Greek authorities have implemented a robust program of review of relevant law and practice, according to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment. In addition, as reported in a 2005 study by Spanos, Greece's legislative framework for the capital markets is fully harmonized with European Union guidelines and directives. The IMF report states that market capitalization of the Greek stock exchange is in line with the European average, and the corporate bond market has been growing in line with its European counterparts. However, capital markets in Greece are still characterized by weak turnover rates, low levels of liquidity, highly concentrated stock trading, and a quasi non-existent secondary market. According to the IMF report, which includes an assessment of Greece's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation, Greece is highly compliant with the IOSCO principles. Regulation and supervision of the securities market is also considered sound. The IMF report underlines that market oversight of the Hellenic Capital Market Commission (HCMC)—the independent regulatory authority for the capital markets—could be further strengthened by enhancing its operational independence and accountability. The IMF further stresses the importance of prioritizing the implementation of standardized procedures for the inspection work of the HCMC. Finally, while accounting and auditing standards are considered to be of high and internationally acceptable quality, Greek authorities must ensure compliance by all listed companies with these standards.

General Overview

The International Monetary Fund (IMF) conducted a Financial System Stability Assessment in January 2006, including a report on Greece's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation. The report concludes that Greece is highly compliant with the IOSCO principles. In addition, "securities regulation and supervision is considered sound" (p. 32). The IMF report underlines that market oversight of the securities regulator—the Hellenic Capital Market Commission (HCMC)—could be further strengthened by enhancing its operational independence and accountability in the exercise of its functions and powers, and establishing a code of conduct for its staff. The IMF further stresses the importance of prioritizing the implementation of standardized procedures for the inspection work of the HCMC. While accounting and auditing standards are of a "high and internationally acceptable quality" (p. 54), according to the IMF's 2006 report, Greek authorities must ensure compliance by all listed companies with these standards.

Greek authorities have implemented a "robust program of review of relevant law and practice" (p. 53), focusing on European Union (EU) directives in particular, according to the IMF's 2006 report. Concerns remained, however, with regards to the effectiveness of court actions. In the European context, Greece's legislative framework for the capital market is fully harmonized with EU guidelines and directives, as noted in a 2005 study by Loukas J. Spanos. The Law on the Protection of the Capital Market from Abuse of Privileged Information and Market Manipulation No. 3340 of 2005 has implemented the EU Market Abuse Directive No. 2003/6/EC. The Law on Public Bids No. 3461of 2006 transposed into Greek legislation the EU Takeover Directive No. 2004/25/EC. The EU Prospectus Directive No. 2003/71/EC was also incorporated into Greek law through the Law on Prospectus for the Public Offer of Securities and Admission to Trading No. 3401, which came into force in October 2005. Greek Law No. 3556 of 2007 aligned the transparency requirements to the provisions of EU Transparency Directive No. 2004/109/EC. Finally, in April 2007, the EU Directive No. 2004/39/EC on Markets in Financial Instruments (MiFID) was enacted in Greece by Law No. 3606 of 2007.

The HCMC is the main independent regulatory authority for the capital markets in Greece. It is responsible for the regulation of investment firms, mutual fund management firms, portfolio investment companies, and the securities clearing and settlement systems. According to the 2005 study by Spanos, the HCMC issues statutory rules and regulations, and ensures compliance with them, to improve, inter alia, investor protection, market transparency, efficiency of trading, and clearing and settlement systems. In turn, the Ministry of Economy and Finance (MEF) supervises the HCMC, and is responsible for "the harmonization of legislation with European Law and supervision of observance of the law by all agencies of the capital market and the Stock Exchange" (p. 9), as indicated by Spanos' 2005 study. The HCMC further supervises entities such as the Athens Stock Exchange (ASE), and the Hellenic Exchanges (HELEX). The ASE was founded in 1876 as an independent regulatory government agency, operating 5 different equities markets: the main market; parallel market; new market; market of emerging capital markets; fixed income instruments market; and derivative instruments market. The HELEX completed its merger with its 100% subsidiaries—the Central Securities Depository and Athens Derivatives Exchange Clearing House—in November 2006.

While market capitalization of the Greek stock exchange is in line with the European average, as reported in the IMF's 2006 assessment, turnover rates are significantly weaker. Moreover, the level of liquidity in the market is relatively low, and stock trading is highly concentrated. Per the same report, the Greek capital market has a limited range of products, with few corporate bond issues and a quasi non-existent secondary market. The IMF report notes that Greece's small corporate bond market has been growing in line with its European counterparts. Finally, capital markets in Greece might suffer from limited financial disclosure due to the low number of listed companies. In 2004, according to the IMF report, approximately 70 percent of Greek companies were not required to report under the International Financial Reporting Standards (IFRSs), as they were not listed on the ASE.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral Memoranda of Understanding (MoUs). The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Greece's HCMC is a signatory to the MMoU and an ordinary member of IOSCO. Greece is also a founding member of the Committee of European Securities Regulators.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

FC

The HCMC is the main independent regulatory authority for the capital markets in Greece. The IMF's 2006 report states that "the responsibilities of the HCMC as regulator are clear and objectively stated, generally in the law" (p. 53). The HCMC is responsible for the regulation of investment firms, mutual fund management firms, portfolio investment companies, and the securities clearing and settlement systems. According to the 2005 study by Spanos, the HCMC issues statutory rules and regulations, and ensures compliance with them, to improve, inter alia, investor protection, market transparency, efficiency of trading, and clearing and settlement systems. In turn, the MEF supervises the HCMC, and is responsible for "the harmonization of legislation with European Law and supervision of observance of the law by all agencies of the capital market and the Stock Exchange" (p. 9), as indicated by the Spanos' 2005 study. The HCMC further supervises entities such as the ASE, and the HELEX.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

In some instances, the IMF's 2006 report recommends enhancing the HCMC's operational independence and accountability in the exercise of its functions and powers, namely regarding the allocation of its staff and resources within an overall budget. The HCMC should also be required to report to the Greek authorities on the performance of its functions. In addition, appointments of all members, including executive committee members, should be subject to public scrutiny. However, the report does not explicitly address Greece's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

FC

The IMF's 2006 report states that the HCMC has "adequate powers to perform its functions and exercise its powers" (p. 53).

4. The regulator should adopt clear and consistent regulatory processes.

FC

The IMF's 2006 report states that the HCMC "adopts clear and consistent regulatory processes" (p. 53). The HCMC should encourage institutions in the securities market to enhance investor education "with particular emphasis on more prudent and more effective investment by retail investors" (p. 55).

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

According to the IMF's 2006 report, the HCMC staff should make its commitment to high professional standards more explicit. It is further recommended that the HCMC establish a code of conduct for its staff "establishing general policies and procedures for disclosing and managing conflicts of interest arising in their work" (p. 55). Nevertheless, the available sources do not directly address Greece's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

The regulatory framework in Greece makes use of Self-Regulatory Organizations (SROs), which observe standards of fairness and confidentiality, as noted in the IMF's 2006 report. The HCMC oversees the SROs. However, the report does not explicitly address Greece's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

FC

The IMF's 2006 report states that the HCMC "has comprehensive inspection, investigation, and surveillance powers" (p. 54).

9. The regulator should have comprehensive enforcement powers.

FC

The IMF's 2006 report states that the HCMC "has comprehensive enforcement powers" (p. 54).

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

CP

According to the IMF's 2006 report, the HCMC demonstrates an effective and credible use of its enforcement powers. However, it is recommended that the HCMC "establish a practice of preparing a forward program of work, particularly audit and surveillance work for each financial year, monitoring progress against budget, and reporting on performance at the end of the year" (p. 54). In addition, the electronic surveillance systems of the HCMC should promptly be reviewed.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

FC

The IMF's 2006 report states that the HCMC "has wide powers to share both public and nonpublic information in its possession with domestic and foreign counterparts" (p. 54).

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

FC

The IMF's 2006 report states that the HCMC "has established the necessary mechanisms for sharing nonpublic information with domestic and foreign counterparts" (p. 54). The HCMC is a signatory to the MMoU, and an ordinary member of IOSCO. The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

FC

Pursuant to the Law on the Protection of the Capital Market from Abuse of Privileged Information and Market Manipulation No. 3340 of 2005, the HCMC has legal powers to take "the necessary measures to gather the required information" (p. 54), as noted in the IMF's 2006 report. In particular, the HCMC has the authority to perform inspections or investigations at the request of foreign counterparts. The Market Abuse Law has implemented the EU Market Abuse Directive No. 2003/6/EC.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

According to the IMF's 2006 report, the law provides that there is "full, accurate, and timely disclosure of financial results and other information to shareholders of companies and interest holders in collective investment schemes" (p. 54). However, it is recommended that Greek regulators "continue their program of intensive work to complete the necessary legal and institutional arrangements for the supervision and oversight of the new financial reporting system" (p. 56). Focus should namely be turned to the oversight of chartered accountants.

The 2005 study by Spanos states that "the disclosure framework in Greece is quite strong and in line with the EU trends" (p. 12). Listed companies are required to publish an annual report and a cash flow statement. The latter, according to Spanos, "constitutes the first step of implementing International Accounting Standards in Greece" (p. 12). Audits are also performed to verify the disclosure of additional information in the financial statements published by listed companies. According to the 2005 study by Lambadarios and Associates, the HCMC and the ASE have been encouraging listed companies to improve internal control mechanisms. The EU Prospectus Directive No. 2003/71/EC was incorporated into Greek legislation through the Law on Prospectus for the Public Offer of Securities and Admission to Trading No. 3401 which came into force in October 2005. Finally, Greek Law No. 3556 of 2007 aligned the transparency requirements to the provisions of EU Transparency Directive No. 2004/109/EC. However, the report does not explicitly address Greece's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

While shareholders of a company should be treated in a fair and equitable manner pursuant to the law, as cited in the IMF's 2006 report, "the powers of minority shareholders under the company law may be difficult to exercise and the company takeover laws are not always effective to regulate the transfer of control" (p. 54). In addition, the IMF found that listed companies gave way to shareholding concentrations. It is recommended that the law on tender offers be reviewed by the HCMC, and extended with the aim of better protecting investors in relation to the transfer of control of a listed company. The HCMC should also review disclosure in listed companies' transactions of securities.

According to the 2005 study by Lambadarios and Associates, the HCMC and the ASE have been encouraging listed companies to enhance the role of minority shareholders in corporate management. In addition, the Law on Corporate Governance No. 3016 of 2002 addresses the safeguard of minority shareholders' rights, and the protection of shareholder rights, as noted in the OECD's 2005 Economic Survey. Finally, the Law on the Protection of the Capital Market from Abuse of Privileged Information and Market Manipulation No. 3340 of 2005 has implemented the EU Market Abuse Directive No. 2003/6/EC. Nevertheless, the available sources do not directly address Greece's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

CP

As a result of the European Commission (EC) Regulation No. 1606 of 2002, starting January 1, 2005, all EU listed companies are required to prepare consolidated accounts following the IFRSs endorsed by the EC. Member States may decide as well to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts. In addition to EU requirements, Greece requires IFRSs for annual accounts for listed companies and permits use of IFRSs in the consolidated and annual accounts for other companies which are audited by certified auditors. According to the IMF's 2006 report, IFRSs and international audit standards have been adopted by Greece, applying to final or interim statements as of March 2005.

While accounting and auditing standards are of a "high and internationally acceptable quality" (p. 54), according to the IMF's 2006 report, Greek authorities must ensure compliance by all listed companies with the standards. In addition, disclosure rules for listed companies, including the ASE's authority to grant exemptions in individual cases, need to be administered in a continuous manner.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

FC

The IMF's 2006 report states that "the regulatory system sets standards for the eligibility and regulation of those who wish to market or operate a [collective investment scheme] CIS" (p. 54). The IMF recommendations for issuers are equally applicable to CISs.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

FC

According to the IMF's 2006, Greece has established "rules governing the legal form and structure of CISs and the segregation and protection of client assets" (p. 54). The IMF recommendations for issuers are equally applicable to CISs.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

FC

The IMF's 2006 report states that "the rules require disclosure as necessary for the particular investor to evaluate the suitability of a CIS for and the value of interests in it" (p. 54). The IMF recommendations for issuers are equally applicable to CISs.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

FC

As noted in the IMF's 2006, regulations in Greece ensure "a disclosed basis for asset valuation and the pricing and redemption of units" (p. 54). The IMF recommendations for issuers are equally applicable to CISs.

21. Regulation should provide for minimum entry standards for market intermediaries.

FC

The IMF's 2006 report states that "regulation provides for minimum entry standards for market intermediaries" (p. 54).

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

FC

The IMF's 2006 report indicates that "there are initial and ongoing capital and other prudential requirements that reflect the risks that the intermediaries undertake" (p. 54).

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

CP

According to the IMF's 2006 report, "market intermediaries must comply with standards for internal organization and operational conduct that aim to protect the interests of clients and ensure proper management of risk" (p. 54). However, it is recommended that the HCMC "establish a practice of preparing a forward program of work, particularly audit and surveillance work for each financial year, monitoring progress against budget, and reporting on performance at the end of the year" (p. 54). In addition, the electronic surveillance systems of the HCMC should promptly be reviewed.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

CP

See Principle 23.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

FC

The IMF's 2006 report states that "the establishment of trading systems is subject to regulatory authorization and oversight" (p. 54).

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

FC

The IMF's 2006 report indicates that "there is ongoing supervision to ensure that the integrity of trading is maintained" (p. 54).

27. Regulation should promote transparency of trading.

FC

According to the IMF's 2006 report, "regulation promotes transparency of trading" (p. 54).

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

The IMF's 2006 report states that "regulation is designed to detect and deter manipulation and other unfair trading practices" (p. 55). However, it is recommended that Greek regulators "continue their program of intensive work to complete the necessary legal and institutional arrangements for the supervision and oversight of the new financial reporting system" (p. 56). Focus should namely be turned to the oversight of chartered accountants. In the European context, the Law on the Protection of the Capital Market from Abuse of Privileged Information and Market Manipulation No. 3340 of 2005 has implemented the EU Market Abuse Directive No. 2003/6/EC. However, the report does not explicitly address Greece's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

According to the IMF's 2006 report, "regulation aims to ensure the proper management of large exposures, default risk, and market disruption" (p. 55). However, the report does not explicitly address Greece's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

The IMF's 2006 report states that "systems for clearance and settlement of securities transactions are subject to regulatory oversight" (p. 55). However, the report does not explicitly address Greece's compliance with this principle.