As the Bahrain Bourse (BHB) continues along its path of institutional development, it does not do so in isolation. Both the regulator and the exchange authorities have for many years played a productive role within regional and global bodies that share many of the same ambitions in terms of market development, and the past year has seen some useful strengthening of international ties.
In 2015, Bahrain enhanced its involvement with the international body that links the world’s securities institutions and is generally regarded as the global standard-setter for securities. The International Organisation of Securities Commissions (IOSCO) approved the BHB’s application to upgrade its membership from ordinary to affiliate status in March – a decision that reflected the work the BHB has done to develop its regulatory infrastructure and provide effective oversight of exchange activity. Bahrain had already established itself as a well-regarded ordinary member of the organisation, and has benefitted from and contributed to the supra-national’s efforts to enhance global capital markets. The chief aims of IOSCO are to create and promote consistent standards of oversight and enforcement of exchange regulations in order to protect investors and allow them to participate in fair, efficient and transparent markets.
Providing Input On Issues
Information sharing between the world’s exchanges is a key part of this process, and in 2008 the Central Bank of Bahrain (CBB) became the first national regulator in the GCC to sign up to IOSCO’s global information-sharing network, a development which was widely interpreted as an acknowledgement of the CBB’s status as a credible regulator with a strong enforcement capability. Within IOSCO, Bahrain is a productive member of the Africa/Middle-East Regional Committee (AMERC), where it has traditionally played an active role: at the 32nd AMERC Annual Conference held in Zambia in 2014, for example, the CBB hosted a five-day Capital Market Supervisors Programme at which fellow AMERC members could exchange views on a range of issues.
As an increasingly influential IOSCO subgroup, AMERC continues to provide input for the commission’s five-year plan, IOSCO 2020 Strategic Direction, while within its own region it is applying itself to institutional enhancements such as the creation of a robust database for the region, as well as tackling practical challenges like complying with the US Foreign Account Tax Compliance Act and deepening the market by expanding non-interest products.
Bahrain also benefits from IOSCO’s global education and training programme, whose flagship module is the Seminar Training Programme (STP) held annually at its Madrid headquarters. In 2014 the STP attracted 100 participants from 45 different jurisdictions, who took part in interactive sessions on themes such as new regulatory challenges; cross-border securities violations and crimes; insider trading investigations and litigation; market manipulation; regulatory investigations; and credible deterrence. Other educational programmes accessible by Bahraini personnel thanks to the country’s IOSCO membership include a mobile seminar initiative (an extension of the STP held in alternate locations that often includes regional speakers) and joint training programmes held in conjunction with bodies such as the Financial Stability Institute. In the past, these initiatives have tackled important issues such as market benchmarks, asset securitisation, over-the-counter derivatives reforms, cybersecurity and enforcement cooperation.
Access to IOSCO seminars and workshops is useful to Bahrain’s market enhancement efforts, but the nation’s elevation to affiliate status brings a potentially greater gain: an increased say in the direction global regulation takes over the coming years. Its new membership level gives Bahrain a seat on the Affiliate Members Consultative Committee, a collection of self-regulatory organisations, securities exchanges, financial market infrastructures, investor protection funds and other organisations which since 2013 has played an increasingly active role in formulating IOSCO strategy. Through the committee’s interaction with IOSCO’s general secretariat, Bahrain is better able to pursue the benefits it hopes to gain from its membership of the organisation.
Some of these were detailed by the CEO of the BHB, Sheikh Khalifa bin Ebrahim Al Khalifa, when he welcomed the BHB’s promotion saying, “We will work to benefit from our affiliate membership of IOSCO in order to continue our cooperative efforts with the officials at the CBB, with the aim of developing the capital markets sector in the Kingdom of Bahrain and making it more competitive and attractive for regional and international investments.”
Sheikh Khalifa was speaking just prior to his April 2015 assumption of the rotating presidency of the Arab Federation of Exchanges (AFE) – another organisation to which the BHB has recourse as it goes about setting its development agenda. Bahrain played host to the AFE’s annual conference in 2015, conducted under the patronage of the CBB governor, Rasheed Mohammed Al Maraj, and staged in cooperation with Thomson Reuters. The event was an example of the fruitful exchanges that the AFE enables. More than 350 participants gathered in Manama for the two-day gathering, representing exchanges and their regulatory bodies, brokerage firms, investment fund managers and financial media outlets. The range of topics discussed broadly reflected the principal concerns of the region, especially the challenges of attracting increased liquidity and improving market integration across the various jurisdictions of the GCC.
Among the issues discussed was how to develop the process for initial public offerings across the region, which many regard as the most straightforward way to attract fresh liquidity to exchanges. Another was how to educate investors about recent technical advances in the equities arena. Conference panels also turned their attention to a list of specific topics, including the opening of the Saudi Arabian market in 2015 and its implications for the rest of the region; the development of exchange-traded funds (ETFs), tracker funds and market making; and the questions of direct market access, new technologies and market protection. As host of the event, Bahrain was granted the opportunity to highlight what is becoming a key theme across its financial sector, from banking to capital markets and insurance: the need for a coordinated, regional drive towards use of international best practices.
“Capital market regulators should step up to the challenge and meet global standards, in particular IOSCO’s Principles of Securities Regulation,” Al Maraj stated in his opening address. He added that joint efforts made by the AFE and regional securities regulators to upgrade rules in line with international best practices would further enhance growth on the region’s capital markets.
Coordinating the development of the region’s exchanges is a challenging undertaking, given the range of regulators such an ambition involves. In the meantime, Bahrain continues in its efforts to strengthen the bilateral ties it enjoys with exchanges around the Gulf and beyond. In March 2015, a delegation from the BHB undertook a two-day visit to Cairo, where it met with senior officials from a range of Egyptian capital market institutions. The Bahrain visitors arrived at a time when Egypt was still enjoying the afterglow of a successful economic conference which, according to the Egyptian prime minister’s closing statement, had generated $72.5bn in investments, facilities and loans, including $36.2bn in signed investment contracts, $18.6bn in vendor financed infrastructure contracts and $5.2bn worth of loans from international banks. Like Egypt, Bahrain is assiduously courting international investment in a bid to improve its fiscal situation (see Economy chapter). Discussions therefore centred on how their respective markets might play a part in the process. Areas of potential cooperation included the possibility of cross-listing companies between the BHB and the Egyptian Exchange, and the establishment of mechanisms and channels through which the two institutions can share their experience and information. Both sides had useful views to offer, from Bahrain’s recent experience with activating its debt market to wider access to government issuances of sukuk (Islamic bonds) and Egypt’s success in establishing a secondary board for small- and mid-cap firms – an achievement the Gulf kingdom hopes to replicate. Such exchanges of theoretical and practical knowledge will likely form a key part of the future development of the BHB.