Processing issues hinder growth of regional stock exchanges

22 September 2013

Inability to manage cash in real time impacts inflows to stock markets

GCC stock exchanges need better processing facilities to attract more investments, said bankers and investors at global finance conference Sibos, held in Dubai.

Bourses need to make account openings easier, implement more automated processes and allocate liabilities to the right parties, according to Kevin Molloy, global head of network management and correspondent banking at State Street Corporation, a Boston-based financial services company.

“You can’t have securities without cash. I would love it to be the case that regulation looks at cash settlement deadlines. If FX [foreign currency exchange] is pending or someone didn’t do FX, pay for the security and overdraft the account. Clients expect this from an emerging market and that is not there in some markets,” he said.

Kevin Martin, head of retail banking and wealth management for UK-based HSBC’s North American operations, said the entire process of moving funds needs to be made easier and more clarity on cutoff times will help.

“We need to tie in the custody business along with the cash side. Some markets have constant issues with not settling. We need to ensure what we have behind the scenes is fit for purpose,” he said.

Over the past year, regional exchanges have stepped up efforts to improve their clearing and settlement systems, with Qatar and the UAE leading the way as they sought an MSCI upgrade to emerging markets status. In June, the index compiler announced both exchanges have been awarded the reclassification, with the actual event to take place in May next year. But while this is widely seen as a sign of increased foreign investor confidence, many fund managers have said they will not be actively allocating more funds to this region just yet.

Apart from issues with processing, lack of diversification and the modest number of investable stocks present challenges for attracting a wider base of investors.

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