STOCK EXCHANGE / FINANCIAL MARKETS

Transcription

1 STOCK EXCHANGE / FINANCIAL MARKETS by Jenny Giotaki,Lawyer and Vasilios Margaris, General Director of Thessaloniki Stock Exchange Center On September 30 th 2006, the Athens Exchange (ATHEX) celebrated its 130 th anniversary from its foundation in It is widely known that in the period between 1997 and 1999, the Greek stock market witnessed its greatest phase of growth, especially in terms of the number of local retail investors; by the end of 1999, the number of active retailers had reached 1,500,000. High turnover volumes -during 1999 the average daily turnover exceeded DRS 220 billion, that is almost 650 million-, excessive, in comparison to real economy, market capitalization amounting by September 1999 to 120% of GNP- and significant capital raising from the primary market reaching DRS 10.8 trillion, that is for the period reached DRS 10.8 trillion. about BRAND GREECE 187

2 OPPORTUNITY GREECE The 1999 incident was not the first in the history of the Greek capital market. At least twice in the past, that is both in 1972 and in 1990, ostensibly similar conditions had occurred. However, this time a new distinctive feature was apparent: the market euphoria was practically caused by hundreds of thousands of local retail investors dispersed over a wide geographical area in the overall country. The market reached its peak in mid September 1999, when the General Index reached 6,355 points, and then started falling for the following three years. The upgrade of the Greek capital market by the international investment community to a mature one in 2001, despite fully justified by the country s macro-economic indicators leading to its accession to the Euro Zone, naturally led to a re-orientation of the foreign investors portfolio at a difficult even for international capital markets- period thereby causing further pressure to the General index, which reached its lowest below 2,000 basis points in The year 2004 already signalled the beginning of a new era for the Greek capital market. Greece s real economy is growing: achievements of the past decade, such as the EMU guaranteed economic and financial stability, the progressive deregulation of the banking and capital markets sector and the continuing privatization of state-owned utilities combined with recent developments, such as the structural changes pursued in the country s labour market and the exploitation of the country s post-olympic property, form a sound basis for the development of the Greek stock market. Moreover, several lessons were drawn from the past: the needs for increasing education, for upgrading investment conscience, for expanding, both in variety and in geography, the products offered, for improving the functional and operational market framework and for enacting better legislation to protect investors were realized. INTERNATIONAL INVESTMENT IN THE GREEK MARKET The increasing international investor participation on the HELEX stock is just a symptom of the rapidly increasing international participation in the overall ATHEX market and most importantly in the big caps sector. The following charts 1 show the foreign investor participation in the overall market. Chart 1 Aggregate Share Ownership structure in the ATHEX as of December 31 st, 2005) 188 about BRAND GREECE

3 STOCK EXCHANGE / FINANCIAL MARKETS Chart 2 International and Retail Participation in ATHEX MODERNIZING INFRASTRUCTURES The Greek market s infrastructures, despite their state-of-art technical development, were traditionally mainly addressed to the retail local client s needs and interests. Rapid and effective transposition of the community acquis and the HELEX Group s determination to continue attracting international investment guarantee that all structural and technical changes necessary to secure compatibility will be undertaken as it clearly derives from the 2006 ATHEX Fact Book. The general effort made, both by the HELEX management and by the Capital Market Commission, to accommodate foreign institutional trading in the ATHEX is apparent in the past two years. Full deregulation was achieved in 2005 with the Parliamentary Act 3371/2005 amending former Act 3152/2003. The exchange was fully deprived of its administrative competences and was allowed to develop its business objectives. To a certain extent, of course, market structuring is, in Greece, still a combined competence of the private sector, expressed mainly through the HELEX s management, and the public sector represented by the Capital Market Commission. In other words, the regulator is still involved in building, not just merely, in supervising the market. This is expected to change in the post-mifid era. Furthermore, in 2005 an ATHEX Rulebook revision led to a new market segmentation. From the traditional Main, Parallel and New market, which had lost their brand name over the years, a new arrangement was born: Issuers were re-classified into: a) big caps companies with a capitalization over 100 million, b) medium and small caps and c) companies with special features, about BRAND GREECE 189

4 OPPORTUNITY GREECE that is companies under financial supervision or suspension. The new segmentation facilitated apparently the signalling that a market should communicate to its investors in connection to the products traded in its platform. ATHEX has also made serious efforts in modernizing trading techniques: closing auctions for the big caps at a random determination of the closing price, v-wap order accommodation, short selling expansion through the abolition of the up-tick rule and the introduction of bilateral securities lending are only some paradigms of this effort. The other pillar of ATHEX s target as regards trading is the enhancement of market transparency; the presentation of five, as opposed to the formerly projected three, best bids during continuous trading as well as the publication of the projected opening price and volume during auctions are requirements recently imposed and fully in line with the relevant Mi- FiD provisions. Moreover, the two most important developments in the area of clearing and settlement of the past two years are the re-structuring of the market s clearing fund and the recognition of deferred settlement for foreign investors. The main purpose of the clearing fund s re-structuring was to achieve active collateral and risk management, thereby increasing clearing cost-efficiency in the market. The main objective of the deferred settlement mechanism, widely known in the market as failed trades mechanism, was to allow for settlement in case of delayed settlement instructions for trades settled through the international custodians chain and not directly by the local trader. Both efforts were widely applauded by the international investment community. The improvement of existing infrastructures with an employment of an open architecture, not only in systems but also business wise, is seen as a top priority. Elimination of all legal barriers will be achieved by the end of this year whereby all EU legislation will have been effectively transposed into the Greek law. Compatibility and open architecture employment is an aim, common in the strategy of European exchanges, which recognize the importance of their local market in a constantly changing international environment. The HELEX Group has as its primary aim its further development in the Greek market, taking into consideration that increased competition among European exchanges is a fact. In order to achieve this particular aim, the HELEX Group is applying a three-pillar strategy, combining three actions 2 : a) Strengthening local investor interest Within the framework of strengthening local investment interest, the Group is exploring the development of new products and services, the improvement and expansion of existing ones, and is promoting the idea of investing. The attraction of strong and healthy companies to ATHEX as well as the continuation of the privatization program are expected to strengthen investor interest. Following the end of the modification of the ATHEX Rulebook, the 190 about BRAND GREECE

5 STOCK EXCHANGE / FINANCIAL MARKETS Group is redoubling its efforts to bring the commercial shipping sector to ATHEX and to attract shipping companies with Greek owners which have either been listed in a large foreign exchange and are interested in a dual listing in the Greek market, or are interested in an IPO in ATHEX. At the same time, the necessary regulatory framework for the development of Exchange Traded Funds (ETFs) in the Greek capital market is taking shape. ETFs are open ended, passive management funds traded in regulated markets. These funds track some widely followed indices (index trackers) and are thus appeal to a wide range of investors, simplifying their investment horizon regarding securities. By examining the ETFs that can be found by investors in the European market it follows that they refer to stock indices of the country, stock indices of other markets, bond indices and stock sector indices. International expe- about BRAND GREECE 191

6 OPPORTUNITY GREECE rience shows that ETFs can work excellently as a mechanism that will allow local exchanges to pique small investor interest in securities and cover the interest of investors in international investments through local exchanges. b) Attracting investor interest from abroad The Group will continue to be active in the direction of attracting foreign capital in order to increase the liquidity and prestige of the Greek market, with the aim of removing the particularities of the Greek market which may present obstacles in attracting this capital. Therefore, the Group is cooperating with the local regulator and other bodies for the improvement of the existing regulatory framework and the transparency of the market. In addition, the Group is developing a Greek capital market guide, for use by foreign investors, which will have as its aim the description, on the ATHEX website or in manuals, of the regulatory framework of the Greek capital market that is in effect, in such a way that it is useful to professionals interested in participating in the Greek market. c) Maintaining and developing a competitive infrastructure The development of a modern competitive infrastructure provides the HELEX Group with advantages in its effort to be connected and networked with the mature markets and the strengthening of investor interest. Thus, the HELEX Group wishes to actively participate by bringing forth proposals in the modernization of the institutional and regulatory framework of the market. These proposals concern both the supervision of listed companies and the transparency in the dissemination of information to investors, as well as in the framework which governs the suspension of trading and the delisting of companies from the exchange. DEVELOPING A REGIONAL HUB Greek market is a fully electronic dematerialized environment ready to accommodate, not only national but also regional market needs was the year, in which the Athens Exchange - Cyprus Stock Exchange (ATHEX - CSE) common trading and clearing platform was launched. This project had the following long-term objectives: a) the formation of a homogeneous, efficient and effective environment for the execution and clearing of transaction in the two markets in the standards of the European Union, b) the reduction in operating cost for exchanges with the exploitation of economies of scale and the reduction of the access cost for participants in the markets of the two exchanges and c) the facilitation and further advancement of collaborations and initiatives for expanding the turnover of the two markets by attracting the participation of other markets in the region. The common platform was a great success, not only for the ATHEX, but most importantly for the CSE, which managed to multiply within only four months its daily turnover and to almost double its capitalization. Undoubtedly, this outcome cannot be easily compared to any other co-operation proposal, not 192 about BRAND GREECE

7 STOCK EXCHANGE / FINANCIAL MARKETS even to those coming from the much larger European exchanges. Within this framework, the HELEX Group is currently refining its proposal for the creation of a common operating platform for south-eastern Europe. This proposal practically includes common market operating rules, compatible mechanisms for clearing transactions, common infrastructure which will simplify the access for participants, corporate governance rules and operating independence for the markets. Comparable undertakings have been adopted both in western Europe by Euronext as well as northern Europe by OMX Group. The expansion of the common platform is primarily targeted to the new members of the EU family, Bulgaria and Romania. If succeeded, all regional EU member states will have integrated their capital markets and this will grant a clear perspective of the further evolution of their role to the participant countries. As the 2006 ATHEX Fact Book explicitly mentions The [HELEX] Group aims to network itself with developing markets in Southeastern Europe, by cooperating with participants in those markets, in order to attract liquidity, increase the access of local markets, as well as to provide alternative investments to its members and to local investors. By exploiting its competitive geopolitical position, and promoting its competitive advantage as the most reliable and only about BRAND GREECE 193

8 OPPORTUNITY GREECE mature market in the region, which can act as a gateway to the Eurozone for companies and investors in the region, the Group aims to become active in the provision of investment services to issuers, intermediaries and investors, as well as in the provision of technological solutions and technology know-how to exchange organizations in the region. In this way, the Greek capital market expands and becomes a regional exchange center, with expected benefits the accumulation of liquidity in the local market. SEMI REGULATED SME MARKET THE NEW MULTILATERAL TRADING FACILITY HELEX Group is currently launching a whole new market, to be operated under a Multilateral Trading Facility MTF status, for small and medium size enterprises. This market, the so-called in the pre-mi- FiD phase Semi-regulated market, is expected to become the new investment attraction for foreign institutional investors trading interest in the Greek market. Based on common practices from other European markets, it will therefore increase Greek market s competitiveness to attract companies that now are being listed in other markets like AIM in London or Alternext in Paris. The founding of this new marketplace will facilitate small but dynamic companies to go public, thereby seeking capital raising directly from the market. It will also provide them with additional funding sources, other than bank lending, while at the same time facilitating their financing, both from institutional investors and from the wider public. The fact that SMEs play a pivotal role in the region s economies expands even further the target group of the new market s future users. Considering that the Greek banking network controls approximately 20% of the banking works in Southeastern Europe, the new market could be seen as a point of reference for all emerging market funds with interest in the region. Hence, it is believed that this semi-regulated market can attract primary listings of SMEs from all over Southeastern Europe, thus enhancing the role of Hellenic Exchanges in the region. Well beyond its constantly updated technological infrastructure, adjusted legal framework and more effective supervision mechanisms, the Greek capital market is among the most valuable factors of the country s economy 1 ΑΤΗΕΧ Fact Book 2006 p. 82 available at Publications/files/FactBook_2006.pdf and HELEX website, presentation in France, January 1997, p %20IR%20Presentation.pdf 2 ATHEX Fact book, 2006, supra note USEFUL LINKS Athens Stock Exchange Capital Market Commission about BRAND GREECE