Plans by the Cyprus Stock Exchange to link up with the Athens Stock Exchange through a common trading platform where brokers from both markets would have access to the other country stocks, will delayed by at least three months.
Instead of the planned launch date of January 1, 2006, CSE Chairman Akis Cleanthous confirmed that the launch date has been pushed back to April 3, but the many problems point to more delays, possibly pushing the launch date further towards the end of 2006.
Cleanthous said the two exchanges need until mid-January to overcome the technical hurdles associated with the launch of the common trading platform.
Assuming that all the regulatory work would be passed in time, it would then be safe to expect that the platform will be operational by end of the first quarter of 2006, he said at a joint press conference of the CSE, the Listed Public Companies and Members of the CSE, the financial services firms.
Outstanding issues
One of the biggest hurdles is the legislative work that is needed before the common trading platform starts work. All parties involved agree that although Cleanthous and the CSE Council have all the right intentions, the promises by politicians for the swift passage of the legislation needed for the common trading platform will be difficult to achieve within the time-frame desired by Cleanthous.
Though the legislation on the back-office changes is ready and will be forwarded by the CSE to the Finance Ministry this week, the legislation on the introduction of custodians and other changes, such as allowing short-selling and stock-lending, has yet to be finalised and may take until January 9 before it is submitted to the Ministry.
Once the Finance Ministry receives the draft legislation, it will need at least 2-3 weeks to pass the legislation to the Legal Services Department, which is also already burdened with hundreds of draft bills before the House ends its term ahead of the May parliamentary elections.
As experience has shown in the past, it normally takes 6-8 months before any CSE-related legislation is voted through the House.
A mid-January submission by the CSE means that in most likelihood, the necessary changes will be passed sometime in October, allowing for the May election break and the two-month summer recess.
Euros
Once trading begins, the CSE will start making its stock quotations in euros, thus becoming the first institution that will make the shift to the European currency, ahead of the January 2008 official adoption of the euro.
However, bankers say none of the problems associated with euro clearance in terms of reduced fees have been overcome. Nothing has also been done with respect to addressing exchange risks in the run up to euro adoption.
Rounding up
A key issue when stock prices are converted into euros is what will happen when Cyprus penny stocks trading in cent decimals are shifted to euros. Questions as to who will gain or lose in the rounding up or down process are tough hurdles to be overcome and will need to be treated carefully otherwise they could be challenged in court.
Clearing
Another significant hurdle is the clearing and working hours. The CSE wants to extend the working time to 5pm means but first needs to win over staff agreement to extend the work hours, something which will be achieved through negotiations but perhaps at increased cost for the CSE, which in turn will be passed on to the investors.
The CSE also needs to convince Alpha Bank, the clearing agent of Sophocleous, that automatically become the new clearing agent for the CSE in euros, to extend clearance time to 5pm, something which currently is resisted by Alpha, leading to tough negotiations over compensation pay. Higher fees demanded by Alpha may also add to transaction costs.
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 an EPEY or financial services firm to be able to trade through the common trading platform on the other exchange, the firm also needs 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. It remains to be seen how many Cypriot KEPEYs will be in a position to pay the EUR 200.000, which may result in more consolidation in the sector.
