Two years since Greece hosted the Olympic Games, the country continues to reap the benefits of the investment boost it received in the lead-up to the event. Foreign investment in the Greek market has risen substantially and the financial authorities are keen to establish the country as a hub for the south east Mediterranean region, a sprawling area that takes in a diverse range of countries including Romania, Bulgaria, Israel and Egypt.
“Since 1998, the Greek authorities have taken steps to make the Greek market more attractive to foreign investors, adopting more western European practices,” says Menelaos Demetriou, securities country manager, Greece, Global Transaction Services at Citigroup. “As a result, during the past two years, holdings by foreign investors in the Greek market have increased from 29% to 45%.”
Among the changes in recent years has been the introduction of a real time gross settlement (RTGS) system in June 2005. The system allows real-time final settlement of transactions and also enables market participants to access real time information regarding these transactions. “The introduction of the RTGS system has resulted in a considerable decrease in settlement risk and has also made it easier for investors to know the status of their settlements throughout the day,” says Demetriou. “More and more transactions are now settling earlier in the day than in the past, which gives investors a fuller picture of their positions.”
Demetriou adds that the introduction of RTGS was a “major breakthrough for Greece because it proved that the local authorities mean business in trying to make the market closer to those of western Europe”.
Foreign investors are not only attracted by these market reforms – the Athens Stock Exchange has been recording healthy
growth, with volumes up 40% and the index up 15% since the beginning of 2006, says Alex Kartalis, location head for BNP Paribas Securities Services in Greece. “Mergers and acquisitions have driven much of this growth.”
At present, about 40% of the market capitalisation comes from resident investors, but the Greek market is proving to be increasingly popular for international investors, says Kartalis. “The Greek banks have recorded extremely good results over the past year and of the top 30 companies, 10 are banks. These financial results have attracted the attention of international investors.”
In May, the Athens Stock Exchange and the Cyprus Stock Exchange began testing a new common trading platform, which is expected to be up and running in the summer. The Athens exchange has market capitalisation (as at 18 May 2006) of €134.64bn and a 259 listed companies, while the Cypriot exchange has a total listing of 144 and an equity market capitalisation of €5.58n (at the end of 2005).
With this platform, the two exchanges and central securities depositories will use the same trading and settlement system and will have very similar regulatory frameworks. The Cypriot financial authorities have agreed to adopt most of the rules and regulations of the Greek market.
“The common trading platform will make it much easier for institutional investors to link, through a Greek custodian, into the Cypriot market,” says Jim Micklethwaite, analyst for western Europe and Africa at custody risk rating and advisory company Thomas Murray in London. “This is likely to put pressure on Cypriot custodians, of which there are very few. However, it will represent a safer and more attractive route into the Cypriot market for institutional investors and will be good for the Cypriot market as well.”
Most of the custodians operating in Greece are interested in providing services for the Cypriot market, says Demetriou. “We will be able to do that remotely, without the cost of setting up in Cyprus.”
Demetriou says the link-up with the Cypriot exchange is part of a more general effort by the Greek state to make Greece a financial centre for the south-eastern Mediterranean region. “I believe the authorities would like this region to also include the Balkans, particularly Bulgaria and Romania, Serbia and Montenegro, former Yugoslav Republic of Macedonia, Slovakia and maybe Israel and some north African countries such as Egypt. This is very ambitious and will take time, but the message we are getting from the Greek authorities is that they are really targeting this and believe it is achievable.”
Micklethwaite is unsure whether Romania and Bulgaria – both due to become EU members in 2007 and therefore of great interest to pension funds – are keen on a link up with the Athens exchange. “Serbia and Bosnia are also beginning to emerge as markets and the Greek model may be of benefit here.” Kartalis believes more progress will be made in linking up to the Romanian and Bulgarian markets after they have joined the EU.
Reform of the fragmented Greek pension system is long overdue, but successive governments have met with resistance from unions. The domestic market consists of primary insurance organisations an auxiliary pension funds for specific professions. Voluntary corporate sector funds were introduced in 2002.
“Greek pension funds are allowed to invest only 23% of their assets in the stock markets, which is very restrictive,” says Kartalis. “The government is looking to increase this limit but it is a very political issue, because markets can of course go up and down.”
Total assets in pension funds in Greece are €24bn, says Kartalis and if the government lifts the restrictions on investment, or relaxes them a bit, “I think we will see a significant amount of money being channelled into the stock market. Custodians should also see an increase in business as pension funds will need more services.”
At present, says Kartalis, most Greek pension funds do everything themselves –performance measurement, back office and middle office functions. “I believe we will soon see a trend towards outsourcing, as in other European markets. This concept is not widely known in Greece but as investment managers focus more on trading or portfolio management, they will look to outsource some of these back and middle office tasks to providers such as BNP Paribas.”
From the international investors viewpoint, while progress has been made, says Demetriou, foreign investors continue to request that the Greek authorities recognise the nominee concept in the equities world. “To date, foreign investors are responsible for between 70-80% of the daily turnover on the exchange, so in some cases they should expect a bit more from the authorities.”
Demetriou says Citigroup’s clients are increasingly requesting more tailored services as their activities become more complex in terms of risk, controls, regulation and technology. It is up to custodians to keep pace with clients, he says.
“Greece is a competitive market in terms of services and also in pricing. The foreign banks are the names that tend to dominate the market now and I think any consolidation in the Greek market will occur among the local providers,” he says.

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