Atypical factors and events

Reduction of the GPW Group’s costs of supervision over the capital market

The Act of 12 June 2015 amending the Capital Market Supervision Act and certain other Acts largely extended the list of entities required to finance supervision (by adding, among others, banks, insurers, investment funds, public companies, brokerage houses and foreign investment firms) and changed the amount of contributions of entities. As a result, the cost paid by the GPW Group was reduced significantly to PLN 9.1 million in 2016 compared to PLN 22.0 million in 2015. The cost of fees for market supervision was PLN 5.6 million in 2017, representing a decrease of 39.0%. However, according to internal analyses, the lower fee paid to PFSA was probably due to an excessive fee paid in 2016 when the PFSA cost was lower than initially expected by PFSA.

GPW as the organiser of WIBID and WIBOR reference rate fixings

The Group acting through its subsidiary GPW Benchmark expanded its services as of 30 June 2017 following the take-over of the function of organiser of WIBID and WIBOR reference rate fixings from the Financial Markets Association ACI Polska and the functions of the calculation agent previously performed by Thomson Reuters. The Group will apply for authorisation as an administrator within the meaning of Regulation 2016/2011.

The decision of GPW to take over the functions of the organiser of reference rate fixings followed a proposal extended by the Association ACI Polska to GPW. ACI Polska decided no longer to perform the functions of the organiser in view of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, which took effect in early 2018. The Regulation defines the three main categories of indices and imposes requirements on the entities which calculate the indices depending on such classification. In view of the Regulation, the Association ACI Polska decided that it would be unable to meet its requirements and approached GPW with a proposal to take over the functions of the organiser of WIBID and WIBOR reference rate fixings. Following an analysis, GPW decided to accept ACI Polska’s proposal.

The transition will take place in phases including: starting the organisation of fixings, which took place on 30 June 2017; obtaining the authorisation to perform the functions of administrator; reviewing the rates methodology.

GPW’s decision to take over the organisation of WIBID and WIBOR rate fixings is an important step in its history. While GPW previously focused on trade in capital and commodity market instruments, it now expands to financial market services.

GPW will take over the organisation of reference rate fixings in collaboration with the banks participating in the fixings. This is particularly relevant in view of the role of the banks in the process and the scope of use of reference rates in the banks’ business.

Issue of series D and E bonds

On 13 October 2016, the GPW Management Board passed Resolution No. 1058/2016 to issue 1,200,000 bearer bonds with a nominal value of PLN 100 per bond and a total nominal value of PLN 120.0 million. The decision provided for the issue of two series of bonds: series D bonds with a total nominal value up to PLN 60 million and series E bonds with a total nominal value up to PLN 60 million.

The issue of series D and E bonds started in 2016 but the bonds were registered in January 2017, which is when the Company recognised the liability under the series D and E bonds on the books.

The bonds bear interest at a floating rate equal to WIBOR 6M plus a margin. The margin on series D and E bonds is 0.95%. The interest on the bonds is paid semi-annually. 2017 was the first period when interest cost was paid on the series D and E bonds. The series D and E bonds are due for redemption on 31 January 2022.

Events in the subsidiary TGE

On 25 January 2017, the Exchange Management Board was informed of the decision of the TGE Management Board to modify the tax policy for certain services as of 1 January 2017 and to adjust the resulting VAT for the years 2011-2016. The decision required the issuance of correction invoices to TGE’s counterparties, requesting them to pay the VAT not previously charged for fees (for the period from December 2011 to December 2016, inclusive) for tax liabilities which were not overdue in the total amount of PLN 69.7 million. At the same time, TGE was required to pay to the account of the tax office an amount of the resulting tax debit under correction invoices issued to TGE’s counterparties plus interest on the tax debit in the amount of PLN 9.9 million. The resulting outstanding tax liability and interest were paid to the Tax Office in March 2017.

As TGE was required to pay the tax liabilities and interest within 7-14 days after the submission of adjusted tax receipts to the tax office, and in view of the expected longer period of payment of amounts under the correction invoices by counterparties, Towarowa Giełda Energii S.A. took a bank loan of PLN 60 million from DNB Polska maturing in March 2018. The interest on the loan was WIBOR 1M plus a margin of 1.4%. In addition, TGE took a loan of PLN 10 million from GPW to pay the tax liabilities. The terms of the loan granted by GPW to the subsidiary were the same as the terms of the bank loan. The bank loan and the Group loan taken by TGE were repaid in full before maturity in November 2017. As a result of the bank loan and the GPW loan, TGE incurred interest costs of PLN 1.4 million. The interest cost excluding intra-Group interest was PLN 1.3 million (including the loan fee) in the consolidated financial statements.

TGE’s receivables under the adjusted VAT were PLN 69.7 million. The outstanding balance was PLN 1.2 million as at 31 December 2017. The outstanding balance was PLN 0.5 million as at the date of publication of this report. According to the initial conservative judgment, PLN 3.5 million of receivables were expected not to be collected, and they were written off. Following payments received in Q4, the write-off was reduced to PLN 0.5 million.