As Greek and EU ministers continue to debate the country’s third bailout, financial market participants are reacting to the uncertainty, including short sellers

Greece’s vehement ‘no’ to austerity, which received 61 percent of the vote during the referendum on 5 July, left the country on the brink of an exit from the eurozone. As Greek and EU ministers continue to debate the country’s third bailout, particularly the divisive conditions under which it will be issued, financial markets are reacting to the uncertainty.

Market reaction has been unsurprisingly negative, with European equities trading lower on the outcome of the 5 July Greek referendum on the international bailout conditions set by the EU, according to Heartwood Investment Management.

Hedge funds, meanwhile, have little to fear from the risk of instability in Greece, according to Lyxor, whose platform has shown they have limited exposure.

Only 11 funds on the Lyxor platform are directly exposed to Greece, a majority found in the event-driven and credit space. Of these funds, nine own Greek equities (local companies and banks). Around half of them have exposures to Greek sovereign bonds.

There is also dispersion in the aggregated net exposure to Greece among managers, ranging from 4.5 percent to 5.6 percent of net assets of the funds. Philippe Ferreira, senior cross asset strategist at Lyxor Asset Management, commented: “We estimate that the impact from future developments in Greece (losses or gains) would be limited for such funds.”

“A majority of them have sought to isolate this risk. Some have reduced their exposures; others have implemented hedging strategies. In a worst case scenario, we estimate that the losses would be limited.”

Short sellers have had little to do with Greece over the last 12 months, according to Markit. The aggregate value of all loans has averaged $50 million over the last six months, which is by far the least out of any eurozone economy, while utilisation has collapsed to $12 million in the wake of the latest crisis.

The Hellenic Capital Markets Commission reacted to the latest crisis by implementing a complete ban of short selling on 30 June. Originally intended to last until 6 July but extended until 13 July, the regulator issued the temporary ban of all short selling of any financial instruments on the Athens Exchange, as well as the Multilateral Trading Facility of the Alternative Market of the Athens Exchange.

The European Securities and Markets Authority backed the bans, given the “adverse developments which constitute a serious threat to market confidence” in Greece.

Markit analyst Simon Colvin added in commentary published in early July: “[Greece’s] lack of demand looks to be driven by the recent market uncertainty, as the aggregate value of Greek short positions actually fell in the weeks leading up to the short selling ban coming in to place. That number had stood at $60 million as late as April, just prior to the deterioration of talks.”

Colvin added: “The worsening situation also looks to have been impacting the supply of shares which lenders are willing to lend out, as total value of Greek securities sitting in lending programmes has fallen by over 40 percent since the start of the year to $880 million. This has outpaced the decline in the country’s equity market, so the drop in lendable shares can be attributed to the fact that lenders are either selling their Greek holdings or removing Greek shares from lending programmes.”

“Despite the fall in the quantity of Greek equities available to lend to short sellers, over 95 percent of the available pool has remained un-lent over the recent crisis as utilisation never breached the 5 percent mark. This means that the lack of shorting activity was driven by a lack of demand, most likely driven by market uncertainty, rather than any supply constraints.”

Country profiles
The latest country profiles from Securities Lending Times
Luxembourg is a household name in securities lending due to hosting a substantial portion of asset-rich UCITS funds. Jenna Lomax assesses how Luxembourg’s recent market developments could be a major windfall
The German securities lending market is weeks away from the introduction of a new tax on dividend income that may drive participants out the market
Asset Servicing Times

Visit our sister site
for all the latest asset servicing news and analysis
Francisco Thiermann of IBM says the imminent launch of Chile’s securities lending blockchain solution will provide a shot in the arm for the market
Zubair Nizami, head of Asian securities lending trading at Brown Brothers Harriman talks to Drew Nicol about the state of the industry in the region
Being an exciting emerging market is all well and good, but how long can that status really apply before interest wanes? India is doing its best not to find out
Hugh Leonard, director of repo sales at Australia and New Zealand Banking Group, explains how the Australian market has excelled in recent years
Securities lending is in a strong place in Australia. Dane Fannin, head of capital markets in the Asia Pacific at Northern Trust, explains the available opportunities
Federico Ortega Gilly of Mexico’s Nacional Financiera explains why his country’s securities lending market is ripe for foreign investment
The latest features from Securities Lending Times
All the pieces of the puzzle are now in place for the market to judge for itself whether central clearing is vindicated
From regulation to bitcoin, John Davidson of OCC discusses what the world’s largest equity derivatives clearinghouse is watching in 2018
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
In the first article of this three-part series, Euroclear’s Marije Verhelst examines the organisations traditionally and newly active in equity collateral and how shifting priorities are reshaping the market
Roger Reist of Zürcher Kantonalbank discusses the benefits of securities lending in the current low interest rate environment
Pirum’s Phil Morgan reviews the year just gone and casts an eye to the future
Michael Huertas, of Baker McKenzie, offers an overview of the challenges and opportunities ahead for the eurozone securities financing community
What to expect in 2018. Mark Barnard, Gareth Mitchell, Mark Jones and Andrew Dyson discuss what’s in store for the securities lending industry
Tim Martins outlines how LSEG’s trading platform MTS Repo, and UnaVista’s Trade Repository are collaborating to provide future proof solutions for the buy side
The latest interviews from Securities Lending Times