Greece
23 July 2013
The reinstatement of short selling in Greece seems unlikely to revive a drowned securities lending market, as SLT finds out
Image: Shutterstock
In a mire of bad news, Greece鈥檚 capital markets regulator unveiled a silver lining for those in the securities lending business on 15 July. This was the date that the Hellenic Capital Markets Commission (HCMC) lifted a short selling ban on bank shares, two weeks before the official ban had ended.
The decision was taken due to the fact that the country鈥檚 major banks have been recapitalised鈥攁 fairly laborious process that had caused the regulator in May to extend its ban on short selling until the end of July, stating that the decision was due to the country鈥檚 plan.
In a statement, HCMC said that its board considered 鈥渢he process of recapitalising the lenders鈥� in its decision鈥攔eferring to the 鈧�50 billion set aside to inject capital into the country鈥檚 four big banks, and to scrap some smaller lenders.
The European 网爆吃瓜 and Markets Authority (ESMA) published its opinion on the emergency measure, stating that it was appropriate and proportionate in relation to the country鈥檚 current situation.
鈥淓SMA considers that the measure which is targeted at credit institutions admitted to trading on the Athens Stock Exchange remains appropriate and proportionate to address the ... threats that persist in Greece.鈥�
鈥淸The authority] considers that the duration of the measure is justified and appreciates the HCMC鈥檚 statement in its notification of intent whereby the measure may be lifted during the period of enforcement of the measure, if appropriate.鈥�
The bans have directly affected lending in Greece in the past; influencing borrowers鈥� demand and keeping some investors at bay. And more general concerns such as issuer risk and fear of default, have kept activity to a minimum, . A lifting of the ban should support market settlements as well as efficient price discovery.
Things appeared, if not rosy, then at least dimly lit in 2010, with CitiGroup鈥檚 Global Transaction Services business announcing that it would now be offering agency lending services in Greece.
The firm said it would be providing securities lending for Greek equities, working closely with Greek legal and tax specialists to create easy access for foreign borrowers and lenders as part of its due diligence.
Launching a new office in a country mid-crisis was a strategic move: J.P. Morgan had been in the market since 2008 and was seen picking up several new clients, and other large European and international banks also had a significant presence. Multinationals were seen by many to have the same level of local expertise as domestic players, coupled with a global presence that soothed any liquidity or risk-related fears.
But the crisis also persuaded the more cautious players to bow out. Prime brokerage firm Newedge pulled out of the Greek market in July 2012, citing its 鈥渙rdinary risk practices鈥� as reason for the exit.
The broker, which is a joint venture between two banks, Soci茅t茅 G茅n茅rale and Cr茅dit Agricole, had more than $30 billion in client assets at the time, telling clients that it was to cease extending margin loans for existing positions in Greek securities, and would only process sell orders.
A cut on development
Just recently Greece became the first developed nation to be cut to emerging-market status by MSCI鈥攁 further blow to the country鈥檚 economy (recently described as being worth 鈥渓ess than Apple鈥�).
MSCI reclassified the MSCI Greece Index to Emerging Markets as part of the November 2013 semi-annual index review, stating that the country鈥檚 index fails to qualify on several market accessibility criteria.
The minimum standards that currently prevail in developed markets reflect continuous market improvements introduced by authorities in other countries over the years.
However, very few of these improved market practices have been reflected in the Greek market. 鈥淭his has led to Greece now failing to meet on multiple criteria: securities borrowing and lending facilities, short selling and transferability,鈥� said a statement from MSCI.
Market participants have commented that in-kind transfer and off-exchange transaction-like facilities that were introduced in 2008 by the Greek authorities and the Athens Stock Exchange, are so restrictive that they are, in practice, unusable.
As well as this, the long standing absence of well-established stock lending as well as short selling practices also made the Greek equity market incompatible with the standards of other developed equity markets, said the MSCI.
The report concluded that the MSCI Greece Index has not met the developed market criterion for size for the last two years, saying: 鈥淚f it were not for an exception to the index maintenance methodology that requires the index to have at least two constituents, only one security would currently qualify for inclusion in the MSCI Greece Index.鈥�
Greece has been on the MSCI鈥檚 radar for a while now; with the firm putting the country under review for downgrade in June 2012. Things only got worse with the relocation of Coca-Cola HBC AG from the Athens Stock Exchange to London鈥攖he soft-drink bottler had comprised around 25 percent of the Greek exchange.
Though the short selling ban has been lifted, it remains to be seen if that will cause any ripples in a flat securites lending market. So long as money keeps heading back to safe havens, Greek securities lending looks set to stay dejected..
The decision was taken due to the fact that the country鈥檚 major banks have been recapitalised鈥攁 fairly laborious process that had caused the regulator in May to extend its ban on short selling until the end of July, stating that the decision was due to the country鈥檚 plan.
In a statement, HCMC said that its board considered 鈥渢he process of recapitalising the lenders鈥� in its decision鈥攔eferring to the 鈧�50 billion set aside to inject capital into the country鈥檚 four big banks, and to scrap some smaller lenders.
The European 网爆吃瓜 and Markets Authority (ESMA) published its opinion on the emergency measure, stating that it was appropriate and proportionate in relation to the country鈥檚 current situation.
鈥淓SMA considers that the measure which is targeted at credit institutions admitted to trading on the Athens Stock Exchange remains appropriate and proportionate to address the ... threats that persist in Greece.鈥�
鈥淸The authority] considers that the duration of the measure is justified and appreciates the HCMC鈥檚 statement in its notification of intent whereby the measure may be lifted during the period of enforcement of the measure, if appropriate.鈥�
The bans have directly affected lending in Greece in the past; influencing borrowers鈥� demand and keeping some investors at bay. And more general concerns such as issuer risk and fear of default, have kept activity to a minimum, . A lifting of the ban should support market settlements as well as efficient price discovery.
Things appeared, if not rosy, then at least dimly lit in 2010, with CitiGroup鈥檚 Global Transaction Services business announcing that it would now be offering agency lending services in Greece.
The firm said it would be providing securities lending for Greek equities, working closely with Greek legal and tax specialists to create easy access for foreign borrowers and lenders as part of its due diligence.
Launching a new office in a country mid-crisis was a strategic move: J.P. Morgan had been in the market since 2008 and was seen picking up several new clients, and other large European and international banks also had a significant presence. Multinationals were seen by many to have the same level of local expertise as domestic players, coupled with a global presence that soothed any liquidity or risk-related fears.
But the crisis also persuaded the more cautious players to bow out. Prime brokerage firm Newedge pulled out of the Greek market in July 2012, citing its 鈥渙rdinary risk practices鈥� as reason for the exit.
The broker, which is a joint venture between two banks, Soci茅t茅 G茅n茅rale and Cr茅dit Agricole, had more than $30 billion in client assets at the time, telling clients that it was to cease extending margin loans for existing positions in Greek securities, and would only process sell orders.
A cut on development
Just recently Greece became the first developed nation to be cut to emerging-market status by MSCI鈥攁 further blow to the country鈥檚 economy (recently described as being worth 鈥渓ess than Apple鈥�).
MSCI reclassified the MSCI Greece Index to Emerging Markets as part of the November 2013 semi-annual index review, stating that the country鈥檚 index fails to qualify on several market accessibility criteria.
The minimum standards that currently prevail in developed markets reflect continuous market improvements introduced by authorities in other countries over the years.
However, very few of these improved market practices have been reflected in the Greek market. 鈥淭his has led to Greece now failing to meet on multiple criteria: securities borrowing and lending facilities, short selling and transferability,鈥� said a statement from MSCI.
Market participants have commented that in-kind transfer and off-exchange transaction-like facilities that were introduced in 2008 by the Greek authorities and the Athens Stock Exchange, are so restrictive that they are, in practice, unusable.
As well as this, the long standing absence of well-established stock lending as well as short selling practices also made the Greek equity market incompatible with the standards of other developed equity markets, said the MSCI.
The report concluded that the MSCI Greece Index has not met the developed market criterion for size for the last two years, saying: 鈥淚f it were not for an exception to the index maintenance methodology that requires the index to have at least two constituents, only one security would currently qualify for inclusion in the MSCI Greece Index.鈥�
Greece has been on the MSCI鈥檚 radar for a while now; with the firm putting the country under review for downgrade in June 2012. Things only got worse with the relocation of Coca-Cola HBC AG from the Athens Stock Exchange to London鈥攖he soft-drink bottler had comprised around 25 percent of the Greek exchange.
Though the short selling ban has been lifted, it remains to be seen if that will cause any ripples in a flat securites lending market. So long as money keeps heading back to safe havens, Greek securities lending looks set to stay dejected..
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