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Operational consolidation between the region’s stock exchanges including the creation of investable products with common themes and the creation of a single central depository in the form of a virtual central depository through the deployment of information technology and the synchronization of account handling and collateral management systems can be the best answer to the markets fragmentation issue, according to Elie Ghanem, Head of Market and Product Development Department (MPD) at Abu Dhabi Securities Exchange (ADX).
Ghanem gave these remarks today at the TradeTech Middle East Summit, taking place in Dubai on May 10-11, 2010, with more than 40 speakers representing 15 countries in discussing a wide range of issues including the challenges of low liquidity levels, regulatory issues, coordination, transparency and the methods to improve trading and trading technologies in the Middle East markets.
The head of ADX’s MPD explained that the inclusion of the UAE in the FTSE and MSCI lists of emerging markets would definitely take the capital markets into a new era, demonstrating stability, where numerous fund managers and international financial institutions would come to invest in the UAE. Complemented with more free-floats and Initial Public Offerings (IPOs) and regulations for covered short-selling, the liquidity would certainly increase in the market paving the way for new products. Covered short-selling is considered a good tool that allows investors to take hedging positions during the downturn of the market.
“While world capital markets show on average a balanced capital structure of 42% debt securities, 25% stock market capitalization and 33% bank assets, debt securities still play a minor role in the GCC with less than 5%. Notwithstanding the macro-economic and micro-economic requirements, a fixed income market including Sukooks should be created and already have a high priority in ADX’s strategic plan,” he said. Ghanem admitted that the maturity of the region’s markets and the introduction of new platforms can only be achieved gradually, while the creation of a derivatives market would have a better chance to succeed if it is done collectively among GCC exchanges.
Addressing the off-market trading issue, Ghanem emphasized that despite the fact that this market exists in developed markets; there are recent initiatives to reverse the trend through ensuring customers of the high level of disclosure and transparency offered by the official exchanges.
“Financial markets play a key role in promoting trading opportunities through regulations and enforcement , promoting market makers, ensuring easy access and setting the infrastructure to support new investment instruments and vehicles,” he added.
The two-day TradeTech Middle East Summit attracted more than 150 participants and provided an excellent opportunity for ADX to network with officials and businessmen representing countries like Saudi Arabia, Qatar, Kuwait, Bahrain, Oman, Egypt, Jordan and Palestine.
