The Cyprus Stock Exchange (CSE) is pushing ahead with plans to hook up with the Athens Stock Exchange (ASE) through the establishment of a common trading platform.
CSE Chairman Akis Kleanthous confirmed an earlier report by the Financial Mirror that the Chairman of the ASE, Spyros Kapralos will sign a number of agreements with the CSE while in Cyprus on September 16 towards efforts to launch the common trading platform.
Kleanthous insists that the regulatory and technical framework will be in place by the end of December, but would not be drawn into speculating regarding the actual launch date.
Once trading begins, hooking up the two markets, then the CSE will start making its stock quotations in euros, thus becoming the first institution that will make the shift over, ahead of the end 2007 or early 2008 adoption of the euro.
Kleanthous anticipates that the Council’s efforts for the restructuring of the CSE will be completed by the end of 2005. In addition, the CSE reviewed the processes already implemented (i.e Corporate Governance Code, Remote trading, new markets, FTSE categorization etc), as well as the CSE’s currently promoted initiatives concerning the regulation of Mutual Funds taxation, the upgrading of the Government Bond market, the provision of trustees’ services and the development of new specialised markets such as shipping and major projects.
BILL SAIL THROUGH
Kleanthous was upbeat on expectations that the House will approve the regulatory changes needed before the common trading platform starts, pointing to the three legislative laws that were voted through, at a time when the House was in recess.
“I’m confident that the House will support our efforts and there will be no delays,” said Kleanthous.
Referring to the decision to price local stocks in euros, Kleanthous said he has had extensive contacts with the Cyprus Bankers Association and with the support of the Central Bank and the Finance Ministry, efforts are underway to persuade the banks to offer special rates with regard to stock trading in euros.
“I want to believe that the banks will offer their most competitive rates for equity trading in euros, but as yet, there is no firm commitment on the level of the fees, commission and the rate,” said Kleanthous.
BROKER COMPENSATION FUND
Through the efforts of the CSE, both exchanges have agreed that their respective members (brokers-financial services firms) will be eligible to become members of the other exchange without difficulty, provided they pay the one-off EUR 200.000 compensation fund fee.
For a EPEY or financial services firm to be able to trade through the common trading platform on the other exchange, the firm needs also to become a member of the other exchange.
Dealers will have access to live prices through remote trading and those who are members of both exchanges, the ability to trade stocks on both exchanges.
The fact that local stocks will start trading in euros also means the removal of the exchange risk factor.
The CSE will also need to expand its working hours in order to be compatible with those of the ASE, which starting from October when the new International Sophocleous index makes its debut, will extend working hours on the prospective 90-100 stocks included in the index to 5.00pm.
Up to six CSE stocks (BOC, CPB, HB, LUI, VIP, VCW) meet the minimum EUR 100 mln market capitalisation criteria, but the list narrows if other criteria such as minimum public float is included.
As the Financial Mirror had reported previously, only BOC is likely to secure an entry into the new index. Pressed to comment on what will BOC do, in view of the fact that it has a listing on both exchanges, Kleanthous said, “that is a matter for BOC to decide, when the time comes.”
FOREIGN INVESTORS
The ultimate objective why the CSE decided to hook up with the ASE is to tap into the institutional power-base of the ASE and increase the flow of foreign money towards Cyprus stocks.
According to Kleanthous, the CSE prospects are not favourable in view of the fact that the bulk of daily trade is made by individuals, rather than institutional investors.
“No exchange can survive like this. We need institutional investors and especially foreign firms to target the CSE, which is why we are facilitating the process by hooking up with Athens. Its all about liquidity and institutional interest.”
This was also one of the reasons why the CSE earlier moved to slash its trading fees, bringing them in line with the ASE rates.
Another criteria needed to boost institutional transactions is the debut of mutual funds and their tax structure. The CSE plans to hold discussions with the Finance Ministry to override a number of issues still pending on the matter of mutual funds.
The CSE has invited Greek financial journalists to visit Cyprus and plans to hold a number of investment road shows in Greece aimed at Greek institutional investors as part of the effort to introduce Cyprus companies to Greek investors and attract investors.
Kleanthous said during October and November, the CSE will proceed with all the necessary technical, regulatory and other changes, with the objective that in December the official tests are made, so that by January everything will be in place for the commencement of the common trading platform.
