WFE INTERVIEWS WITH THE MUSCAT SECURITIES MARKET

Author Name: 
AHMED SALEH AL-MARHOON

FOCUS: Could you give us a bit of background about your exchange?

MSM: The securities industry in Oman started as early as 1971 when the first joint stock company was established. Ownership of shares transfers from that period until the establishment of MSM in 1989 was done among buyers and sellers through the register of the companies themselves. We can say this is phase one of the securities industry in Oman.

This phase was characterized by lack of regulations amongst joint stock companies and due to the lack of transparency and disclosures the ownership of these companies concentrated in the hands of very few investors.

The second phase of the securities industry in Oman came into being in 1988 when a royal decree was issued allowing establishment of an organized and regulated stock exchange, thus, called Muscat Securities Market.

The Muscat Securities Market started its operations in the year 1989 with 48 joint stock companies and with a market capitalization of about 1 billion USD. During this phase which started from 1989 to 1998 the securities industry in Oman witnessed a gradual and consistent change towards introducing the standards that were applicable in modern exchanges.

Also this period witnessed the introduction of central depository of the share register that is transferring the share registers from being held by each individual company to a centralized electronic depository system, this project was completed in 1993. Electronic trading was introduced to the market in 1998, along with many other regulations, thus, with the aim to improve the securities industry in Oman to be more attractive to foreign and local investors.

It is worth mentioning that investment in MSM was allowed to foreign investors at that time to a level of 49% and all listed companies in MSM obliged to comply with international accounting standards, which is a mandatory requirement for any joint stock company to be listed in MSM.

The third phase witnessed the creation of more organized securities industry when the regulatory body was created in 1998, also in this year Muscat Clearing and Depository company was established. Thus, from the year 1998 three separate entities were formed, each of which have got its own distinctive roles and responsibilities, the regulatory body being the (CMA), the Muscat Securities Market (The Exchange) and a separate clearing and depository body known as (MCD).

No doubt that these gradual phases of development have brought Muscat Securities Market in line with some of the most organized Stock Exchanges, in a span of only 24 years.

I want to add here that the foreign ownership in the MSM listed companies today can go up to 75% and the listed companies have increased to 115 representing various sectors and with the market capitalization of around USD 30 billion.

MSM is making every effort to position itself as a modern exchange, with its enriching laws and regulations along with the employment of the latest most advanced technologies.

FOCUS: How active are foreign investors in your exchange? How accessible is your market?

MSM: The official policy of the Sultanate of Oman is to attract foreign investment. This is also the policy of Muscat Securities Market, to have no restrictions on foreign investment. As I have mentioned earlier foreign investors could own up to 75% stake from the listen companies.

Also to encourage the foreign investors there is no tax on capital gains or profit dividends and there is no restriction on the transfer of funds in and out of Oman.

As of the end of December 2012 foreign investment represents around 28% of the total market capitalization of MSM, while the foreign investors trading value represent 20% to 25% out of the total trading value.

In addition to the facilities MSM tends to employ the latest technology which facilitates easy access to the market by both local and foreign investors. In fact, since the year 2006 MSM has been using the latest trading system from NYSE Euronext markets Solutions which was further updated to its latest version of NSC V900 in the year 2012.

Also internet trading was introduced in the year 2006 which has made the market more accessible to local and foreign investors.

MSM also has links with several high end financial and investment data dissemination channels which makes MSM even more accessible especially to its foreign investors.

In short, today MSM’s live trading data dissemination can be accessed from anywhere in the world.

FOCUS: What new project/product are you currently working on?

MSM: We at MSM have anticipated the need to come up with extensive programs in order to intensify the trading activity in our market as well as to expand our investor base and therefore, we are in productive discussions with the Omani government to privatize some of the major oil related industries, in addition to some government owned businesses. This process will start to take place from this year (2013) onwards.

One of our aims is also to encourage family businesses in Oman to join the securities industry by listing in MSM and for which we are profusely conducting awareness programs and one to one discussion sessions in order to help this transition of family business into public joint stock companies. We are also planning a big conference this year on 25th of February about Family Owned Companies to encourage them to go public and list in MSM.

As being the 60% owner of Muscat Clearing and Depository Company (MCD), MSM is supporting MCD to embark upon the process of CSD system modernization through the ATOS WorldLine with a world class CSD system. With this project to be implemented by the end of the first half of this year, MCD will be the first in the region to have this state of the art CSD system.

Our future projects also include the up-gradation of our surveillance systems, for which we are currently studying the few prominent systems available in the market in order to select one of the suitable systems.

In the year 2012 Islamic Financial services were allowed to operate in Oman, which has added a new dimension to the capital markets in Oman, as two new banks were floated and listed last year in MSM plus the existing conventional banks were allowed to open windows providing banking services compatible with the Islamic Sharia. We anticipate that Sukuk will be soon offered in the market and listed in Muscat Securities Market.

In order to provide our investors with a larger pool of products MSM has taken many steps such as the introduction of Marginal trade, last year, which is anticipated to increase investor’s interest in the market. Moreover, we are still working on the possibility of introducing ETF’s to our market. ETF’s have been our underground project since the year 2008 and was delayed keeping in mind the dismal global economic climate.

We are now planning to launch an index for Sharia Compliant companies; we may say that the index shall be launched in a few months’ time.

FOCUS: What are the challenges you see in your market today and in the future?

MSM: An important challenge for MSM as mentioned before is to create depth and higher liquidity in the market. It is evident that since 2008 the market has significantly declined consequent to the global economic crisis. This also affected the IPO’s and although the market is picking up and hoping that with more IPO’s coming and also the improved world economic scenario, it will reflect on the performance of our market.

Another big challenge that MSM is tackling very well, is the creation of awareness among the general public about the securities market and the benefits of saving and investment. To meet this challenge MSM is introducing simple and large scale education and awareness programs on the topics of securities, saving and investment, for the general Omani public and especially the students who we consider as our future potential investors. MSM is also launching a student portal with a stock game simulation for its student’s demographic and young investors to give them easy access to MSM data and information.

One of the greatest challenges MSM faces is convincing family owned companies to go public and also agree with the government on a program to privatize a part of their shareholding in some of the companies that they own.

As of today the exchange itself is owned by the government, though the government does not interfere in the running of the exchange and it is left to its BOD’s, however, bringing part of the ownership to the private sector or to the private investors could add a new dimension to the Market in its endeavor of development.

Moreover, one of the future projects of MSM is also to link with the GCC exchanges in order to provide its investors with a bigger regional pool of exchanges. Currently MSM is working with the Federation of Arab Stock Exchanges (FASE) on finding best ways to link these exchanges in order to create an attractive economic entity capable of defying the challenge of competing with the world financial markets.

FOCUS: How do you assess your exchange’s position at a time of increased globalization?

MSM: World securities industry is an ever changing environment of increasing challenges, competitiveness and rapid transformations. In order to keep pace with this dynamic industry MSM is making every effort to position itself as a modern exchange, with its enriching laws and regulations along with the employment of the latest most advanced technologies.

MSM has always been keeping pace with the changes in the industry, where it has set examples of many best practices such as the introduction of corporate governance code in the region.

With its tireless efforts and dedication, today, MSM is regarded as one of the progressive, best-regulated and transparent stock markets in the region and holds several Standard of Quality certificates from ISO (ISO Total Quality Management Certificate 9001/2008 and ISO/27001 Network & Technical Support).

Today MSM is also a part of many international organizations that are significantly working for the enhancement of the securities industries, such as; Federation of Arab Stock Exchanges (FASE), Federation of Euro-Asian Stock Exchanges (FEAS), World Federation of Exchanges (WFE) and International Organization of Securities Commissions (IOSCO) and signatory of several MoU’s with many reputable exchanges.