Interview: Fouad Rashid
What is the rationale behind the different structure and characteristics of the BHB in comparison to other stock exchanges in the region?
FOUAD RASHID: The BHB is dominated by institutional investors who look for long-term positions and rely mainly on income from dividends rather than capital gains. This is a result of high dividend yield, low price-to-earnings ratio and price-to-book value. To tackle this issue, the BHB is focusing on regional active retail investors and attracting small cap as well as small and medium-sized companies to list on the BHB. This does not entail looking for a dominated retail investor market, but rather a fragmented investor base.
We have developed new market rules that have been sent for consultation, and we expect them to be implemented later in 2012. New listing rules and clearing and settlement (CSD) regulations are currently being reviewed by the Capital Markets Supervisory Directorate at the Central Bank of Bahrain, and we are seeking to implement them at the beginning of 2013. The CSD rules help to meet emerging market standards of the delivery versus payment system and creates a complete framework for short-selling. Moreover, amendments are continuously being made to the current listing and market rules. Further initiatives are also being put in place that will link together all parties in the value chain to improve market liquidity and attractiveness to different investor segments.
How has foreign investment affected the development of the bourse’s legal framework?
RASHID: From the very beginning, Bahrain was the first and only country in the region to allow up to 100% foreign ownership of Bahraini companies. The BHB was also the first exchange in the GCC that allowed non-national companies to be listed. Furthermore, the Kingdom does not enforce taxes on cash dividends or on capital gains. The legal framework follows international standards in order to protect both investors and companies listed on the BHB.
In your opinion, what value can the BHB offer to foreign investors or foreign companies?
RASHID: In regards to foreign investors, at the end of the first quarter in 2012, non-Bahrainis owned up to 51% of the total number of shares of Bahraini-listed companies on the bourse. We also have five custodians, including internationally known entities, such as Citibank, HSBC and Standard Chartered.
In terms of companies, listing rules are being developed to ease the process of listing for both Bahraini and non-Bahraini companies. An additional point of value for companies is that the BHB is the only exchange in the region that offers the facility to list and trade in dollars along with the local currency.
How are technological improvements being used to improve the capital markets?
RASHID: The BHB is committed to continuously pursuing and adapting the most recent technology to enhance our competitiveness to attract more business regionally and globally. In line with this, we are implementing programmes to improve the international accessibility and activity of online trading. In addition, we have improved our website significantly and have provided a new range of new online services, facilitating investors’ ease of access to market information regardless of their geographical location and enabling any investor or listed company to access their own confidential information in real time.
What do you say to those who argue that maturity of the region’s markets will only be enhanced by a greater institutional investor presence?
RASHID: I would say that institutional investors are just as important as other classes of investors, who are crucial to create a healthy and robust market. Retail investors are very much needed to provide more liquidity in the market, which will consequently be received positively from institutional investors as it will allow them to leave their positions in less time.
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