Greece to Show What Happens When a Stock Market Isn’t a Market

The Athens Stock Exchange in on June 15, 2015.

The Athens Stock Exchange in on June 15, 2015.

Photographer: Louisa Gouliamakii/AFP via Getty Images

Is a market really a market if buyers can’t buy and sellers can’t sell freely?

Greek officials setting the ground rules for a reopening of the Athens Stock Exchange after almost four weeks of forced shutdown are faced with that question as they make a grim choice: exempt investors from capital controls and risk more money heading for the exit, or safeguard scarce liquidity and get further isolated from global markets.

“A stock exchange with restrictions in place is not a real stock exchange,” Spyridon Kyritsis, president of the Association of Members of the Athens Exchanges, or Smexa, a body representing brokerages in Greece, told reporters on Tuesday.

Like so much of Greece’s pain as it clings to precious membership of the euro, the dilemma cuts to the heart of the country’s status as a functioning capitalist economy plugged into the world. Greek markets remained closed even after banks reopened with limited services on Monday.

Representatives of the Bank of Greece, the Hellenic Capital Market Commission and the Finance Ministry will issue a decree on their reopening after parliament votes late Wednesday on new laws demanded by creditors in return for aid, two officials with knowledge of the matter said earlier this week.

Cash settlement of transactions on securities will continue to be suspended, the commission said earlier today in a statement on its website. Spokespeople at the Finance Ministry and central bank declined to comment.

Not Genuine

“The market can’t stay closed for longer, but imposing any strict limitations on trading would not really make it a genuine market,” said Antonis Georgakakis, a fund manager at Merit Securities in Athens. “It’s very difficult now because even a free market will have its issues.”

Foreign investors hold 59 percent of stocks traded in Athens, which already lost 85 percent since peaking in 2007. The combined value is now $41 billion, roughly the same size as a single Italian bank, UniCredit SpA.

After joining debtors including Cuba and Zimbabwe when it missed a payment to the International Monetary Fund at the end of last month, Greece risks further ignominy.

Prolonged restrictive measures could lead to a downgrade by MSCI Inc. to “standalone market,” a designation that includes Jamaica, Botswana, Zimbabwe and mainland China, from emerging market. That might mean trading and prices would decline even further and Greek companies would be cut off from a crucial source of funding.

Cautious Selling

Investors would have less money available to trade if the market reopens with restrictions on the free movement of capital from bank accounts, members of Smexa’s board told reporters at a press conference on Tuesday. There may be no buyers for stocks, said one member, Nikolaos Chryssochoidis.

If, on the other hand, regulators lift the restrictions for equity traders, the nation risks a deposit flight. Greece imposed capital controls on June 28 to stop banks bleeding cash, with depositors now limited to withdrawing 420 euros ($459) a week and transfers abroad banned.

“Brokers will want to be cautious in how much clients utilize them to execute in Greece, particularly for selling,” said Duncan Higgins, managing director and head of electronic sales at Investment Technology Group Inc. in London. “Where foreign owners are selling, will they be able to get their euros out of the country?”

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Cutting Back

Brokerages are increasingly desperate to get back to business. A senior executive at one said his company has already imposed a 50 percent cut on all salaries and the loss of commission revenue on transactions may lead to redundancies. The broker asked not to be named, as he wasn’t authorized to speak publicly about its compensation policy.

Smexa members say that fears about an uncontrolled deposit flight are unfounded. Data from Hellenic Exchanges Group show that monthly capital outflows from the bourse in March, the worst month of the year so far, were just shy of 170 million euros. Last week, the ECB raised the maximum potential Emergency Liquidity Assistance for Greek banks by 900 million euros.

A U.S.-listed exchange-traded fund tracking Greek stocks gives an indication of where traders expect the shares will go when trading resumes. Since collapsing a record 19 percent on June 29, when the exchange was shut, the security has rebounded 5.8 percent. Whatever happens, Greek stocks won’t slump more than 30 percent a day, the threshold for an automatic halt.

“There’s no reason for optimism at the opening of the exchange,” said Antonis Tsompopoulos, a senior trader at NBG Securities SA in Athens. “I wouldn’t say it will be chaotic, but I am 100 percent sure liquidity will be constrained during the first sessions.”

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