stock exchange / financial markets

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about BRAND GREECE 187 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 1876. It is widely known that in the period between 1997 and 1999, the Greek stock market wit- nessed its greatest phase of growth, especially in terms of the number of local retail investors; by the end of 1999, the number of active re- tailers 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 cap- italization –amounting by September 1999 to 120% of GNP- and sig- nificant capital raising from the primary market –reaching DRS 10.8 trillion, that is for the period 1997-2000 reached DRS 10.8 trillion.

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about BRAND GREECE 187

STOCK EXCHANGE/ FINANCIAL MARKETS

by Jenny Giotaki,Lawyer

and Vasilios Margaris, General Director of Thessaloniki Stock Exchange Center

On September 30th 2006, the Athens Exchange (ATHEX) celebratedits 130th anniversary from its foundation in 1876. It is widely knownthat in the period between 1997 and 1999, the Greek stock market wit-nessed its greatest phase of growth, especially in terms of the numberof local retail investors; by the end of 1999, the number of active re-tailers had reached 1,500,000. High turnover volumes -during 1999the average daily turnover exceeded DRS 220 billion, that is almost€650 million-, excessive, in comparison to real economy, market cap-italization –amounting by September 1999 to 120% of GNP- and sig-nificant capital raising from the primary market –reaching DRS 10.8trillion, that is for the period 1997-2000 reached DRS 10.8 trillion.

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The 1999 incident was not the firstin the history of the Greek capitalmarket. At least twice in the past,that is both in 1972 and in 1990, os-tensibly similar conditions had oc-curred. However, this time a newdistinctive feature was apparent:the market euphoria was practicallycaused by hundreds of thousandsof local retail investors dispersedover a wide geographical area inthe overall country.

The market reached its peak in midSeptember 1999, when the Gener-al Index reached 6,355 points,and then started falling for the fol-lowing three years. The upgrade ofthe Greek capital market by the in-ternational investment communityto a “mature” one in 2001, despitefully justified by the 1997-2000country’s macro-economic indi-cators leading to its accession tothe “Euro Zone”, naturally led to are-orientation of the foreign in-vestors’ portfolio at a difficult –even for international capital mar-kets- period thereby causing fur-ther pressure to the General index,which reached its lowest below2,000 basis points in 2003.

The year 2004 already signalledthe beginning of a new era for theGreek capital market.

Greece’s real economy is growing:achievements of the past decade,

such as the EMU guaranteed eco-nomic and financial stability, theprogressive deregulation of thebanking and capital markets sectorand the continuing privatization ofstate-owned utilities combinedwith recent developments, such asthe structural changes pursuedin the country’s labour marketand the exploitation of the coun-try’s post-olympic property, form asound basis for the developmentof the Greek stock market.

Moreover, several lessons weredrawn from the past: the needs forincreasing education, for upgrad-ing “investment conscience”, forexpanding, both in variety and ingeography, the products offered,for improving the functional andoperational market framework andfor enacting better legislation toprotect investors were realized.

INTERNATIONAL INVESTMENTIN THE GREEK MARKET The increasing international in-vestor participation on the HELEXstock is just a symptom of the rap-idly increasing international partic-ipation in the overall ATHEX marketand most importantly in the “bigcaps” sector.

The following charts1 show theforeign investor participation in theoverall market.

Chart 1 Aggregate Share Ownership structure in the ATHEX as of December 31st, 2005)

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MODERNIZINGINFRASTRUCTURESThe Greek market’s infrastructures,despite their state-of-art technicaldevelopment, were traditionallymainly addressed to the retaillocal client’s needs and interests.Rapid and effective transpositionof the community acquis and theHELEX Group’s determination tocontinue attracting international in-vestment guarantee that all struc-tural and technical changes neces-sary to secure compatibility will beundertaken as it clearly derivesfrom the 2006 ATHEX Fact Book.

The general effort made, both bythe HELEX management and by theCapital Market Commission, toaccommodate foreign institutionaltrading in the ATHEX is apparent inthe past two years.

Full deregulation was achieved in2005 with the Parliamentary Act3371/2005 amending former Act

3152/2003. The exchange was fullydeprived of its administrative com-petences and was allowed to devel-op its business objectives. To acertain extent, of course, marketstructuring is, in Greece, still a com-bined competence of the privatesector, expressed mainly throughthe HELEX’s management, and thepublic sector represented by theCapital Market Commission. In otherwords, the regulator is still involvedin building, not just merely, in super-vising the market. This is expectedto change in the post-MiFiD era.

Furthermore, in 2005 an ATHEXRulebook revision led to a newmarket segmentation. From the tra-ditional Main, Parallel and Newmarket, which had lost their brandname over the years, a new arrange-ment was born: Issuers were re-clas-sified into: a) big caps –companieswith a capitalization over €100 mil-lion, b) medium and small caps andc) companies with special features,

Chart 2 International and Retail Participation in ATHEX

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that is companies under financialsupervision or suspension. Thenew segmentation facilitated appar-ently the “signalling” that a marketshould communicate to its investorsin connection to the products tradedin its platform.

ATHEX has also made serious effortsin modernizing trading techniques:closing auctions for the big caps ata random determination of theclosing price, v-wap order accommo-dation, short selling expansionthrough the abolition of the up-tickrule and the introduction of bilateralsecurities lending are only someparadigms of this effort. The otherpillar of ATHEX’s target as regardstrading is the enhancement of mar-ket transparency; the presentationof five, as opposed to the formerlyprojected three, best bids duringcontinuous trading as well as thepublication of the projected openingprice and volume during auctionsare requirements recently imposedand fully in line with the relevant Mi-FiD provisions.

Moreover, the two most importantdevelopments in the area of clear-ing and settlement of the pasttwo years are the re-structuring ofthe market’s clearing fund andthe recognition of deferred settle-ment for foreign investors. Themain purpose of the clearingfund’s re-structuring was toachieve active collateral and riskmanagement, thereby increasingclearing cost-efficiency in the mar-ket. The main objective of the de-ferred settlement mechanism,widely known in the market as“failed trades” mechanism, was toallow for settlement in case ofdelayed settlement instructionsfor trades settled through the inter-

national custodians’ chain andnot directly by the local trader.Both efforts were widely applaud-ed by the international investmentcommunity.

The improvement of existing infra-structures with an employment ofan “open architecture”, not only insystems but also business wise, isseen as a top priority. Eliminationof all legal barriers will be achievedby the end of this year whereby allEU legislation will have been effec-tively transposed into the Greeklaw. Compatibility and “open archi-tecture” employment is an aim,common in the strategy of Euro-pean exchanges, which recognizethe importance of their local mar-ket in a constantly changing inter-national environment. The HELEXGroup has as its primary aim its fur-ther development in the Greekmarket, taking into considerationthat increased competition amongEuropean exchanges is a fact. In or-der to achieve this particular aim,the HELEX Group is applying athree-pillar strategy, combiningthree actions2:

a) Strengthening local investorinterestWithin the framework of strength-ening local investment interest, theGroup is exploring the develop-ment of new products and servic-es, the improvement and expan-sion of existing ones, and is pro-moting the idea of investing. Theattraction of strong and healthycompanies to ATHEX as well as thecontinuation of the privatizationprogram are expected to strength-en investor interest.

Following the end of the modifica-tion of the ATHEX Rulebook, the

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Group is redoubling its efforts tobring the commercial shippingsector to ATHEX and to attractshipping companies with Greekowners which have either been list-ed in a large foreign exchangeand are interested in a dual listingin the Greek market, or are interest-ed in an IPO in ATHEX.

At the same time, the necessaryregulatory framework for the devel-opment of Exchange Traded Funds(ETFs) in the Greek capital marketis taking shape. ETFs are open

ended, passive management fundstraded in regulated markets.

These funds track some widelyfollowed indices (index trackers)and are thus appeal to a widerange of investors, simplifyingtheir investment horizon regardingsecurities. By examining the ETFsthat can be found by investors inthe European market it followsthat they refer to stock indices ofthe country, stock indices of othermarkets, bond indices and stocksector indices. International expe-

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rience shows that ETFs can workexcellently as a mechanism thatwill allow local exchanges to piquesmall investor interest in securitiesand cover the interest of investorsin international investmentsthrough local exchanges.”

b) Attracting investor interestfrom abroadThe Group will continue to be activein the direction of attracting foreigncapital in order to increase the liq-uidity and prestige of the Greekmarket, with the aim of removingthe particularities of the Greekmarket which may present obsta-cles in attracting this capital.

Therefore, the Group is cooperatingwith the local regulator and otherbodies for the improvement of theexisting regulatory framework andthe transparency of the market.

In addition, the Group is developinga Greek capital market guide, foruse by foreign investors, whichwill have as its aim the description,on the ATHEX website or in manu-als, of the regulatory framework ofthe Greek capital market that is ineffect, in such a way that it is usefulto professionals interested in par-ticipating in the Greek market.

c) Maintaining and developinga competitive infrastructureThe development of a moderncompetitive infrastructure providesthe HELEX Group with advantagesin its effort to be connected andnetworked with the mature mar-kets and the strengthening of in-vestor interest. Thus, the HELEXGroup wishes to actively partici-pate by bringing forth proposals inthe modernization of the institu-tional and regulatory framework of

the market. These proposals con-cern both the supervision of listedcompanies and the transparencyin the dissemination of informationto investors, as well as in theframework which governs the sus-pension of trading and the delist-ing of companies from theexchange.”

DEVELOPINGA REGIONAL HUBGreek market is a fully electronicdematerialized environment readyto accommodate, not only nationalbut also regional market needs.2006 was the year, in which theAthens Exchange - Cyprus Stock Ex-change (ATHEX - CSE) commontrading and clearing platform waslaunched. This project had thefollowing long-term objectives: a)the formation of a homogeneous,efficient and effective environmentfor the execution and clearing oftransaction in the two markets inthe standards of the EuropeanUnion, b) the reduction in operat-ing cost for exchanges with the ex-ploitation of economies of scaleand the reduction of the accesscost for participants in the marketsof the two exchanges and c) the fa-cilitation and further advancementof collaborations and initiatives forexpanding the turnover of the twomarkets by attracting the participa-tion of other markets in the region.

The common platform was a greatsuccess, not only for the ATHEX,but most importantly for the CSE,which managed to multiply withinonly four months its daily turnoverand to almost double its capitaliza-tion. Undoubtedly, this outcomecannot be easily compared to anyother co-operation proposal, not

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even to those coming from themuch larger European exchanges.

Within this framework, the HELEXGroup is currently refining its pro-posal for the creation of a commonoperating platform for south-east-ern Europe. This proposal practical-ly includes common market oper-ating rules, compatible mecha-nisms for clearing transactions,common infrastructure which willsimplify the access for partici-pants, corporate governance rulesand operating independence forthe markets. Comparable under-takings have been adopted both inwestern Europe by Euronext aswell as northern Europe by OMXGroup. The expansion of the com-mon platform is primarily targetedto the new members of the EU fam-

ily, Bulgaria and Romania. If suc-ceeded, all regional EU memberstates will have integrated theircapital markets and this will granta clear perspective of the furtherevolution of their role to the partic-ipant countries.

As the 2006 ATHEX Fact Book ex-plicitly mentions “The [HELEX]Group aims to network itself withdeveloping markets in Southeast-ern Europe, by cooperating withparticipants in those markets, inorder to attract liquidity, increasethe access of local markets, as wellas to provide alternative invest-ments to its members and to localinvestors. By exploiting its compet-itive geopolitical position, andpromoting its competitive advan-tage as the most reliable and only

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mature market in the region, whichcan act as a gateway to the Euro-zone for companies and investorsin the region, the Group aims tobecome active in the provision ofinvestment services to issuers,intermediaries and investors, aswell as in the provision of techno-logical solutions and technologyknow-how to exchange organiza-tions in the region. In this way, theGreek capital market expands andbecomes a regional exchange cen-ter, with expected benefits theaccumulation of liquidity in the lo-cal market.”

SEMI REGULATEDSME MARKET –THE NEW MULTILATERALTRADING FACILITYHELEX Group is currently launchinga whole new market, to be operat-ed under a Multilateral TradingFacility MTF status, for small andmedium size enterprises. Thismarket, the so-called in the pre-Mi-FiD phase “Semi-regulated” mar-ket, is expected to become thenew investment attraction for for-eign institutional investors’ tradinginterest in the Greek market. Basedon common practices from otherEuropean markets, it will thereforeincrease Greek market’s compet-itiveness to attract companiesthat now are being listed in othermarkets like AIM in London or Al-ternext in Paris.

The founding of this new market-place will facilitate small but dy-namic companies to go public,thereby seeking capital raising di-rectly from the market. It will alsoprovide them with additional fund-ing sources, other than bank lend-

ing, while at the same time facili-tating their financing, both from in-stitutional investors and from thewider public.

The fact that SMEs play a pivotalrole in the region’s economies ex-pands even further the targetgroup of the new market’s futureusers. Considering that the Greekbanking network controls approx-imately 20% of the banking worksin Southeastern Europe, the newmarket could be seen as a point ofreference for all emerging marketfunds with interest in the region.Hence, it is believed that thissemi-regulated market can attractprimary listings of SMEs from allover Southeastern Europe, thus en-hancing the role of Hellenic Ex-changes in the region.

Well beyond its constantly updatedtechnological infrastructure, ad-justed legal framework and moreeffective supervision mechanisms,the Greek capital market is amongthe most valuable factors of thecountry’s economy

1 ΑΤΗΕΧ Fact Book 2006 p. 82 available athttp://www.ase.gr/content/en/about/Publications/files/FactBook_2006.pdfand HELEX website, presentation inFrance, January 1997, p. 10http://www.helex.gr/exae/files/HELEX%20IR%20Presentation.pdf

2 ATHEX Fact book, 2006, supra note

USEFUL LINKSAthens Stock Exchangewww.ase.gr

Capital Market Commissionwww.hcmc.gr