Friction as stocks and derivatives battle it out

A peculiar civil conflict is growing between the bourse and derivatives trading sections of stockbrokerage firms. The conflict, particularly in the large firms, is said to be nearing the bounds of hostility. The demise of the Athens Stock Exchange (ASE) with very low volumes of trading in the last two years, combined with the gradual growth of the derivatives market, is creating an imbalance in the structure of revenues and costs of stockbrokerages. Even though the largest part of their revenues continues to come from traditional stock trading activities in ASE’s main market, high operating costs have been making severe inroads into them. By contrast, revenue from the trading of derivatives continues to rise while their operating costs remain low. Drawn by the stock market euphoria of 1999, most stockbrokerages invested heavily in staff. They created costly and numerous stock analysis departments, paid hundreds of millions of drachmas to attract top analysts and, of course, spent a lot on buying technology and support programs. All this catapulted operating costs to very high levels. The Athens Derivatives Exchange (ADEX), on the other hand, began operations at the end of August 1999, shortly before ASE rose to a zenith before the countdown began. The introduction of the new market met with a cool response from professionals and most firms began creating specialized derivatives departments many months later. Transfixed by the buoyant stock market, stockbrokerages underrated the new products. Furthermore, the slide of the bourse in 2000 left not much room for new «aggressive» moves. In the informal hierarchies of stockbrokerages, the two sections were never considered equal. It could not happen otherwise, given that the bourse trading departments were staffed with the «heavyweights» and the of the market veterans, while the derivatives departments, with the upstarts. As a result of low trading volumes, the two sections show about equal revenues on certain days. But the difference is that the main market departments employ dozens and sometimes hundreds, while only a few trade derivatives employees. Everyone recognizes that operating costs cannot be maintained at current levels. Given the low trading volumes on the bourse and the already bad financial situation in stockbrokerages, market experts consider it certain that many stockbrokerages are heading for closure.