Common Platform set for a bad start

The Common Trading Platform (CTP) of the Cyprus Stock Exchange with the Athens Stock Exchange could face a troubled start on October 30 as members of the Cyprus Financial Services Association have expressed strong reservations regarding the smooth launch of the operational aspects of the new platform.

More problems are also likely to emerge once investors find out that there are many hidden costs which they will be called on to cough up. In effect, Cypriot investors will once again foot the bill for a trading system that they did not ask for.

Settlement risk is one of the top issues concerning Cypriot financial services firms, while other issues that are set to create headaches, misunderstandings and possible loss of clients to Greek firms include matters like short-selling, the CSE’s relatively high fees and the concern that thousands of investors who have not opened euro accounts will not be allowed to trade.

Another valid concern is the decision by the CSE to freeze any dividend reinvestment schemes for at least three months, while there is total confusion regarding other operational aspects including charges that member firms will be imposing on their clients.

At least five KEPEY firms (SFS, CISCO, HB, Cooperative and Argus) voted for a postponement of the CTP until at least November 13 citing grave concerns regarding settlement risk and other operational aspects.

Laiki and Global abstained, with Global the only firm to express serious concerns regarding the whole approach to the setting up of the CTP.

Six firms (CLR, Egnatia, Atlantic, Mega, NBG and Troilos) voted in favour of the start of the CTP on the scheduled date of October 30 as set by the CSE.

 

Forced adoption

 

According to confidential information obtained by the Financial Mirror and expressed at the KEPEY meeting last week, the member firm Global has expressed serious reservations at the way Cypriot investors are forced to adopt the rules of the CTP, at a time when none of the details have been properly explained to them.

Some of the concerns relate to higher transaction costs, exchange risk and the approach of the CSE to proceed with the CTP on a “fix the problems as we go along” approach.

Association Chairman Christodoulos Ellinas told the Financial Mirror that the members deplore the CSE attitude that it is the responsibility of the investors to find out how the CTP will work.

“We strongly oppose such an attitude since in our opinion, it is the duty and responsibility of the CSE to inform the investing public on the changes, fees and other relevant information,” Ellinas said.

 

Τ+3

 

The EPEY have expressed strong reservations regarding the agreement reached between the CSE and the clearing bank, Alpha Bank, according to which transactions after 2.30pm and above EUR 50.000 net positions risk being settled a day later than T+3. They claim that since member firms have to abide to the legislation and settle clients on transaction after three days’ settlement (T+3), there will be a liquidity squeeze. The CSE has promised to address this issue.

 

Short selling

 

A number of firms insist that short-selling in Cyprus is prohibited while it is allowed in Greece, citing the fact that the relevant amendments to the legislation have not been pushed through, while others counter that the relevant changes are in place and that short selling will be allowed here as well.

The same is valid for when trades are broken down and the identity of the investor is changed to match deals. According to EPEY in Cyprus, such a practise is here, but it is allowed in Greece. While Exchange officials are scrambling to fix the problems, the many diverging views and the different interpretation of what is allowed and not on such sensitive issues is just one example why the CSE is not ready to proceed with the CTP.

 

Remote members

 

Access to the ATHEX system for the setting up of client accounts by Cyprus EPEY remote members is supposed to be allowed on the morning when the system goes live, a development that Cypriot EPEY say does not give them enough time to prepare and will act as a disadvantage.

There is also no information as to how investors may open accounts.

Other issues concern the pricing of BOC on the two exchanges where it is listed, since in Greece, the price moves two ticks to a point, while in Cyprus it will be one tick a point. The CSE has promised to fix all the problems before the CTP goes live.

 

CSE vs. ASE fees

 

Charges imposed by the CSE on transactions effected through Cyprus are said to be 30-45% higher than those imposed by the ATHEX. For a transaction valued at EUR 8.40, the transaction costs are estimated at EUR 6.03 in Cyprus while the same trade passed in Greece would cost EUR 3.89, or 45% lower.  

More importantly, there is total lack of information to investors regarding the cost structure that they will face.

 

Service charge

 

The KEPEY are set to introduce a new added charge of up to CYP 5 per transaction minimum commission, on top of a CYP 3.60 per month CSE fee for all those who wish to have a live feed through the Internet.

More charges include 0.005% for connectivity, 0.11 euro for every transaction order, irrespective of whether its done or not, 0.005% contribution to an investor guarantee fund and more.