That is why a stronger regulatory and supervisory environment, including better protection of property rights, creditor rights and information, have all been shown to be positively associated with higher level of financial development. In this respect, despite the wide country variation, most of CESEE countries are ranked below EU-28 average. Chart 17: Regulation of securities exchanges (ranking based on 138 countries, 2016)*  Third, regional cooperation regarding market infrastructure can boost capital market development. Significant efforts have been made to linkup the national exchanges and harmonize legislation and regulation across the entire region, without requiring any country to give up their national stock exchanges or their rights to regulate their home markets. The so-called “passporting” framework has been put in place that allows for issuers, investors and market intermediaries to operate in each other’s national market, thereby creating a vastly larger ‘common’ market, without sacrificing any institutions or independence. The cooperation of stock exchanges in Baltic countries is most advanced. As part of Nasdaq OMX group, these countries form the Baltic market 12. Further authorities` efforts in CESEE countries should address several issues: 1) strengthening existing regional alliances of stock exchanges (Nasdaq Baltic Market, CEESEG, SEE Link), 2) foreign listing and market access, 3) Central Securities Depositories –options for regional connection, 4) Central Clearing Counterparties for cross border settlements, 5) Creating regional markets through alignment of national legislations. Fourth, the role of international financial institutions should also be highlighted.

The main role of private equity is to fill the gap between internally generated financing and conventional market sources, such as bank loans and public equity. Unlike most stock market investments, equity investment enables shareholders to adopt a long-term and hands-on approach in their investee companies, fostering sound corporate governance and transparency, making appropriate contributions to business strategy and optimizing management. Crucially, however, it also contributes to the transfer of skills and has positive demonstration effects in terms of the development of local capital markets and competitive market-oriented behavior10. These modalities such 10  EBRD Transition report 2015-2016. 12  as, venture capital, crowdfunding, business angels, are relatively modest in the CESEE, although the same holds for the EU as well, where private equity has a share of around 0.3% in GDP. Debt market in the region is larger compared to the equity, averaging around 50% of GDP, which is still much lower compared to the EU-28 average of close to 160%. Yet, dominant part of this market segment is related to government securities, while the corporate issuance remains modest. In fact, in most CESEE countries, corporate bond markets remain small, or even nonexistent. Chart 14: Stock and debt market capitalization  Source: ECB and central bank websites. To recap, the region needs to mobilize finance, which amidst burdened government financing and structurally difficult access to bank finance for new and innovative companies, requires further development of the capital markets and more diversified portfolio of financial instruments.