Q: Could you give us some background information on the NASDAQ OMX Tallinn stock exchange? When was it established?

A: The NASDAQ OMX Tallinn stock exchange is a relatively young exchange. Its first trading day was in June, 1996. The exchange was established in 1995 by local market participants, the Central bank, and the Ministry of Finance. In order to facilitate electronic trading, the electronic Central Securities Registry was already established in 1994.

In 2001, the majority of the exchange was acquired by the Helsinki Stock Exchange. The Central Bank still owns about 2%; other market participants stayed too. A few years later, the Helsinki Stock Exchange merged with the Stockholm exchange operator OM Group. Later, they formed the Group OMX, which owned the exchanges in Finland, Sweden, Denmark, Estonia, Latvia, Lithuania and Iceland.

After the merger between NASDAQ and OMX in 2008, the NASDAQ OMX Tallinn stock exchange is now part of the NASDAQ OMX Group. Currently, NASDAQ OMX owns about 62% of NASDAQ OMX Tallinn stock exchange, and the rest is owned by local market participants.

Q: How has the Estonian economy changed in the last 15 years? What are its major sectors?

A: When Estonia regained its independence from the Soviet Union in 1991 (Republic of Estonia was established in 1918 but was later occupied by the Soviet Union in 1940), the country’s economy was closely connected to the Russian economy. Very quickly, however, we restructured our economy. Today, about 70% to 75% of Estonia’s foreign trade is with the EU, Latvia, and Lithuania. Now Russia accounts for only about 5% of the total Estonian foreign trade.

More importantly, we liberalized our economy extremely quickly and the result was a huge inflow of foreign direct investments. During the last 15 years, we have had one of the highest levels of investment inflow per capita in Central and Eastern Europe. That capital helped to rearrange the economy very quickly. Today, the general economic structure is quite similar to that of the countries in Western Europe, where two-thirds of the economy is related to various services.

The second largest sector is industry. Agriculture accounts for only about 4% of the GDP. The financial sector also attracted foreign investments very quickly, and about 98% of the financial sector is dominated by Nordic banks, while local ownership is very limited.

Q: What is the population of Estonia and what are the major demographic trends?

A: Currently, the population is 1.35 million people, so we’re a rather small country. There are about 600,000 households because, just like in Western Europe, the birth rate is not that high, and the average family is between two and three people.

Q: What type of investors participate on the exchange?

A: We have institutional and retail investors, as well as local and foreign investors. About half of the capital invested is Estonian, followed by capital from Finland, Sweden, and Luxembourg, because many foreign funds are registered in Luxembourg.

The local individual investors are not as active as in Nordic countries, because our experience on the stock market is not that long. We don’t have generations of investing families and the respective investment culture. Nevertheless, probably about 10% of the workforce is actively investing.

About 85% of the workforce, however, participate in the exchange indirectly through pension funds. Following a pension reform, now we have a three-pillar pension system. In the second and third pillars, the retirement money is invested in funds that you can choose yourself. Of course, pension funds invest not only in the Estonian market, but in world markets as well

Q: Could you explain your three-pillar retirement system in more detail?

A: The first pillar represents the classical pay-as-you-go system, where the social tax is paid by the employer, the state collects the money in a state pension fund, and distributes it to the people already in retirement.

The second pillar is voluntary for the majority of the workforce, but is mandatory for the young people, who join the labor market. Nevertheless, the majority of the people have already joined this system. They pay 2% of their salary into the pension fund, and then the state adds 4% to their personal account. They can choose the pension fund themselves among different funds that are privately managed by banks and fund managers.

The third pillar is entirely voluntary and the state doesn’t contribute anything directly. You can add any amount to your pension fund and receive the money when you retire. The contributions can be partially deducted from the taxable income. However, the third pillar is not that popular as only about 15,000 people have joined it. There are no restrictions about the geographical location of investments; the only limits refer to the type of instruments. But there is no obligation to invest on the Estonian Stock Market.

Q: How many companies are listed on the Estonian Stock Market and what is the total market capitalization?

A: Currently, there are 18 listed companies with total market cap of about 1.5 billion euro. A year ago, however, when the global investor sentiment was more positive, the market cap was about 4 billion euro.