Greek stock market on course to reopen

I’d imagine it will be sloppy until it finds a proper level

The reopening of the Athens stock market is one step closer.

The European Central Bank on Tuesday approved proposals for trading rules to end the four-week closure, according to a spokeswoman for the Athens Stock Exchange. The timing of the move and any trade restrictions will be decided by a finance ministry decree, said the spokeswoman, who asked not to be identified in line with policy.

The ECB’s Executive Board discussed the plan at a weekly meeting Tuesday. While the central bank isn’t formally responsible for stock-market regulation, policy-makers were concerned that a reopening could worsen the liquidity position of Greek lenders.

Another Greek official with direct knowledge of the matter said that trading may resume by Friday with restrictions on the use of money from Greek bank accounts. Under the proposal by the Hellenic Capital Market Commission and the Bank of Greece, money that already exists in investment accounts would be excluded from capital controls, the official said, asking not to be named pending the final wording of the decree.

The break in trading has been the longest since the 1970s and is likely to be followed by losses in Greek equities when they resume. An exchange-traded fund listed in the U.S. that has served as a proxy for the shares in the absence of Athens prices is down 18 per cent since the bourse was closed June 29.

“It’s interesting as we get closer to reopening, the ETF has been sliding,” said Mark Kepner, an equity trader at Chatham, N.J.-based Themis Trading LLC. “I’d imagine it will be sloppy until it finds a proper level.”

The direction of the ETF and Athens-listed equities is an urgent matter to global investors who have pumped money into the fund every single week of 2015 until the shutdown, including US$37 million in the five days ended June 26. In total, it received US$281 million this year, with its market cap reaching an all-time high of US$367 million just before the closure.

Greek investors will be allowed to trade stocks with their existing investment-account balances, while foreign investors will be free to buy and sell stocks, the person said. Greek traders will only be able to increase their investment accounts with cash or money from abroad.

Officials from the Bank of Greece, the ECB and the Greek finance ministry declined to comment.

Trading on the Athens exchange, the Multilateral Trading Facility and the Electronic Secondary Market for government bonds has been halted since June 29. Shortselling has also been on hold for another week.

An extended closure of the bourse may further isolate Greece from global markets. If the Athens exchange remains shut for more than 40 days or implements significant restrictive measures to trading, MSCI Inc. might downgrade its Greek index to standalone market, a status that includes Jamaica, Zimbabwe and mainland China, from emerging, the index provider has said. FTSE said on Friday it will consider removing Greek equities from its global indexes should the closure continue.

Banks reopened on July 20 with limited services, after Prime Minister Alexis Tsipras capitulated to creditors’ demands and agreed to implement prior actions required in exchange for a third bailout program.

Technical experts from the ECB, the IMF, the European Stability Mechanism and the European Commission are in Athens to negotiate with their Greek counterparts the conditions which will be attached to an 86-billion euros ($123-billion) lifeline over the next three years.

A finance ministry official said in an email to reporters today that both sides aim to complete a deal for a new bailout program as soon as possible, while the government has said it targets a disbursement from the new loan facility before August 20, when a payment to the ECB comes due.

“Short of a miracle,” this target won’t be met, Teneo Intelligence managing director Wolfango Piccoli wrote in a note to clients on Tuesday. “If no deal is reached in time for the 20 August deadline, another short-term solution will have to be found, likely in the form of yet another bridge loan.”

Greece is at loggerheads with its creditors on whether additional measures are required before further aid is disbursed, after two votes in the Greek parliament earlier this month triggered a wave of defections from the governing Syriza party. The finance ministry official said that no such prior actions are required, while EU Commission spokeswoman Mina Andreeva told reporters in Brussels that “more reforms are expected as part of the statement from the Greek authorities, to allow for a swift disbursement.”

“While the atmosphere is generally more constructive than before, Brussels believes an unrealistic degree of progress would be required to conclude negotiations in time for the 20 August ECB repayment,” Teneo’s Piccoli wrote.