The region has seen many countries move to emerging market status, with others still working to put the building blocks in place. Others already on the emerging market index are aspiring for more, with many keen to now evolve into developed markets. All these changes have one thing in common: they encourage more foreign investment and boost liquidity.

    Charging ahead?

    Saudi Arabia, the region’s biggest economy is ever keen to improve its market infrastructure, such as via the Post Trade Transformation Programme – a key project in the Kingdom’s financial evolution. The programme is one of the biggest changes in Saudi Arabia’s financial history and touches on many areas of development, including technology, business, law and regulatory changes. All aim to raise the attractiveness of the market to international investors, along with enhancing the risk management framework, enabling the development of new products and services while enabling a shift towards a standalone market infrastructure from the current combined market infrastructure. The new CSD system implementation, which is a state of art system, will help introduce new services and business streams and allow us to offer full-fledged CSD services as well as connect to regional and international CSDs. Regulatory and technical requirement are being finalized to introduce the ICSD structures which will establish the ground base for ICSDs to connect with EDAA. EDAA expect the links to be activated this year and have already linked with Abu Dhabi and Bahrain for cross listing, which are expected to go live soon.

    Kuwait has also successfully transformed its market position, rolling out a market infrastructure strategy so successfully that it achieved inclusion on three indices by 2020. The country’s next focus is a 2021-2023 plan, which is aimed at further encouraging foreign investors’ activity. Among the immediate goals this year, the market is changing the settlement type on the investor level, from gross to net (since implemented in May 2021), introducing bilateral securities lending and borrowing, margin trading and tradeable rights. Finally, by the end of the year, the market will introduce Central Counterparty (CCP) concept to clear on-exchange trades, with appropriate infrastructure changes to segregate the Clearing and CSD activities. A central Know Your Client (KYC) utility is also a strategic target for the Kuwait Clearing Company (KCC) in the next two to three years. KCC are also investing in Blockchain and was the first to test a cross-border blockchain settlement with Morocco in 2019.

    Meanwhile Egypt, one of the region’s first markets to gain emerging market status, shows how having a robust strategy for market infrastructure pays off. Egypt has witnessed greater investor appetite since 2018 when the currency stabilized, FX rates have settled down, the flow of foreign currency and repatriation is working smoothly, leading to significant inflows from foreign investors, especially with regard to carry trades, sovereign debt and equities. The growing cohesiveness within the national market also helps, with the stock exchange, the clearing house, the capital market regulator, the central bank, the banks and the primary dealers all working hand-in-hand. Next on Egypt’s plans are aggressive efforts to introduce derivatives and commodity trading, increase liquidity of fixed income products and to increase corporates’ activity on the back of easing interest rates. Efforts are also being made to encourage dual listing to provide greater access to foreign investors in addition to increasing the pace of dematerialisation through reduced documentation requirements and automating the process.

    Egypt will also establish a new Central Bank of Egypt Depository for T-Bills and bonds by Q3 2021, which will encourage greater activity and add further liquidity to the market. The ownership of the new CSD has been revised and will now be 70 per cent Central Bank of Egypt and 30 per cent Ministry of Finance. Efforts are underway to make Egyptian Treasury Bonds eligible for settlement at Euroclear as well as have the bills and bonds held in custody, cleared and settled in the same place, to enable investors to utilize these bonds for collateral programmes.

    In Turkey, the traditional role of the CSD of Turkey (MKK) is undergoing new changes. MKK now has a one in all mobile app for investors and provides users with notifications about their assets and transactions. This app also is designed as a communication channel and provides the latest corporate action news. The MKK currently has over fifty million accounts and is building data to understand current positions for meaningful decision making. This creates another responsibility for further big data and regulatory reporting processes which are being initiated. In 2018, financial counterparties began reporting information on derivative contracts, and in 2019, non-financial companies started reporting their transaction details including OTC and exchange traded derivatives. The plethora of data availability such as company, financial, trade, funds, pricing details etc., enables us to deploy business intelligence tools and compile this date into meaningful dashboards for counterparties so they can take well considered investment decisions. MKK is also creating a new tool, ‘Compass’, for institutions to make investments from peer-to-peer group details. This tool will also have data system security, the automation of business processes, and real-time dashboards. In the current world, data management is critical, and MKK will enhance their system with state of the art technology while dealing with risk manually.

    Game changing transformational programmes are driving the markets ambition to be at par with international standards. Technological investment is sitting at the core of the regions infrastructure strategy with several ongoing projects enhancements underway to further develop the local market infrastructure to improve investor asset protection, and reduce operational and systemic risks in the market, as well as introduce new products and services - this augurs well for investors as they look for additional investment products and opportunities in the region.

    Game changing transformational programmes are driving the markets ambition to be at par with international standards

    This article is taken from the HSBC MENAT Markets & Securities Forum 2021’s Game Changers panel which featured speakers from: MCDR, Kuwait Clearing Company, Merkezi Kayit Istanbul, Depository Center Co. (Edaa), Muqassa and was moderated by Stuart Warner, Head of Banks and Broker Dealers Product for Europe, MENAT and Americas for Securities Services.

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