Greek bourse faces FTSE downgrade, officials upbeat

ATHENS/TAIPEI, April 10 (Reuters) - Greece's stock exchange risks losing its developed-market status, the chief executive of global index compiler FTSE said on Thursday, but officials in Athens said they were confident this would be avoided.

FTSE placed Greece on a watch list for possible demotion in 2006, a move that if implemented may prompt an exodus of index funds that track mature markets.

Problem areas include low liquidity in the Athens bourse's equity derivatives market and stock-lending procedures.

"They do have a lot of challenges," FTSE Chief Executive Mark Makepeace told Reuters in an interview in Taipei.

"I think there is a very real possibility they will be downgraded (from developed to advanced emerging).

Based on recent statistics, foreign portfolios own more than 50 percent of the Greek equity market's available free float. Greek equities have a market capitalisation of 155 billion euros ($246 billion).

FTSE's indices are used by investors worldwide for analysis, performance measurement and asset allocation. Countries stay on watch for at least 12 months before any change to their status.

Greece, which gained developed market status after joining the euro zone in 2001, was placed on watch for failing to pass on six criteria, the minimum needed for a warning. Makepeace said he will be in Greece in two weeks to review progress and hold talks with Athens Stock Exchange authorities.

Hellenic Exchanges (EXCr.AT) Vice-Chairman Socrates Lazaridis said only one of the six criteria had not been met but that it would be adressed in a review this month.

"The last remaining item has to do with the short sale 'flag' and this will be taken care of in a broader regulatory review set for April 17," Lazaridis told Reuters from Nicosia.

As things stand, the exchange's electronic trading system flags short-sale transactions to aggregate statistics on short interest. FTSE claims this may produce misleading data because off-exchange transactions are now possible, Lazaridis said.

He added that Athens bourse officials and FTSE will have talks on April 22. (Reporting by George Georgiopoulos in Athens and Doug Young in Taipei; Editing by David Hulmes)