Greek Central Bank Accused Of Encouraging Naked Short Selling Of Its Own Bonds

From the FT, and yes, you can't make this up. First we find out the biggest speculators in Greek CDS was Greek Post Bank, and now we discover that Greece itself made shorting of its cash bonds almost a requirement via a change in settlement from T+3 to T+10. Unreal.

A Greek former European Commissioner has accused the country’s central bank of encouraging naked short-selling of Greek bonds by altering the regulations on its electronic bond trading platform last year.

Vasso Papandreou, a senior deputy in the governing socialist party, made the charges on Wednesday in a written question to parliament.
“The Bank of Greece knew the country’s negative fiscal situation. Why did it facilitate the speculation?” asked Ms Papandreou, who is not related to George Papandreou, the Greek prime minister.

Her question, supported by another 10 deputies, reflects growing concern in the Socialist party over an apparent policy contradiction in the handling of Greece’s debt crisis.
The bank first extended the settlement period for transactions on HDAT, the bond trading platform, from Tplus3 (trading plus three days) to Tplus10.

The change was reportedly made in response to a request from the Association of Greek Banks, which represents market-makers in Greek bonds.

But it gave short sellers a longer window of opportunity to push down the price of a Greek bond before delivering it on the settlement date, Ms Papandreou said.

The central bank also abolished penalties for investors which did not deliver a bond on the settlement date in a move that allowed failed transactions to be continuously recycled.

“Effectively the central bank introduced regulations for bilateral selling that apply to an over-the-counter market – although HDAT’s bond trading platform is part a regulated European market,” she said.

Last month the Bank of Greece reversed both decisions after a Greek newspaper revealed details of much increased short-selling and large numbers of unsettled transactions.

Settlement of transactions in Greek bonds was set at trading plus one day – a move that effectively ended short-selling of Greek bonds, according to traders.

HDAT said the change was made because of “massive debit positions” in its transactions.