Market specialists discuss the recent decision by Greece to remove stamp duty on the full notional value of stock loans, which looks to provide a promising future for onshore and offshore participants. Carmella Haswell reports
Known as the cradle of Western civilisation, Greece has taken a leap to open up its markets and provide further opportunities for the securities finance industry, through the removal of stamp duty on securities lending transactions.
Until now, the region’s securities lending market has remained relatively underdeveloped compared to other European countries. According to Tim Fox, head of demand generation at Sharegain, years of being burdened by a 20bps tax on the full notional value of stock loans has resulted in the country’s stymied participation in the capital markets.
Fox implies that this has caused an “unnatural market equilibrium” that drove up borrowing costs, even for the most commonly available Greek equities.
Furthering this point, Fani Koutsou, head of institutional derivatives sales and SBL trading at Eurobank Equities, indicates that, in reference to high borrowing costs, the borrowing rates in the OTC market were trading consistently at a minimum of 1000bps, or sometimes at even higher levels.
“The 20bps stamp duty on the notional value of the trade was charged [as a] one off at the initiation of the transaction, whereas the annualised lending interest is accrued on a daily basis,” Koutsou explains. “Keeping in mind that a big part of the Greek stock loans is conducted on a rather short term, it is understood that this tax was weighing a lot on the overall cost of the trade.”
This was perceived as a lack of stock loan market efficiency by certain categories of international investors, whose trading strategies required them to borrow high quantities, and it was “seriously affecting” their participation. In addition, the resulting lower liquidity affected market participants.
In April, the Greek government removed this stamp duty on stock loans, a move that has been received positively by the market. Industry participants anticipate that the change will bring about increased liquidity, improved price discovery, and emerging opportunities.
A new opportunity
The alleviation of stamp duty on stock loans appears to be the right decision for the market, as participants express a promising future for Greece following this news. The decision could gradually lead to a “well-functioning securities lending market for Greece” says Koutsou, while Fox believes it levels the playing field and “enhances Greece’s appeal as a competitive market” for international securities lending.
There remain two separate markets for Greek securities lending. One trades domestically as a listed product in the Athens Exchange, where participants are locals, and the other is the OTC securities lending market, where participants are institutional investors.
Aside from using the borrowing rates of the local market as an indication to the OTC lending transactions, when the latter lacks liquidity or accurate data, the two markets do not interact. Although the local market is only a small fraction of the OTC market, both are currently “far from reaching their potential”, says Koutsou.
S&P Global Market Intelligence data reveals that annual revenues in Greece have been in decline over the last few years, with revenues reaching US$6.5 million in 2020 and falling to US$4.6 million in 2023. Average fees during 2023 increased by four per cent year-on-year (YoY) despite lendable increasing 35 per cent — the new supply did not dilute fees which is positive, says the firm’s Matthew Chessum, director of securities finance.
Chessum suggests that the country still suffers from a “lack of demand”. Utilisation for 2023 stood at 0.8 per cent, down 46 per cent on 2022. He adds: “Before the global financial crisis, there was growing interest in Greece, but the country's sovereign debt issues cooled demand significantly, lenders pulled supply and the size of the securities lending market contracted.”
Any changes to the Greek stamp duty tax are “likely to be supportive of further growth in activity in this market”, Chessum comments. “Given the lack of other opportunities across EMEA at the moment, it may give lenders and borrowers an opportunity to concentrate on a new opportunity.”
According to Nikos Porfyris, chief operating officer of the Athens Exchange Group, the “stamp duty has originally been linked to OTC loans” and the legislators at that time did not necessarily have in mind capital markets use. He explains that the recent exemption for OTC stock lending indicates that tax authorities “understand its use and the effective increase in secondary market liquidity and spreads narrowing” that it can have.
Previously, Greek securities lending has been fragmented and extremely expensive, says Porfyris. He understands that the abolishment of stamp duty, and the reduction of the stock sales tax to 10bps in January, will help to decrease the cost for covering fail trades with same day settlement. It will allow on-exchange markets and the OTC market to interact for the benefit of both lenders and borrowers. In addition, he expects it will enhance the use of long, short, and neutral strategies, outperformance generation strategies, as well as arbitrage.
Furthermore, in terms of onshore and offshore participation, the now nonexistent stamp duty on stock loans looks to attract investors from a variety of different types of investment vehicles, say market specialists. Porfyris indicates that the decision will create a larger pool of securities lending and will link onshore and offshore participation.
“The existence of a more efficient securities lending market is a strong requirement for all market participants to trade,” comments Koutsou. “The better this market works, the more comfortable the investors feel to participate in both cash and derivatives markets. It is the safety net that is necessary for local market makers to offer more competitive prices and for international investors to unlock further trading strategies.”
Fox boasts a number of advantages for the market, not only in Greece but internationally. While the decision enables fresh avenues for growth and investment, he highlights, it will bring new participants such as private and retail investors in Greece to this market. He continues to state the change on stamp duty will foster a more dynamic and fluid market environment, enhancing market liquidity, and provide improvements to transparency and fairness in pricing within the Greek securities market.
Anticipating an increase in volatility, Fox believes that this will drive demand to borrow Greek securities, and therefore unlock a wealth of Greek specials.
Final thoughts
For Sharegain, the news pertaining to the removal of stamp duty is “great” for its clients in Greece, as the firm predicts it will see more demand from borrowers, enabling Sharegain to expand its offerings. The “significant pivot” will revitalise and strengthen Greece’s position in the international securities lending landscape and for Sharegain, he adds.
Koutsou states: “The stamp duty alleviation is a most welcome decision that signifies indeed, a bright, full of potential, new era for Greek securities lending.
“The prospect of creating new sources of revenues for our clients has always been a challenging and exciting task for us, while meeting the trading requirements of a wider range of investors and further advancing our service. The best is yet to come for this market.”
Fox concludes that while the degree of impact remains uncertain, “one thing is clear” — the 2024 securities lending stage belongs to Greece. He insists that it is a new era for the country “as it re-establishes itself as a European market full of opportunity”
