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The Athens stock market has tumbled by more than a fifth as Greece opened on Monday its financial markets infrastructure for the first time in five weeks.

Why the steep drop?

In short, the equity index is dominated by banks, which are at the centre of the crisis. Collectively, banks accounted for nearly 50 per cent of trading in June, according to data from the Federation of European Securities Exchanges. Heavy declines in those stocks has meant the index itself has fallen sharply. National Bank of Greece hit the daily limit of 30 per cent a few minutes after the opening. The banking index covering the largest Greek banks, including Piraeus Bank, Attica Bank and Eurobank also hit the volatility limit.

What difference do volatility limits make?

The volatility limits are standard tools for exchanges, which seek to ensure that trading on their markets is fair and orderly. If trading in a stock becomes too wild, the limit acts like a circuit breaker, halting trading if tripped. After a brief pause, trading normally resumes.

The limits have to be carefully calibrated to ensure they are not tripped in the event of surprise news, such as a corporate takeover offer for example. But the Athens exchange was expecting a particularly volatile restart and has tightened its limits for the first three days, as well as extended the pause before trading restarts.

But there has been no contagion into other markets?

The declines are eye-catching but the Greek crisis has been well-trailed and other markets have been open, allowing investors to adjust. The longstanding uncertainty about the future of the Greek economy has meant foreign buyers and sellers have all but disappeared from the market. Athens has become a bourse dominated by local trading. Hence the delay to the reopening of the exchange last week, even though it was approved by the European Central Bank. Greek banks needed to be able to create new accounts for local investors to trade on the market.

Not only has the stock market been closed but so have all the other financial market infrastructure in the country, such as bond trading and derivatives markets, as well as clearing and settlement houses.

While the market has reopened, the government still has some limits in place. Investors cannot short-sell shares, and a suspension is still in force for the sale of mutual fund units.

Where does Greece rank among European exchanges?

In addition to its heavy domestic focus, the Greek exchange is also one of the smallest in Europe. Before Monday morning, the 243 companies listed on it had a total market capitalisation of just $43bn, according to Fese. That makes it bigger than Budapest or Kazakhstan but smaller than Luxembourg and less than half the size of Vienna.

Unsurprisingly, it has not had a single initial public offering this year. Even so, trading has been heavy. The 3.8bn equity trades on the exchange by June 30 this year put Greece in the top 10 for European exchanges by volume.

Copyright The Financial Times Limited 2017. All rights reserved.
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