OPINION: Cyprus Stock Exchange slowly bleeding to death

The decision of the Finance Ministry and the Central Bank to conduct first auction of government bonds through the Euro MTS platform is seen as a major setback for the Cyprus Stock Exchnage, which had in the past few years lobbying to clinch the deal for itself.

The rationale behind the launch of the common trading platform with the ASE was to attract institutional investors to the CSE. Since the major utilities, such as CyTA, the EAC and the Water Boards are in government hands, it was hoped that the only other “attraction” would be the government bonds.

Now the CSE will only accommodate secondary trading on the bonds and act as Depository and Clearing Agent.

Without first auction of bonds, and a common trading platform which has failed to attract foreign institutional investors, the CSE appears to be on a slow but steady downward path.

One could say that the CSE is slowly bleeding to death, and the “knife” in CSE’s back is the dual listing of its two largest cap and most active stocks, Bank of Cyprus and Marfin Laiki Bank.

If the common trading platform was a brilliant idea, then allowing CSE listed stocks to secure dual listing on the CSE and the ASE must have been the silliest idea ever, since BOC and MPB are perhaps the only stocks in the world to trade on the same trading platform twice and in the same currency.

In fact, what the common trading platform has achieved is to shift volume to the more liquid and active ASE at the expense of the CSE, with about 80% of daily volume on BOC and MPB going through the ASE.

With most foreign institutional investors dealing with Greece having a presence there or with a mechanism already established to trade through the ASE, including having custodial services, coupled with the fact that transaction costs are significantly lower than the CSE, there has been no real incentive for the majors to shift their trading to the CSE.

Another major disadvantage working against the CSE is that while the Cyprus bourse is state-owned and decision making is slow, the ASE is privately owned and listed on the Athens Exchange. To highlight a point –Greece has market makers, a futures and options market and recently plans were rushed to set up a semi-regulated market, yet in Cyprus all the above are nice ideas that need to pass through the Finance Ministry, then the Attorney General, then the Cabinet, then get a vote in the House, assuming that everybody here realizes the significance of having a competitive stock market.

If all the above were not enough, then you have the Social Insurance Fund which itself is going through a small process of restructuring deciding not to invest a penny in the CSE and instead place some of its billions in foreign titles and bonds through overseas stock markets.

 

The Publishers