the Stock Exchange, 6.4 from the Nuovo Mercato and 4.5 from the Mercato Ristretto. Trading during the daytime phase of Italian shares listed on the Stock Exchange was basically stable with respect to 2001, showing a daily average of 142,933 trades and 2,449.3 million euro in turnover; within this context the most liquid month was systems November, with a daily average of 170,342 trades and 2,848.2 million euro in turnover. Within the Stock Exchange a greater concentration was recorded in the trading of MIB30 shares, up from 68.9% to 75.2% in terms of trades and from 81.9% to 88.5% in terms of turnover. On the other hand, volumes relating to the shares listed on the Nuovo Mercato were down, from a daily average of 27,124 to 12,013 trades and from 76.7 to 39.4 million euro in turnover. The elimination of minimum trading lots for listed shares, effective as from 14 January 2002, did not influence the average size of trades which remained basically unchanged (17,135.9 euro compared with 17,592.0 in 2001 for the daytime phase). Trading activities on the Covered Warrants Market experienced a slight fall-off in terms of number of trades executed (daily average -8.9%) and turnover (daily average -12.1%). The number of instruments listed fell from 5,866 at the end of 2001 to 3,571 at the end of 2002 (6,668 admissions and 8,963 delistings), after reaching an all-time high of 7,628 instruments listed at the end of May. Turnover recorded on the After Hours Market amounted to 1.7 million trades and 6,940 million euro, with a daily average up from 24.4 million euro in 2001 to 28.4 in 2002 (+16.5%). In 2002 the EuroMOT showed a record turnover, the IDEM benefited from the advantages offered by the new trading platform and the stock market ranked fifth place in Europe in terms of overall capitalisation and fourth for daily average turnover though its electronic 9

11 the stock exchange during 2002 Turnover in Exchange Traded Funds (ETFs), listed from 30 September 2002, reached 5,124 trades and 206 million euro, with a daily average of 81 trades and 3.3 million euro. The EuroMOT saw a further growth: with a rise in the number of instruments from 21 in 2001 to 22 in 2002, total turnover increased from 969 to 2,295 million euro (daily average up from 3.8 to 9.1 million euro). The turnover in Government securities also showed a positive trend, despite the reduction in the number of instruments listed (from 117 to 112): total turnover was up from 126,015 to 150,879 million euro, with a rise in daily average from 500 to 559 million euro. Corporate bonds on the other hand experienced a downward trend during the year with daily average turnover down from 39.7 to 30.9 million euro. During the whole of 2002, the IDEM recorded 17.2 million standard contracts, for a notional turnover of 944 billion euro. The daily average of standard contracts remained substantially stable (67,782 in 2001 and 68,443 in 2002) while, following the drop in share prices, the daily average notional turnover fell by 20.1% (from 4.7 to 3.7 billion euro). The new trading platform introduced on 22 April 2002 helped to boost the market thanks to the upgrades to the microstructure and system and, during the subsequent period, the daily average of standard contracts rose by 22.1%. The breakdown by instrument shows a growth in the daily average of standard futures contracts on the MIB30 (+5.2%) and on the minifib (+52.3%). A slight fall-off was recorded in option contracts: the daily average of standard contracts was down by 4.7% for options on the MIB30 and by 8.9% for those on single shares. However, the latter are still the most traded instrument on the IDEM, where they represent 44.0% of total standard contracts. From 22 July 2002 the offer of financial derivatives has been enhanced with the introduction of single stock futures contracts: on the five underlyings present at the end of 2002 (Enel, CHART 1 - PERFORMANCE OF THE EQUITY MARKET - MONTHLY DATA Turnover (euro ML) MIB Index (end of month)

12 Eni, Telecom Italia, Tim and Unicredito Italiano) 59,868 standard contracts were traded for a notional turnover of 328 million euro. During the course of the year, 14 companies were admitted to listing (12 on the Stock Exchange and 2 on the Mercato Ristretto) and, at the end of 2002, the number of companies listed came to 295 (237 on the Stock Exchange, 45 on the Nuovo Mercato and 13 on the Mercato Ristretto). A total of 6.6 billion euro was raised through the stock markets. Twenty-two public takeover bids were carried out during 2002, returning to the market 2.8 billion euro. 11

13 NEWS IN THE OPERATIONAL FRAMEWORK OF BORSA ITALIANA News in the operational framework of Borsa Italiana In the course of 2002 Borsa Italiana completed and enhanced its corporate model by acquiring Monte Titoli, the company that offers a wide range of custody & administration, clearing & settlement and ancillary services. According to its new struture (table 1), the Borsa Italiana Group is able to efficiently offer the domestic and international financial community a full and complete set of services. The effectiveness of the model chosen by Borsa Italiana is based on the ability to combine the synergies deriving from the unified coordination of the various functions making up the core business of an Exchange, with the diversification of the activities performed by the Group. From a functional viewpoint, the Group is able to control the entire business system typical of an Exchange: Borsa Italiana is responsible for listing and trading activities, carrying out through BIt Systems the activity of designing the trading platforms; Cassa di Compensazione e Garanzia (CC&G) and Monte Titoli, each within its respective ambit of operations, handle the following post-trading activities: trade netting and TABLE 1 - CORPORATE STRUCTURE OF BORSA ITALIANA GROUP BIt Systems 65% 99% monte titoli ICT project management services 100% 59% National CCD and settlement functions piazza affari gestione e servizi Facility management Congress & Training Centre cc&g CASSA DI COMPENSAZIONE E GARANZIA Clearing (derivatives); Guarantee (cash); CCP cash (bond and, from , equity) 12

14 guarantee (guaranteeing the successful outcome of contracts executed on the regulated markets); checking, through the daily trade-checking service (ensuring the correspondence of transaction terms); clearing (calculation of the obligations undertaken by the contracting parties as shown on the checked operations) and settlement (settlement of the trade by crediting or debiting securities and cash to the contracting parties accounts); Monte Titoli also manages the activity of custody and therefore the administration of financial instruments at centralised level. Each company of the Group also provides services designed to meet the requirements of the financial community other than those typical of a market management company. This opening up of the corporate model benefits the entire Borsa Italiana Group, in terms of diversification and expansion of the customer base. The efficiency of the corporate model was confirmed with the design, in the course of 2002, of a central counterparty system for the cash market (in operation from 23 May 2003), in addition to the CCP for the trading of Government securities on the MTS platform developed in partnership with Clearnet and in operation since 16 December During its initial phase, the CCP for the Borsa Italiana markets involved Borsa Italiana and Cassa di Compensazione e Garanzia and, in the course of 2003, the project will make further use of the Group s synergies. In fact, the second phase will see the integration of the central counterparty with the new settlement system Express II to be implemented by Monte Titoli during the months of September (for fixed income instruments) and November (for shares). During 2002, Borsa Italiana also worked with parties outside the Group with a view to enhancing the quality of its markets: this particularly includes the commitment within the ambit of the Steering committee for corporate governance and the support given to the forum ref. in its preparation of a Guide to the disclosure or information to the market. The attention given to the continuous development of the markets and satisfaction of the changing needs of market participants led to the completion of the EuroBIt Market Model for the stock markets and the adoption of the new IDEM trading platform which, in turn, made it possible to introduce single stock futures. With regard to the regulatory framework of the markets, the main new development has been the creation of an ad hoc regulatory reference for the negotiation of Exchange Traded Funds, leading to integration of the structure of the Borsa Italiana markets with the Electronic Funds Market (table 2). BORSA ITALIANA AND THE QUALITY OF LISTED COMPANIES In a year that has been badly affected by the international crisis as regards confidence in the quality of listed companies, Borsa Italiana effectively contributed towards spreading the culture of good corporate governance and further consolidated its efforts to ensure a high national and international standing for Italian listed companies. This included: taking part, as member of the Steering committee for corporate governance, in the revision of the Code of Conduct; 13

15 NEWS IN THE OPERATIONAL FRAMEWORK OF BORSA ITALIANA introducing within its regulatory framework the disclosure obligation with regard to transactions involving company shares carried out by top management and other persons having access to relevant information (internal dealing); actively supporting the forum ref. on the communication of corporate information for the formulation of a guideline for disclosing information to the market; raising certain requisites for admission to listing. CORPORATE GOVERNANCE: THE REVISION OF THE CODE OF CONDUCT The Code of Conduct aims to consolidate the use of best practices in corporate governance in order to enhance the image and appeal of Italian listed companies with an increasingly global, competitive and demanding financial community In the course of 2002, after a careful evaluation of the status of implementation of the Code of Conduct issued in 1999, the Committee for the corporate governance of listed companies introduced revisions formulated based on experience acquired and trends emerged, also at international level, during the two years following its publication. The Code of Conduct offers recommendations aligning the peculiarities of the Italian context, comprising listed companies of relatively small size and with concentrated ownership structures, to international best practices and standards of corporate governance. The main objective is to maximise the shareholder value able to be acquired through a clear and defined model of corporate TABLE 2 - THE ORGANISATIONAL STRUCTURE OF BORSA ITALIANA MARKETS Equities Covered Warrants Funds Fixed Income Derivatives MTA NUOVO MERCATO RISTRETTO MCW MTF MOT M EURO T IDEM Blue-chip STAR Ordinary Segment Shares Warrants Pre-emptive rights Convertible bonds After Hours Market Covered Warrants and Certificates on: Shares Gov. bonds Interest rates Currencies Indices Commodities After Hours Market Class 1: Exchange Traded Funds (ETFs) Index open-end funds Index Sicav Class 2: Closed-end funds (Investing in Securities or in Real Estate) Government bonds Private bonds Eurobonds Asset Backed Securities (ABSs) Equity derivatives: MIB30 futures MINIFIB MIDEX futures MIB30 options IDEM stock futures Stock options 14

16 governance, with adequate distribution of responsibilities and powers and with a correct balance between management and control. Adoption of the Code of Conduct follows the English principle of freedom with accountability and its implementation is not binding, but takes place on a voluntary basis. On this basis, but convinced that disclosure of the adoption of the Code s principles is important for the regular working of the market, Borsa Italiana has decided to include in its regulatory framework a reference to the Code s contents based on the comply or explain principle. Adoption of the Code s requirements is voluntary and it is possible to adopt even part of the measures suggested, however the directors of listed companies are required to explain, on a yearly basis, the reasons for (complete or partial) failure to comply with the Code or some of its recommendations. Moreover, in the case of a new admission to listing, the company is requested to compare its model of corporate governance with that suggested by the Code and to summarise as part of the application for admission to listing the outcome of such comparison. For companies belonging to the STAR segment and the Nuovo Mercato, the comply or explain principle has been set aside and observance - both during admission and on an ongoing basis - of certain recommendations set out in the Code has been made compulsory. The listed companies common interest in promoting the quality of Italian companies is shown by the extensive compliance with the Code s recommendations. Borsa Italiana s monitoring of the degree of adaptation on the part of listed companies from 2001 (first year of coming into effect of the Borsa Italiana regulatory provisions relating to compliance with the Code s recommendations) to 2002, has shown a growing improvement at disclosure and degree of adaptation level (table 3). TABLE 3 - DEGREE OF ADAPTATION TO THE CODE OF CONDUCT: MIB30, MIDEX AND NUOVO MERCATO COMPANIES LEVEL OF DISCLOSURE Companies providing information on: role of the Board of Directors 74% 95% composition of the Board of Directors 61% 90% composition of the internal control committee 48% 77% composition of the remuneration committee 49% 76% LEVEL OF ADAPTATION: MAIN RECOMMENDATIONS Companies that have appointed independent directors 90% 100% Average percentage of independent directors present on the Board of Directors 42% 44% Companies that have set up the internal control committee 76% 88% Companies that have set up the remuneration committee 75% 83% Companies that have adopted an internal procedure for confidential information 60% 85% Source: Borsa Italiana 15

17 NEWS IN THE OPERATIONAL FRAMEWORK OF BORSA ITALIANA With respect to the earlier version, the main innovations prompted by national and international best practice concern: Independent directors: the independence of each director must be periodically evaluated by the Board of Directors, in accordance with precise criteria, and the outcome of such evaluation must be disclosed to the market. It is also recommended that on Boards of Directors of companies controlled by other listed companies a sufficient number of independent directors should be present to allow the establishment of a committee for internal control exclusively composed of independent members. Internal control: the Committee provided for a new definition of internal control in line with international standards and emphasised that it should be a process involving all corporate functions, with the purpose of controlling the efficiency of company transactions, the reliability of financial information, the observance of laws and regulations and the protection of corporate assets. The duties and responsibilities of the Board of Directors with regard to internal control were also specified. The internal control committee, composed of non-executive directors (the majority of whom must be independent), is required to previously verify the accounting principles adopted also at group level. Transactions with related parties: companies are required to define general criteria for identifying transactions which require the approval of the Board of Directors; it is emphasised that such transactions must comply with criteria of substantial and procedural correctness and that directors having an even potential and indirect interest must promptly make the board fully aware of the existence of such interest and must leave the meeting at the time of the resolution. When required by the nature, entity and characteristics of the operation, recourse to independent experts is recommended (advisors such as banks, auditing firms and other experts) for fairness opinions to be issued and to lawyers for legal opinions to be issued. Handling of confidential information: in view of the new rules for internal dealing adopted by Borsa Italiana, it has been considered appropriate to integrate the provisions relating to the handling of confidential information, recommending that the information concerned with the procedure be extended to also include information pertaining to transactions carried out by relevant persons. It is also recommended that issuers consider adopting shorter timing intervals with respect to those laid down by Borsa Italiana in its rules. Remuneration committee: the competence of this committee is clearly specified also as regards stock option or stock allocation plans. With the re-examination of the Code, the Steering committee concluded its own activity and invited Borsa Italiana to further the targets reached, also considering the new legislative reforms of the Italian company law Borsa Italiana, aware of the importance of corporate governance as a means of ensuring the development of the markets maximising, through transparency, the Italian market s liquidity and competitiveness, has confirmed the adoption of the Code s recommendations in accordance with the comply or explain principle. Borsa Italiana has also prepared guidelines for drafting the annual report on the comparison with the Code s recommendations to be made available to shareholders during approval of the financial statements. In this way it has achieved the double purpose of providing a useful support to the listed companies and 16

18 promoting the development of an information standard able to facilitate the comparability of corporate models in favour of investors. THE CODE OF CONDUCT FOR RELEVANT PERSONS: INTERNAL DEALING In each listed company there are people who, according to the position held, have decisional power or in any case significant knowledge of the company s strategies, such as to be facilitated in investment decisions regarding financial instruments of the company in question (internal dealers). In order to ensure a homogeneous distribution of information on the market, and considering that trading activities set up by relevant persons act as a sign for the investors, Borsa Italiana has decided to give transparency to the operations carried out by relevant persons. With effect from 1 January 2003, Borsa Italiana requires listed companies to have a code of conduct intended to regulate, with mandatory effect, the information obligations and any restrictions pertaining to the operations carried out by relevant persons. Unlike the voluntary implementation of the code of corporate governance, the internal dealing code must be adopted on a compulsory basis by each listed company according to the terms and minimum content laid down by Borsa Italiana (table 4). The areas of flexibility concern the definition of more stringent market disclosure obligations, as well as the possibility to impose on the relevant persons black out periods, in other words times during the year when the operations carried out by relevant persons are restricted or forbidden. GUIDE TO THE DISCLOSURE OF INFORMATION TO THE MARKET Since 2001, Borsa Italiana has actively participated in the work of the forum ref. on corporate disclosure of information promoted by the financial community through the representative Associations with the object of defining principles for improving the communication of information on listed companies. In June 2002 the Guide to the Disclosure of Information to the Market were published, setting out ten principles for improving the management of information disclosure to the market by listed companies. Although the topics considered are mainly addressed to listed companies, they represent an important reference point also are the result of an for anyone - such as asset management companies, intermediaries and analysts - using the information distributed to steer their market behaviour. The Guidelines to promote correct performance of the role of communicating information to the market agreement set up between all the parties concerned: issuers, Borsa Italiana, Consob, asset management companies, analysts and Observance of the principles set out in the Guide to the Disclosure of Information to the Market takes place mainly on a voluntary basis, in line with the consolidated trend at international level to intermediaries use self-regulation in those areas where recourse to regulatory action by the supervisory Authority and the market management company cannot go into a degree of detail such as to contemplate all the cases that may arise. 17

19 NEWS IN THE OPERATIONAL FRAMEWORK OF BORSA ITALIANA PARTY OF THE COMMUNICATION Relevant persons Party responsible for acquiring information TABLE 4 - COMPONENTS OF THE INTERNAL DEALING CODE OF THE LISTED COMPANIES Listed companies As a rule, the following are considered relevant persons: directors, auditors, general managers of the listed company. Added to these are all other persons having access, by virtue of the position held within the company or within its main subsidiaries, to information on events such as might determine significant variations in the economic, financial and equity prospects of the company and of the group and be able, if made public, to notably influence the price of the related listed financial instruments. By way of example, this category may include: the Chief Financial Officer, the administration manager and, according to the business, other top managers of the company. Main subsidiaries The main subsidiaries are the listed or unlisted companies that significantly influence the economics of the listed controlling company. Coming under this category of relevant persons are those who, within the subsidiary, have decisional powers and knowledge concerning business strategies. Transactions set up by the following parties are deemed ascribed to the relevant persons: legally non-estranged spouse and under-age children, third parties, trustees or subsidiaries. Within the framework of the code of conduct, the listed company identifies the party responsible for receiving, managing and disclosing to the market the information relating to the transactions set up by the relevant persons that are subject to communication. OBJECT OF THE COMMUNICATION TO THE MARKET Transactions Size* Transactions for whatever reason carried out by the relevant persons pertaining to: Listed financial instruments issued by the issuer or its subsidiaries, excluding non convertible bonds; Financial instruments, even not listed, that assign the right to subscribe, purchase or sell the listed financial instruments issued by the issuer or its subsidiary (excluding non convertible bonds); Financial derivatives and covered warrants where the underlying assets are listed financial instruments issued by the issuer or its subsidiary (excluding non convertible bonds). Subject to communication are transactions where the amount, even on a cumulative basis, is more than 50,000 euro. TIMING OF COMMUNICATION Quarterly* Prompt* Communication to the market must take place on a quarterly basis if the transactions carried out by the relevant persons during the calendar quarter are for a cumulative amount equal to or above 50,000 euro, but less than 250,000 euro. The relevant person notifies the company in good time to enable compliance with the quarterly communication obligation. The listed company must, in turn, communicate to the market no later than the tenth trading day following the close of the calendar quarter. Communication to the market must take place without delay for transactions where the cumulative amount during the quarter exceeds 250,000 euro. The information must be disclosed immediately as soon as the threshold is exceeded. The relevant person must notify the company without delay, at the time of concluding the transaction causing the threshold of 250,000 euro to be exceeded. The company, in turn, notifies the market upon receiving the communication. PROCEDURE FOR COMMUNICATION Communication to the market takes place, through the party in charge of this function, by compiling a special filing model made available by Borsa Italiana via the Network Information System (NIS). The information is acquired by Borsa Italiana and Consob and then placed at the disposal of the press agencies and information service providers connected to the NIS. In order to avoid duplications where there are chains of companies, provision can be made for the controlling company to disclose to the market operations involving its own securities and those of its subsidiary. This requires codes of conduct to be standardised and coordinated. * The listed company can decide to reduce the timing and dimensional thresholds for communication to the market provided this occurs according to the rule ratio. In particular, if the reduction concerns the size, a corresponding shortening of the term for communication to the market is provided and vice versa. 18

20 THE RAISING OF LISTING REQUIREMENTS In 2002, Borsa Italiana s regulatory framework was further enhanced with interventions intended to further ensure the quality of the listed companies. In particular, important changes were approved at the end of 2001 and came into effect in 2002, with regard to: regulation of the sponsor: the role of sponsor was strengthened by establishing that, in the case of offer for sale or subscription carried out through syndicate, the sponsor would assume the role of lead manager for the public offering or institutional placement; in addition, Borsa Italiana reserves the right to request the appointment of a second sponsor (co-sponsor) wherever significant shareholding and/or lending relationships exist between sponsor and issuer; information obligations of Nuovo Mercato issuers in effect as from 1 January 2002: on the basis of experience aquired during the first years of operations, some references have been added for inclusion in the quarterly report, such as the full income statement and summary of balance sheet data; moreover, to ensure the widest possible circulation of information relating to the Nuovo Mercato companies, it was requested that price sensitive information and documents relating to company or consolidated annual accounts, half-yearly reports and quarterly data should also be distributed in English; During 2002, as increase in STAR segment requirements: admission and permanency in the segment has been prohibited for companies that appear as Chinese boxes (balance sheet assets, or revenues, represented predominantly by the investment or by the results of the investment in a company whose shares are admitted to trading in a regulated market), for those that fail to comply with governance, listing the information obligations laid down by Borsa Italiana and, lastly, for companies whose last financial year is not supported requirements and by a positive opinion on the part of an auditing firm; issuers disclosure extension of issuers disclosure obligations: the obligation was introduced for the issuer to communicate, at the beginning of each financial year, a calendar of corporate events for the current year setting out information concerning the main events planned, in particular the dates for the shareholders meeting to approve the financial statements, the Board of Directors meeting to approve the financial statements, the half-yearly reports, the quarterly reports, the preliminary results and the presentations to the financial analysts; accounting documentation to be attached to the application for admission to listing: requests have been formalised or added for the purpose of guaranteeing that applications for listing are supported by up-to-date and significant documents. confirmation of Borsa Italiana s commitment to promoting a widespread culture of good corporate obligations were raised During 2002 Borsa Italiana continued to work towards maximising the standing of the Italian stock market both in Italy and abroad. The analyses performed in 2002 led to the introduction in March 2003 of certain major innovations such as: raising of the capitalisation requirement set for admission to listing of shares on the Stock Exchange from 5 to 20 million euro; the obligation for companies of the MIB30 to distribute communications also in English; 19

21 NEWS IN THE OPERATIONAL FRAMEWORK OF BORSA ITALIANA for the companies of the Nuovo Mercato: the raising of free float and shareholders equity obligations; the presence of institutional investors in the capital of newly-listed companies; the obligatory adoption of certain code of corporate governance recommendations (presence of non-executive and independent directors on the Board of Directors, setting up of an internal control committee and a remuneration committee). COMPLETION OF THE EUROBIt MARKET MODEL In the course of 2002, two major innovations of the Italian stock market model came into operation that are part of the broader framework of the process of adaptation (EuroBIt Market Model) to the functional European standards. Adoption of the single trading lot. 14 January 2002 saw the lifting of the minimum trading lot as regards the MTA, the After Hours Market and the Mercato Ristretto (the Nuovo Mercato has been operating without minimum trading lots since 1999, the year in which it was set up). The possibility to trade any quantity of shares implied major benefits, such as: greater flexibility in investment decisions on the part of end investors facilitating the trading of securities in terms of turnover; end to the need for frequent adjustments to the structure of minimum lots during interventions on capital (increases, decreases, splits, mergers) and variations in shares prices, at the same time avoiding the formation of odd lots. The adoption of single lots has not affected the average size of trades, which has remained basically unchanged (17,136 euro compared with 17,592 in 2001, for the daytime phase). Hence the fear of an excessive increase in the number of trades due to the lifting of the minimum trading lot was not confirmed, showing that investors have minimum trading value thresholds below which the trade is not profitable. Implementation of random closing of auctions. In order to further enhance the significance and regularity of the price formation process during the auction phase, a change has been introduced to the microstructure providing for the possibility to add, modify or cancel orders (and therefore to update the theoretical auction price) to be over in a second - casually defined by a special calculation algorithm and not knowable ex-ante - included within the time span of the last minute of the pre-auction phase. This change came into operation on 18 November THE ITALIAN EQUITY DERIVATIVES MARKET (IDEM) On 22 April 2002, the IDEM migrated to a more advanced, efficient and powerful trading platform which, by using of the best technology currently available, made it possible to introduce new functionalities as regards both the service model and the market model. The new service model is a client/server model where access to the trading system on the part of the intermediaries participating in the market is based on the turnkey concept: Borsa Italiana provides all the technological infrastructure necessary considerably simplifying the procedures for start-up and maintenance of the market access systems. With the new service, the connection to the market moves from the central system to the peripheral systems located 20

22 at the offices of each intermediary. There are notable benefits in terms of reliability and security of the trading system and flexibility of access for the intermediaries: two lines of communication and network equipment in full backup configuration are installed at the offices of each intermediary participating in the markets: in the event of a technical failure, the system guarantees automatic and simultaneous changeover to the backup configuration, which assures the same high performance of the primary access modes; the connection to the market takes place through the network gateways, installed at the premises of the intermediary, to which the intermediary can connect using either the current trading workstations (clickstations) or ordinary personal computers. The new trading platform has given the system a capacity up to six times greater than the previous one, with the possibility to handle on a daily basis up to 30 million orders on as many as 15,000 series This new context implies an extension of the responsibility of Borsa Italiana, which guarantees the complete supply of all equipment needed to connect the intermediaries to the market, previously borne by the latter in terms of both responsibility and costs. Adoption of the new trading platform has made it possible to apply certain changes to the market model and to introduce new derivatives products, such as single stock futures. THE INNOVATIONS OF THE IDEM MARKET MODEL The IDEM market model, although without modifying its general principles (order driven microstructure with the presence, for certain financial instruments, of operators to support the liquidity of the market and the efficiency of the price formation process), has seen major innovations in the aspects relating to the market maker operations, the management of stop orders and the functions for order entry on the part of the market makers (mass quotation) and of the other member intermediaries (block orders). Market makers, through their activity of displaying continuous bids and asks on the market, perform an important role with regard to increasing the liquidity of the market and the efficiency of the price formation process. Bearing in mind that the activity of market making is performed by operators with differing technical/organisational characteristics and hence with different objectives, two categories of market makers have been introduced: the Primary Market Makers (PMMs), who undertake to support the liquidity of the instruments by continuously displaying bids and asks during the trading session and the market makers (MMs), who undertake to supply additional liquidity to the market in response to requests for quotes coming from other intermediaries. For the minifib and for the single stock futures only the presence of the PMMs is envisaged, while for the other derivatives both types of market maker intermediary may be present. According to the category to which they belong, different obligations are defined in terms of: number of stock options to be quoted; minimum size of quotations for index and stock options; order re-establishment times in case of execution; request for quote response times and length of time orders remain on the book following the requests (for the MMs); number of expiry dates and number of series to be quoted for index and stock options. As regards the contribution offered towards increasing liquidity and market efficiency, a 21