Calls for limiting derivatives have missed the point

The Capital Market Commission and Athens Stock Exchange (ASE) people are looking at ways to limit trade in derivatives. Derivatives, hailed as a useful instrument when the market is on the rise, are considered by the public to exacerbate the stock market’s losses in a downturn. Responding to the «popular» demand to rein in the derivatives market, ASE officials have admitted they are considering various ways of doing so, adding that any such ideas are at an early stage. The same ASE officials, however, and other market actors dispute that anything can be done to impose restrictions on the derivatives market. There are a number of technical and legal issues that make such a venture highly doubtful at best. Also, the special traders dealing with the Athens Derivatives Exchange (ADEX) are opposed to any such moves. Without the special traders, the market cannot function. No one has explained what sort of limitations can be imposed on them, as these are the agents who provide liquidity to the system and who must be covered for the risks which they incur. Many market analysts are opposed to the demonization of derivatives, which are presented as a tool with which one can manipulate a market and accelerate its falls. They point out that when the market began to fall three weeks ago, ADEX contracts were at a premium, indicating a belief in further growth. This is evidence that the decline in the stock market did not begin as a result of speculative moves in derivatives, the analysts say. Indeed, the decline on the ASE, following a near five-month rise, began with the disappointing results of OTE Telecom. Even in a climate dominated by upbeat international markets, OTE’s results caused an avalanche of sales that sent the share price below 10 euros. The downward trend was exacerbated by the concerns raised over banks’ moves, real or imputed, to sell large chunks of their shares. Moreover, listed companies’ first-half results disappointed because, although they showed improvement in sales and profit, much of the increase was in «extraordinary results,» giving rise to suspicions of window dressing. This are the real reasons behind the recent decline in the ASE and not derivatives or short-selling. When the market shows a clear trend, players make a profit by betting through the derivatives market that stocks will fall further.

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