The idea of a regional market to unify different Middle East stock exchanges in the Mashreq and Israel is not practicable within an acceptable time scale, a study undertaken for the UK’s Overseas Development Administration (ODA) has concluded. This is because of the widely differing levels of development of individual stock exchanges and political aims of the countries concerned.

The study was presented at the UK’s government-sponsored conference Financial Markets in the Middle East in April by Jonathan Miller of UK-based financial consultants Garside, Miller Associates (MEED 18:2:94). It covered financial markets in Jordan, Israel, Egypt, Lebanon and the occupied territories (see pages 20-21).

The problem for a regional market partly centres on the definition of ‘the region’, which is potentially soluble, and partly on the way in which securities business polarises at particular dealing centres, which is insoluble, Miller says.

Tel Aviv stock exchange dominates the region. It has a daily turnover of $120 million, compared with Amman’s $6 million daily turnover and Cairo’s $1.5 million. A common market system for just these three exchanges would present many technical difficulties, which are not insoluble, but need an incentive. And Amman and Egypt are unlikely to want to be junior exchanges to Tel Aviv. The Mashreq market lacks a champion, Miller said.

The occupied territories need a sub-regional market, linked with Amman and the Israeli financial authorities, if not the Tel Aviv exchange, Miller concludes. If there is a regional market for cross-border trading, it is more likely to be focused on a single stock exchange that can offer a competitive advantage, Miller said.

A critical problem for the development of securities markets is not the lack of markets, but the lack of publicly issued securities. The report highlighted the importance of adequate and properly enforced listing regulations. Individual countries must eliminate the deficiencies of their existing corporate law to define and protect the interests of external investors, it said.

Common standards and objectives should be encouraged to enhance confidence in individual exchanges, and encourage economically efficient markets, the report said. The development of listing requirements is the key to helping the emergence of public issues which will boost activity in local exchanges. It is also the key to developing cross-border trading, Miller said.