Capital Link, Inc.

Mr. Socrates Lazaridis *General Manager* Athens Stock Exchange
THE GREEK CAPITAL MARKET AND THE ATHENS STOCK EXCHANGE PRESENTATION THE ECONOMIST CONFERENCE LONDON, FEBRUARY 2000 Good Morning Ladies and Gentlemen, on behalf of the Athens Stock Exchange I would like to welcome you to this event where "Greece at the threshold of EMU" is presented.

During the last five years, the Athens Stock Exchange (ASE) has proved to be both the main development lever of the Greek economy and the primary investment alternative, not only for the Greek but also for a significant number of foreign investors. The very good performance of the Greek Economy as a whole and of Greek companies in particular, during the previous years, along with the positive prospects for a sustained growth in the macroeconomic and microeconomic environment in the future, are finding their way into strong market valuations. As you may hear later, there is a significant decrease of the inflation rate, which is reflected to a step by step decrease in interest rates. On the other hand the published results for the listed companies for the third quarter of 1999 depict a 60% increase of EBT in relation to 1998. Their prospects for the year 2000 are also towards this direction. Furthermore, the use of the capital market as a mechanism for the partial privatization of public sector firms has also boosted the investing public's interest for the market and has strengthened its orientation towards negotiable instruments and especially listed securities. As a result, today in the local CSD are registered 1.500.000 investors corresponding to about 13% of the country's population and to more than one third of the number of households. These developments have in turn contributed to the increased use of the market as a funding mechanism for the Greek companies.

As you can see from the slide, the capital raised by the various enterprises via the stock market is extremely significant. During 1999 reached the unprecedented level of USD 13.3 billion, as against USD 1.7 million at year 1997. Today, the number of listed firms in both the main and parallel market of ASE are 305, 35% more since the beginning of 1994, a figure which will be increased by approximately 100 new firms, within the year 2000.

In the chart you can see the evolution of ASE's turnover during the last five years. The transaction volume in 1999 reached USD 180 billion as compared to USD 43 billion of 1998. The average annual growth of the transaction volume was 91.5% for the last 10 years, while it was 115.7% during the last 5 years. At present the daily turnover has stabilized between 600 and 900 million dollars.

Previous chart presents a comparison of European stock exchanges' turnover in their domestic equity markets. These are results of a new method for turnover measurement, commonly accepted by FESE members. The period that is presented is the only available at present.

In the next chart end year market capitalization is presented for the last five years. Market capitalization, from USD 30 billion in 1997 rose up to the impressive USD 204 billion at year-end 1999. The average annual growth of market capitalisation was 52.4% for the last 10 years and 79.8% during the last 5 years.

Finally, the General Index of ASE rose from 1,479 units in end December 1997 to 2,737 at year-end 1998 and 5,500 at December 1999. The average annual growth of the General Index was 28.3% for the last 10 years and 44.8% over the last 5 years In View of the aforementioned current situation, the A.S.E and the Greek Capital Market in general, over the last couple of years, are working on a restructuring and modernization project with the objective being to offer an environment comparable to that of the developed international stock markets. This refers to a three-tier effort focusing on: Restructuring legal and regulatory framework. Modernising IT infrastructure Introducing new products The first objective focuses on the implementation of regulatory structures and setting of rules contributing to ASE's credibility and transparency to the extent that it will continue working competitively in the global capital markets environment. More accurately recent developments are focusing on the following directions: # 1. Modernising Listing Requirements In this area, and for both main and parallel markets, the minimum net equity needed was doubled, the minimum free-float was increased and constrains related to company's previous records were liberalised.

# 2. Upgrading listed companies obligations for disclosure These obligations are covering: ˇ Companies' financial disclosure, where along with their quarterly and interim accounts they are obliged to publish a breakdown of their sales by sector and a report on the use of the finance they raise through the capital market. ˇ Disclosure on changes in ownership of voting rights, where obligations of listed companies', shareholders and directors have been tightened. ˇ Furthermore, a new division was created in ASE, which performs a daily cross-checking with the listed companies for any price sensitive news that appear in the economic press. In addition to these measures, the Hellenic CMC has presented recently a set of rules for best Corporate Governance practices that should be adopted by listed companies. # 3. Broadening the Trading Cycle In this area the following actions has been taken: ˇ Initiation of two new market segments where stocks are traded with consecutive call auctions: a. A segment where low liquidity shares are traded b. A segment for listed firms that are under supervision. These are listed firms, which either do not comply with the undertaken obligations or they are in the process of changing their main production activity. ˇ Extension of the shares daily price fluctuation limits from ą8% to ą10% and soon to ą12% ˇ Introduction of a buy -in trading procedure, to cover defaults on clearing at T+3. ˇ Extension of the trading session period till 12.15 GMT and in few months tills 13.15 GMT. # 4. Restructuring the Clearing Cycle Following the installment of a dematerialized system, in 1999 clearing procedures transferred to a fully electronic book entry environment, which covers all the listed shares and complies to all the G30 recommendation, as amended by ISSA (International Securities Settlement Association). # 5. Strengthening Market's Protection For market protection from ASE members' default, the following actions were taken The Athens Stock Exchange Members' Guarantee Fund, which is the oldest Guarantee Fund in Europe (since 1954), was fully restructured in 1997 in order to comply with the EC Directive for Investors' Compensation Schemes. Currently, this Fund amounts to approximately USD 200 million. In addition, an Auxiliary Fund was created in order to protect the market immediately from any disturbances in the clearing cycle that might be caused by member's default. Currently, this Fund amounts to approximately USD 105 million. Furthermore, the Capital Market Commission established a procedure that covers the clearing risk of the period from T to T+3. This procedure obliges members to a day to day collateralisation of their traded and unsettled volumes. At present, the part of cash collateral that members have deposited for this procedure has risen up to USD 6.09 billion. On the other hand, for investors protection, the CMC has drafted and enforcing three codes of Behaviour: The Code of Conduct of Brokerage firms and investment services companies, The Code of Conduct of Institutional investors and the Regulations code for underwriting of securities. The second objective of the restructuring and modernisation project was focusing on the upgrading of the ASE infrastructure in terms of IT Information Technology systems. Within this context, three major installations has taken place: A. ASE's Wide area private network Through this network, trading and clearing services on Stocks, Bonds and Derivatives are offered to the Greek capital market participants. This network connects ˇ ASE's & CSD's primary and secondary sites ˇ ADECH and ADEX ˇ Two trading floors ASE and TSEC (Thessalonica Stock Exchange Centre) ˇ 79 MEMBERS & 60 BANKS. B. Integrated Automated Electronic Trading System (OASIS) This new system offers: ˇ Competitive, high standard functionality to the members of ASE and the investors. ˇ Increased trading capacity ˇ Proper monitoring and surveillance of the markets. ˇ Minimisation of the trading costs ˇ Integrity and transparency of transactions. ˇ Order routing connectivity for members C. Dematerialised Shares System This new system offers: Elimination of safekeeping costs Direct participation of banks as custodians to the settlement process Administration to the end investor accounts Execution of corporate actions Performance of special operations ( like pledges, inheritance, etc) The third objective concentrates on the creation of new products so that investors are provided with innovative investment alternatives. Thus, within this context one should mention the introduction of: ˇ new FTSE/ASE indices At the moment there are two FTSE/ASE indices jointly designed by FTSE international limited, and Athens Stock Exchange, the one is capturing the 20 blue chip companies within the Athens market and the second focuses on the performance of the medium sized companies. The second bundle of products is coming from ˇ the Athens Derivatives Exchange (ADEX) ADEX, with an initial series of products such as futures and options based on ASE indices and stocks and interest rate derivatives, comes to cover an investment need that existed, and became imperative during the last two years. Additional products we anticipate from ˇ the New Market, and ˇ the market for secondary listing of companies from emerging Capital Markets This first market offers an environment where shares of fast growing small and medium sized yet innovative firms will be traded. An immediate objective of ASE is for this market to participate in EURO NM. This second market offers an environment where GDRs and other instruments correlated to shares that are listed in other markets in Balkans, Eastern Europe and the Middle East can be traded.

Ladies and Gentlemen: While you are reading in the final slide where ASE's future plans are presented, I would like to conclude by saying that : as you have seen the structures of ASE and of Greek capital Market have strengthened considerably to withstand the growth in volume and number of transactions. Furthermore, very significant technical and product innovations have been introduced recently or are under way. We are optimistic that the change in the Greek capital market will continue to be positive and constructive and we are committed to contribute to this process by seeking higher levels of safety, credibility and transparency.