The Athens Exchange (ATHEX), the Central Securities Depository (CSD) and the Athens Derivatives Exchange Clearing House (ADECH) have proposed changes to the stock lending and borrowing mechanisms in Greece. The proposals are currently being studied by the authorities in Athens, and are likely to be revised.
Katerina Charalambous, Manager Operations Business Development at EFG Eurobank Securities Services in Athens has issued a detailed explanation of what the changes mean. She says:
As an extension to the existing Repurchase Agreement all market participants will have access to the bilateral borrowing and lending “wholesale” facility that is provided by the Exchange and the Clearing House.
Borrowing and lending will be agreed bi-laterally and will be registered either through members of the Derivatives Market or directly through the Clearing House. There will be a pre-requisite for participants to have a derivatives trading and clearing account. The lot size will be 1000 stocks. The “lending pool” of the Clearing House may also participate in that facility as a supplier of liquidity.
The price (percentage annualized rate) and the quantity will be determined by market participants in the bilateral agreement.
Depending on the use of the facility there will be a field where the participants will note whether the intention of the borrowing is for covering a fail trade or for making use of the facility for short sale cover or other reason. – Depending on the purpose of the borrowing the users of the facility must have in mind that for covering of a fail trade, borrowing must take place by T+3 and that for short sale cover or other reason, borrowing must take place by T+2.
For all facilities there will be a full check and support mechanism for corporate actions. Procedure for fail trades Under the new procedures, in case that shares are available in the client’s account, but the trade has not settled for other reasons (e.g. lack of instructions by the sub-custodian, delays in time differences of global custodians to final beneficiaries, etc), then one of the following options might be applied:
The ATHEX member (brokerage firm) could receive authorization from the sub-custodian in order to use the client’s account to settle the trade in the CSD’s system by 20:00 on T+3, and transfer the shares back to the sub-custodian. – A new window for re-shift of the trade from the broker to the sub-custodian could be available once the trade is shifted back to the local broker (by 13.30 on T+3).
The ATHEX member could be allowed to obtain the stock (by 16:00pm on T+3) through a bilateral repurchase agreement. This service would be offered by the ADECH together with the CSD, and would allow the local broker to borrow the stock from the ADECH pool. Brokers would also have the opportunity to either buy the stock from the market (at market price) in order to cover the lent position, or upon receipt of clients’ instructions at a later stage. Subsequently, the sub-custodian could transfer the stock to the local broker to cover the lent position. Procedure for “wholesale” borrowing and lending facility – Under the new procedures, in the situation where an end-client, a market-maker or a principal needs to borrow stock in order to execute or to commit two-way price for the execution of a trade he can do so through the bilateral borrowing and lending facility provided by ATHEX and ADECH.
Although the trade could be executed on day T, the borrowing can take place until T+2 in order to close the T+3 settlement. – Margin will be required with the usual procedures of ADECH and cross margins with other derivative positions is applied. – In case the T+2 deadline is missed, the fail trade procedure may apply. To facilitate the role and quotation responsibility of the principal it has been asked from the competent authority to relax the up-tick rule at least for blue chip stocks of the FTSE/ASE 20 index which are also underlyings of liquid derivative products.