Grexodus

Brokers Pulling Back from Greece

DeGiro announced it is suspending trading on the Greek stock exchange. Could this be the start of a larger exit?

The Dutch online retail broker, DeGiro, has decided to halt operations in Greece. Despite its expansion into new European markets of late, most recently the UK, the company announced today (19 June) that it is suspending trading on the Greek stock exchange, citing concerns over the risk of capital controls, according to Reuters.

The company announced today that it is suspending trading on the Greek stock exchange, citing concerns over the risk of capital controls.

As previously reported by Finance Magnates, DeGiro claims the title of Europe’s fastest growing online stock broker, operating in 18 countries and boasting a 30% market share back home in the Netherlands. Its allure lies in its low prices, claiming that its fees are on average 84% lower than its competitors. The announcement to pull back from Greece therefore reverses recent advancement.

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Uncertainties in Greece

The stalemate over bailout conditions between Alexis Tsipras’ government in Athens and its creditors – namely, the International Monetary Fund (IMF) and the European Central Bank (ECB) –  has made real the possibility of a Greek default on its loan obligations and the potential failure to unlock a bailout package of nearly $8.2 billion at the end of the month.

Such a scenario would likely mean a ‘Grexit’, with Greece exiting the Eurozone and adopting the drachma. This would force the hand of the Greek authorities to implement capital controls in order to prevent an outflow of capital from the country as the value of its new currency plummets and inflation soars.

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Cautious Response

With the looming uncertainty, many European brokers have already restricted operations. Before its announcement today, DeGiro had ceased offering finance for trading in Greek securities and for borrowing stock for short-selling; while Saxo Bank restricted trading in Greek stocks and contracts-for-differences (CFDs).

If capital controls were to be implemented, transactions that have not yet been settled could be jeopardised. DeGiro, in a statement today, explains: “Cash settlement of regular security transactions takes a couple of days from the time of execution before there is an exchange between the owner of the securities and the cash”. Hence, the company has decided to suspend trading outright to avoid negative consequences regarding the settlement of transactions.

Signalling

Such decisions by brokers like DeGiro may stoke fears of imminent capital controls, which could provoke a larger wave of money exiting Greece.

Such decisions to cease trading by brokers like DeGiro may stoke fears that restrictions will indeed be placed on the flow of capital. The question is whether, in the short-term, such fears could provoke a larger wave of money exiting Greece.

Accordingly, politicians and central bankers are scrambling to prevent a bank run. The EU has called for an emergency summit on Monday to help calm nerves, and the ECB announced in the last few hours that it will grant Greek banks more liquidity.

However, the situation remains uncertain. As The Guardian reported today, Wolfgang Schäuble, German Finance Minister, is not optimistic: “We have to wait and see what and whether something happens in Greece by Monday….But I’m not sure I’ll be able to announce anything sensational or new.”

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