Despite repeated market slumps and lower-than-expected returns throughout the year, the Prague Stock Exchange (BCPP) is slowly drawing support from a group it has traditionally left out in the cold: small investors.

For the first time since coupon privatization — the sale of state assets that followed the fall of communism in 1989 — small investors got the opportunity to ask for stocks before they hit the market. And they came out in force.

Small investors oversubscribed to initial public offerings (IPOs) by real estate developer ECM Dec. 7 and textile company Pegas Nonwovens 11 days later. The clamor is an indication that lesser players will have a significant role in stock trading in the Czech Republic, analysts say.

By allowing small investors in on the ground floor of IPOs, the BCPP has run counter to the government and some major companies, which have tried to wipe hundreds of thousands of small investors from the Czech capital market.

"Small investors are an indispensable group to any stock market, and we've been doing all we can in order to bring them to the stock exchange," BCPP spokesman Jiří Kovařík said. "The most important thing is to restore people's faith in the stock exchange."

Making phones ring

The public demand for the Pegas Nonwovens' stocks was about 10 times higher than the supply, particularly from small investors who wanted a piece of the action. They demanded six times as much ECM stock as was available.

"When ECM announced that even small investors will be allowed to participate in the subscription, our phones did not stop ringing, and the demand was still increasing," said Bohumil Pavlica, a BH Securities broker.

ECM became the third IPO ever on the exchange, following pharmaceutical company Zentiva in 2004 and real estate developer Orco in 2005.

"Investors here are keen to see some new stocks," BCPP General Director Petr Koblic said. "There are only nine blue chip stocks on Prague's prime stock market, so every single new stock is more than welcome."

ECM's owner, Milan Janků, said that only about 10 percent of the 2.4 billion Kč ($114 million) subscription was put up for sale to the public. He admitted that the company had not expected such heavy demand.

"Honestly, we've underestimated the demand from small investors," Janků said.

ECM stock jumped 10 percent on its first day of trading, giving small shareholders an immediate return. That positive experience could become crucial in the near future, HVB Bank Chief Economist Pavel Sobíšek said.

"Fast profits and overall positive experience are likely to bring even more people to the stock exchange," he said.

Going public

The BCPP initially ignored small investors, and bringing them into the stock market has been a long-term goal of the exchange, Kovařík said.

Before 1993's Velvet Divorce, about 7 million Czechoslovaks became BCPP shareholders by buying privatization coupons in selected companies. The mass privatization gave the BCPP one of the highest percentages of shareholders by population in the world. But small investors' involvement was short-lived.

Rather than spur public interest in investing in stocks, many companies and politicians tried to remove the small shareholders who gained their shares in voucher privatization.

Most recently, a 2005 amendment to the Business Code allowed shareholders who held more than 90 percent of a company's stock to squeeze out the remaining shareholders. Dozens of companies — including Český Telecom — made use of the option.

There are 2 million shareholders on the BCPP, but most are inactive.

There are as few as 20,000 active small investors trading stocks. Still, the role they are playing on the market has increased significantly. Responsible for 4 percent of trading four years ago, they now represent 21 percent of all trades.

"The reason is that some bad experience from coupon privatization has been overshadowed by the stock market's good performance nowadays and still more and more people see stocks as a good investment opportunity," Kovařík said.

The BCPP rose 40 percent in 2005 and 9.3 percent this year. It broke 1,600 points for the first time Dec. 5.

The exchange has made other moves to lure small investors. This fall it began offering derivatives, which allow investors to speculate on developments in particular companies or the entire market.

Earlier this year, the BCPP began offering investment certificates on the PX index. Futures and warrants were offered soon after.

In January, the BCPP will launch a "retail web," which will provide a glossary of particular investment products traded on the stock exchange, and also guidelines about how to trade on the stock market.