Kuwait: Marketing the markets

The Kuwait Stock Exchange (KSE) is in the midst of what has been described as the largest overhaul of its trading system in almost 20 years, and measures to privatise the bourse, streamline procedures and strengthen transparency all aim to raise the market’s profile and appeal as an investment destination.

The widely anticipated developments are expected to reinvigorate the bourse, which has underperformed since the financial crisis of 2008. The Kuwaiti market reacted like most others, falling as the world’s financial underpinnings unravelled amid uncertainty and the prospect of losses. Critics have also pointed to a lack of transparency keeping investors away.

The market is working to overcome these challenges, however. On May 13, the KSE launched X-Steam, its new NASDAQ OMX-powered trading platform. The adoption of the advanced trading and surveillance technology was seen as a crucial step toward facilitating new exchange-traded products and services, as well as bringing the KSE in line with international standards and industry best practices.

X-Steam has been described as a multi-asset system capable of handling equities, commodities, debt, exchange-traded funds, futures, options, swaps and derivatives on a single platform. Each of the 220 firms currently listed on the KSE have been categorised and divided into 15 new sectors on the boards, and the 15 largest listings, including eight of the country’s nine commercial banks, are grouped together in a separate index. The Kuwait-15, as it is known, is the benchmark index on the KSE, with the blue chip listings estimated to have a combined value of almost $70bn, around two-thirds of the market’s total worth.

According to Issam Alusaimi, the head of the KSE’s projects management office, the new platform will help develop the country’s capital market, as well as reach its objective of transforming Kuwait into a leading regional financial centre.

“We look forward to building on this base to bring further positive and major developments in our marketplace for the benefit of investors, listed companies, market participants and the Kuwaiti economy as a whole,” Alusaimi said at the launch of X-Stream.

One of the major components of X-Stream is a complex surveillance system that collects and analyses real-time data, monitoring for any signs of illegal or questionable practices in trades. This measure, which includes faster and more accurate trades, along with tighter controls, should go a long way to reassure investors about the transparency of the KSE, which has in the past been a cause of concern.

Another sign that the KSE is determined to bolster its image for transparency and efficiency came in mid-May, when the exchange suspended trading on 31 firms that had not met the deadline for tabling their financial statements for the first quarter of the year. The move has been seen by many as a clear indication that authorities are serious about ensuring investors are provided with all necessary information for trading purposes and reinforces the need for listed companies to meet all the requirements of the upgraded exchange’s operational regime.

The next reform of the KSE is the privatisation of the market itself. Though first mooted several years ago, the plan to take the KSE public has gained pace over the past six months. At the end of January 2012, the Capital Markets Authority (CMA) – the state agency that regulates the KSE – announced it has contracted HSBC Holdings to prepare studies on the privatisation of the exchange and on the creation of a new company to own and operate the market.

Plans currently include a provision that 50% of the shares in the KSE’s new management firm will be reserved for Kuwaiti citizens through an initial public offering, while the remainder will be made available to companies listed on the exchange, up to a maximum of 5% of the bourse per firm. International law firm DLA Piper has been brought in to provide legal advice to the CMA.

No final date has been set for the privatisation, though the management company is due to be set up in the second half of this year, thus setting the stage for the KSE to emerge stronger from its period of reform as a more appealing prospect for investors in the long term.

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