Raising the game: Upgrading systems in line with global best practices

Both on the technical and governmental sides, Oman’s capital markets have seen some important changes recently. Regulators have moved to install the latest technical and regulatory systems alongside the most up-to-date practices in corporate governance. On the former agenda, the Muscat Clearing and Depository Company (MCDC) has been leading the way. “We are trying to establish the best practices to meet the needs of investors, brokers and other market entities,” said Abdullah Hilal Al Shidhani, the deputy general manager of the MCDC. “We have extensive plans and have made a lot of changes in the last two years.” The company was originally set up primarily as a depository, employing a depository and securities registration system from inception in 1997 until 2008. In the latter year, the Muscat Securities Market (MSM), which had previously been handling clearing, transferred that responsibility to the MCDC, requiring it to adapt its system to its new role.

Clearing System

The company thus opted for a fully fledged clearing, settlements and deposits facility and selected the Atos Worldline Universal Clearing, Settlement and Depository system to perform this task. Intensive testing was undertaken in 2011-12, with the MCDC expectation that it will go live in 2013. Prior to this, however, several of the system’s more critical functions will already be up and running. The new system should enable custodians to be brought more directly into the clearing process. Intermediaries can become clearing members, eliminating the broker stage of the clearing process. The second phase of the new system’s implementation, will include SWIFT payment functionality, a clear benefit for international clients. For this second phase, regulatory changes will also be necessary, with the MCDC already engaged in changing this all-important framework. The company is working closely with UK consultancy firm Thomas Murray on these changes, with an eye to the recommendations of Morgan Stanley Capital International and various other global standards.

Corporate Governance 

These activities are being undertaken in line with a move to boost corporate governance overall within the markets, being spearheaded by the Capital Market Authority’s Oman Centre for Corporate Governance. The highest profile of this body’s activities is the annual Corporate Governance Excellence Awards competition − open to MSM-listed companies, and all brokerage and insurance companies.

Such events encourage players to meet the highest global standards of governance and reward their work as role models. This is an important part of the broader campaign by the capital markets authorities to widen and deepen the market. Raising awareness of the benefits of greater transparency and accountability – prerequisites for listing – are key to this, with many of Oman’s family-owned entities currently outside the market and operating in traditional, at times obscure, governance structure.

Developing Small Businesses

Contributing to this effort recently has been an important campaign by the market authorities and the Ministry of Commerce and Industry to develop small and medium-sized enterprises (SMEs) to eventually list.

This move is crucial to job creation and entrepreneurial innovation. SMEs have experienced difficulties raising finance though − given that traditional sources of funding in the sultanate are family members and/or the banks. The first group may have limited resources, while the second is naturally risk-averse. The capital markets could thus be a future source of financing for such enterprises. The markets might also provide a good home for fledgling venture capital companies. Raising corporate governance standards is thus seen as a key part of developing the market overall, with the need for this ranging from SMEs to large family-owned corporates. “We want to see more professional and innovative companies, with an increase in governance standards to take account of issues such as succession in family companies,” Ahmed Saleh Al Marhoon, director-general of the MSM, told OBG.

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The Report: Oman 2013

Capital Markets chapter from The Report: Oman 2013

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