ECONOMY

Margin buying facilitated

The Capital Market Commission, the stock market watchdog, yesterday announced changes to credit provision for margin share buying. The changes aim at increasing liquidity and providing more flexibility for retail investors, Commission Chairman Alexis Pilavios said yesterday. Retail investors have largely shunned the market following the dramatic drop from the highs experienced in the summer of 1999. From September 18, 1999 onward, the market experienced a dramatic decline which only ended on March 31, 2003. During that period, the Athens Stock Exchange general index plunged from 6,355 to 1,464 points. Many stocks in whom retail investors had invested heavily, expecting big returns, plunged more than 90 percent, leaving those who failed to bail out in time with almost worthless stock. Despite the fact that the market has generally been on the rise since April 2003, retail investors have mostly stayed away. Few people take advantage of the existing margin facilities. According to data presented by Pilavios, contracts to buy shares on margin do not exceed 14,000, with 7,000 of them actually being active. The outstanding amount owed is 170 million euros, less than an average day’s turnover. Pilavios said that the initial margin will be lowered to 40 percent, from 50 percent previously. This means that an investor, whose actual portfolio is valued at 10,000 euros can borrow stock on credit up to 15,000 euros. The holding margin is reduced from 35 to 30 percent, which means that the credit provided to the investor cannot exceed 70 percent of the value of his or her portfolio. If the outstanding amount owed by the investor exceeds 70 percent, then he or she must either pay part of the money owed or liquidate part of the portfolio. The investors’ broker is responsible for compliance issues. The so-called «secure portfolio,» that is, the initial portfolio plus the shares bought on credit must consist either wholly of blue-chip stocks, that is shares belonging to the FTSE/ASE-20 index or, alternatively, contain at least 40 percent of FTSE/ASE-20 shares, with the rest being FTSE/ASE Mid-40 shares. The investors may be allowed to hold other shares as well, but in that case at least 60 percent of the portfolio must consist of blue chips. If not so, then no individual stock can make up more than 40 percent of the total portfolio. Pilavios clarified that all buying on margin must be secured by a written contract between the investor and the brokerage providing the credit. Alexandros Moraitakis, president of the stockbrokers’ association SMEHA, said the new provisions on margin buying were an improvement over the old ones. SMEHA will issue an opinion after a meeting with the Commission today. Brokers continued to express reservations over the new ASE trading rules. Some said that the call auction on stocks taking place between 4.30 and 4.45 p.m. distort prices and may exaggerate a prevailing trend. They brought up the sharp drop (5.87 percent) in the share price of bottler Coca-Cola HBC as an example.