Common trading buoys investors

The successful launch of the common trading platform of the Athens and Cyprus stock exchanges in October 2006 has fuelled the ambitions of Greece to extend its influence to countries in south-eastern Europe and the Mediterranean. It is also hoped the platform will act as a vehicle for the growth of the Greek economy, offering Greek companies a national platform for their expansion into international markets.

"Developments in the worldwide economy have led to changes and new requirements for a modern, competitive and effective stock exchange, with a strategic position in our regional capital market," says Spyros Caprolos, chief executive of Athex, the Athens Stock Exchange. He says the collaboration with the Cyprus Stock Exchange (CSE) will "ensure the autonomy and the national identity of both stock exchanges, providing simultaneously a modern environment of transactions with low cost of installation and operation".

Under the common trading platform, the two exchanges and central securities depositories use the same trading and settlement system and have very similar regulatory frameworks. The Cypriot financial authorities have adopted most of the rules and regulations of the Greek market.

The common trading platform aims to establish a homogeneous, effective and efficient environment for trading, clearing and settlement and registry services in the Athex and CSE securities markets, compliant with EU and international standards. It also is designed to make access to both exchanges easier and cheaper for members, institutional and private investors, custodian banks and issuers.

The trading functions of Athex and CSE securities markets are both running on Athex's Oasis system. However, the clearing, settlement and registry functions are running on separate system installations of the same software - Hellenic CSD's dematerialised securities system - in Athens and in Nicosia.

Alex Kartalis, location head for BNP Paribas Securities Services (BNPPSS) in Greece, says since the common trading platform came into operation, foreign investor presence in the Cypriot financial market has doubled, albeit from a very small base. "Foreign investment has risen from about 3% to 7%. That is very positive. From a business point of view, the benefits will come incrementally, but from an operational point of view, the platform is extremely easy to use and efficient. It's as if it has been operating for years," he says.

BNPPSS already has a number of clients that are active in the Cyprus market, accessing it remotely from Athens. "We have all types of clients access the Cyprus market, which makes us optimistic that we will see more of this activity in the future."

Menelaos Demetriou, securities country manager for Greece with Citigroup's global transaction services, says now the common trading platform has been established, the Greek authorities are keen to promote collaboration with other countries through activities such as the development of common indices and remote access. "The common trading platform has enabled investors an opportunity to invest in a country that has joined the Euro-zone and will migrate to the euro on 1 January 2008," he says. "Investors can clear and settle their trades on the Cyprus Stock Exchange through a custodian with whom they have been dealing for several years. This type of co-operation makes investors feel much more comfortable because they can engage in a new market without having to set up everything from scratch."

Demetriou says the common trading platform will enhance the reputation of the Greek financial authorities, proving they can build and implement new systems. "Greece is the oldest market in the region and its dream is to create a new regional trading hub, bringing more investment opportunities to foreign investors. All of the financial authorities in the region want more foreign investment.

The common trading platform will enhance the reputation of the Greek authorities in building a system that can deliver this, not just for trading, but also for clearing and settlement. It will lead to more investment flows into all of the region's countries, including Greece." While the larger global custodians have welcomed the common trading platform, it is not great news for the local Cypriot banks.

Jim Micklethwaite, associate director for western Europe and Africa at Thomas Murray, a custody risk rating, advisory and technology company, says not all players in Greece and Cyprus have benefited equally from the platform. "The big losers appear to be the Cypriot custodian banks, because most of the foreign investors are conducting their relationships through custodians based in Athens," he says. "This remote access is easier and more cost effective and they are using custodian banks that are better rated than their Cypriot counterparts. They are also getting a better deal, based on trading volumes."

However, Cypriot brokers have done well given trading volumes have increased and more foreign investment has come into the country, says Micklethwaite. The CSE is also supporting the Greek push into the Balkans, particularly Bulgaria, which is seen as a potential base for a harmonised platform.

Tim Reucroft, director, overseas advisory service at Thomas Murray, is sceptical about what the Greek model brings in terms of harmonisation. "The model is just shared software - they are not bringing in deeper liquidity pools, expertise or financial backing from other markets."

One sticking point is that the Greek market is fragmented - equities are cleared and settled on the Oasis system while bonds are settled on a separate Bank of Greece system. This is not an ideal model to take to the rest of the world, says Reucroft.

Ana Giraldo, senior analyst, eastern Europe and Americas at Thomas Murray, says the Athex faces some stiff competition in the Balkans. "OMS is making offers to exchanges in eastern Europe and recently acquired an interest in the Budapest exchange. Deutsche Börse is also showing interest and Poland wants to take leadership in the region as well. As the smaller countries in the Balkans plan their futures, will the Greek solution be considered or will they throw their lot in with some of the bigger boys?"

There are other developments in the Greek financial markets aimed at strengthening the country's proposition for the region. It is expected that exchange settlement will move from commercial bank money into central bank money some time this June. "This move will not have a direct impact on investors' day to day activities, but it will make the market more efficient, safe and robust," says Kartalis, who also says it is a very positive move for the Greek market.

Previously Alpha Bank assumed the role of cash settlement bank for all equities and derivatives trades. The final legal checks for transition of settlement to Bank of Greece are under way and most participants have signed up to the new arrangements.

Also, in April, Athex decided on the framework for the introduction and trading of exchange traded funds. The exchange is also establishing an index for small companies, like AIM in the UK.

As Cyprus prepares to join the euro at the beginning of 2008, and Greece continues to reform its financial markets, there is plenty happening in the region. From a securities services point of view, business is booming and the common trading platform is seen by many as an important step for Greece in becoming a major regional player. However, it remains to be seen whether Greece emerges as the dominant force in south-eastern Europe and the Balkans, or if others are wary of Greeks bearing gifts.