Dubai: Shaikh Khalifa Bin Ebrahim Al Khalifa took over as the chief executive of Bahrain Bourse (BHB) in mid-May this year. Prior to his current role Shaikh Khalifa was the deputy chief executive and chief operating officer of the bourse. He joined BHB in 2010 as the deputy director of settlement, central depository and Information Technology. Shaikh Khalifa was also responsible for implementing the bourse development strategy that was approved by the board in 2011. In an exclusive interview with Gulf News, he outlines the outlook for Bahrain Bourse in the context of capital market reforms across the GCC.
Gulf News (GN): You took over as the chief executive in May this year, what is your outlook for the exchange’s trading activity this year in the context of regional capital market developments?
Shaikh Khalifa Bin Ebrahim Al Khalifa: We see Bahrain’s economy and financial markets very much part of the GCC economy and markets. In the context of the strong regional economic growth we see robust outlook for all the regional markets.
I was part of creating the strategy of Bahrain Bourse as the deputy director of settlement, central depository and IT when it was set up as a company. From that point, as a team we worked rigorously. All we have achieved so far is the result of about three years of hard work. We believe that we have created value for Bahrain market in terms of protecting the interests of investors, companies and all stakeholders.
Bahrain Bourse is a self regulated organisation (SRO) one of a kind in the region. While the Central Bank of Bahrain has a supervisory role, the market activities are regulated by the Bourse. It gives us the ability to be in much more flexible and faster than the traditional model where it might take longer tame to take decisions.
Bahrain market caters to a specific cluster of investors. We have the highest dividend yields regionally and the lowest price to book value which have created a very good opportunity for investors to not worry about the share price. Investors have begun to treat our equities somewhat like fixed income instruments. This has had an impact on our trading values. In the first half of this year, compared to the same period last year, our trading values increased by 104 per cent and 197 per cent increase in terms of volumes. We see the jump in volumes and turnover as the result of the new solutions we introduced since 2013.
GN: The upcoming Zain IPO is the first since Alba’s 2010 issue. Do you expect to see a revival in IPO activities this year?
Shaikh Khalifa: There is a revival in capital markets activity across the region. All the GCC markets are correlated and most of the developments across these markets are linked. There are a number of IPOs in the pipeline across the region. We expect to see a number of companies coming to the market in the near future including a few in Bahrain.
GN: Do you see opportunities for cross-listing of GCC shares in Bahrain and vice versa?
Shaikh Khalifa: There are a few in the pipeline. We see these as a good opportunity for opening up these shares for investors across the borders. In the past we have had successful cross-listings of shares in Dubai and Bahrain. The case Salam Bank is an example of successful cross-listing between Bahrain and Dubai. GCC investors are generally keen on investing in regional equities, thus, it makes ample sense to cross-list shares on regional stock exchanges rather than cross-list on international stock exchanges.
GN: What are you doing to improve the market access?
Shaikh Khalifa: We are the first in the Middle East to launch external membership. We will begin this in September this year. This allows a broker outside of Bahrain to acquire a licence without the need of local presence. This will allow external brokers to directly trade on our engine. The only two conditions that we require are that the broker should be licensed by the regulator in where he is domiciled and should have a clearing member in Bahrain to settle transactions executed at the bourse. We expect this will increase the cross-border market access with minimum administrative procedures. Most of the capital markets guidelines are similar across the GCC and our initiative is to reduce the regulatory procedures while reducing the transactional costs.
The long-term goal of the initiative is market integration in the region. People keep asking when we can have one GCC market. This is part of the solution. In this scenario brokers become a part of the value chain and they can access our platform from wherever they are. The very concept of licensed broker in one market being able to get licence on another based on the existing licence will lead to greater competition among brokers. We expect eventually this will lead to consolidation in the broking business resulting insignificant reduction in the transactional costs.
GN: A number of exchanges around the world have demutualised ownership and are publicly listed companies; do you have any plans to float Bahrain Bourse’s shares?
Shaikh Khalifa: The current ownership of Bahrain Bourse, more than 40 per cent of shares are with GCC nationals and 13 per cent of shares are owned by Emiratis. At the moment we are not a listed company and we are not averse to the idea when the time is ripe. At the moment our mission is not profitability. The current focus is to create a vibrant capital market that focuses on integrity and transparency in trading with lower costs. Whenever it makes sense for us to go for an IPO we will certainly do it. However, we have not set a deadline to go public.
GN: In the face of the increasing competition among regional stock exchanges, what is your game plan to attract more listings of equity instruments and debt on Bahrain Bourse?
Shaikh Khalifa: We don’t look at it as a game plan to tackle competition among bourses. At a wider level, we look at where the regional liquidity is heading. If a large portion of it is going to real estate, we should be able to attract some of it into equities, bonds and sukuk. We have always been pushing for the successful implementation of Islamic finance. Islamic finance is more a solution. If it is successfully implemented in Dubai, it will have a positive impact on other markets. The underlying idea is to create robust asset classes. On the Bahrain Bourse, we will soon be introducing Murabaha through equities which I think is already being provided through banks in the UAE.
In sukuk, there is a huge over the counter (OTC) market in Bahrain. What we are trying to do is to open up to them and creating an index for this OTC market through the Bahrain Bourse. In the near future we are planning to launch a secondary market for sukuk for retail investors.
GN: Recently two regional markets have been upgraded by the MSCI to emerging market status. A number of markets in the region are liberalising foreign ownership rules to attract foreign investors, what is Bahrain’s stand on it?
Shaikh Khalifa: In Bahrain foreign investors are allowed to own 100 per cent of shares. It has always been the case. This has never been a challenge to us. Our big challenge is on the liquidity.
GN: The Bahrain Bourse recently went live with an upgraded trading engine what is its significance in terms of regional market integration?
Shaikh Khalifa: The new trading engine is powered by NASDAQ OMX’s X-stream trading platform. The new platform will enable the Bahrain Bourse to enhance trading options for investors and a variety of market participants, as well as create innovative products and services to match international demand. It is highly scalable to add new products, for example commodities and REITs. In terms of capital market integration, a number of regional exchanges already have this system, making integration easier.
GN: With Saudi Arabia announcing its plans to open up its market for foreign investment, what you expect it’s the impact for your exchange?
Shaikh Khalifa: I think the move is a very positive development for the capital markets and asset classes across the GCC region. Typically foreign investors see GCC as a single market and categorise asset classes in one single group. Any investor entering Saudi market is clearly entering the GCC market and taking exposure to GCC assets. I think Bahrain will have the most positive impact because having Qatar and UAE already in the MSCI index is attracting international investors [and the] opening of [the] Saudi [market] will enhance investment flows into the region.
