www.securitiesfinancetimes.com Open in urlscan Pro
50.87.101.203 Public Scan

Back to summary

URL:
https://www.securitiesfinancetimes.com/specialistfeatures/specialistfeature.php?specialist_id=825
Submission: On November 21 via api (November 21st 2024, 7:06:20 am UTC) from UA — Scanned from PL

Form analysis
1 forms found in the DOM

Name: search-input — GET https://www.securitiesfinancetimes.com/search/all-search.php

<form name="search-input" action="https://www.securitiesfinancetimes.com/search/all-search.php" method="GET">
  <input class="search-input" type="text" id="search" name="search" autocomplete="off" placeholder="Search site...">
</form>

Text Content

Leading the Way

Global Securities Finance News and Commentary
Home News Features Interviews Magazine Archive Symposium Industry
Awards
Subscribe
⚲ Search
Leading the Way

Global Securities Finance News and Commentary

Go →
⨂ Close
≔ Menu
Leading the Way

Global Securities Finance News and Commentary
Menu
Subscribe
⨂ Close

News

Latest news

Industry

Technology

People moves

Regulation

Buy side

Repo

Derivatives

ESG

1. Home →
2. Features →
3. The Middle East Securities Finance panel

Feature

MORE FEATURES

PREPARING FOR DORA: THE COUNTDOWN BEGINS

COMPLETING THE CIRCLE

EVOLUTION NOT REVOLUTION: THE DEVELOPING COLLATERAL AND LIQUIDITY LANDSCAPE

EQUILEND: TACKLING SYSTEM INEFFICIENCIES AT THE SOURCE

EUREX REPO ROUNDTABLE SERIES 2024

REGULATION AS THE DRIVE AND BRAKE FOR DIGITAL TRANSFORMATION

KEY INSIGHTS FROM THE COLLATERAL MANAGEMENT WORLD

OVATION TO THE TEST: ONE STEP CLOSER TO THE NEXT-GENERATION CLEARING PLATFORM

THE MIDDLE EAST SECURITIES FINANCE PANEL

12 November 2024

In the first of a three part series, industry experts discuss the high potential
growth of the Middle East, with Saudi Arabia leading the charge for change

Image: stock.adobe.com/boule1301

The high potential growth of the Middle East is key to this discussion. Dimitri,
how do you see the market in this respect?

Dimitri Arlando: The exciting thing for me in any new market, is when I see data
flowing through the pipes and into our ecosystem. If you look back to a year
ago, although there was securities lending activity happening in the regional
markets, there wasn’t much data flowing through. But if you look at the dataset
today, we actually see quite a lot.

There are still some trades that are happening that aren't flowing through the
standard pipes however, this is as expected for a new market. What we are seeing
right now, is about US$2.6 billion of lendable assets in Saudi Arabian equities,
and US$370 million of assets out on loan (across 103 securities). Of those 103
securities, 101 of those are trading at more than 100 basis points, and half of
them are trading over 500bps. So there's quite significant value in lending
those securities.

In some of those other markets, although there is securities lending activity,
we are not seeing any of that data flow through into our dataset. As a
comparison, the lending market globally is about US$37 trillion of lendable
assets, and about US$2.6-2.7 trillion out on loan on any given day. Focusing on
some of the fixed income markets, regionally, we're also seeing about US$20
billion of lendable corporate bonds, and US$1.6 billion of those out on loan,
and US$21 billion of lendable sovereign debt, and US$2 billion of that out on
loan. This is across all of the Gulf Cooperation Council (GCC) countries, not
just Saudi Arabia.

Jalal Faruki: When we look at the local market data, which comes from the
depository, if you go back to the beginning of 2023, that data balance was
basically zero. There was very little, or maybe one or two positions out on
loan. If we look at September 2023, there were around 30 to 40 different
securities on loan for a total value of about US$180 million. Looking at this
year, the market has grown significantly. There are approximately 166 positions
on loan out of around 280 total listed companies, so more than half of the
market has some kind of position on loan. And there is about US$550-600 million
outstanding on loan as of the end of August 2024.

Elie Geagea: In terms of growth, we can describe it as exponential. HSBC has
identified and believed in this growth since the beginning. From day one, we
have been working and collaborating with the regulator to refine the rules.

HSBC closed the first SBL transaction in Saudi Arabia in early 2020. HSBC
executed the first international SBL transaction on the Dubai Financial Market
(DFM) in July 2023. In the same time, we are trying to implement this growth in
a very careful and smooth way, in order not to squeeze the liquidity in the
market and to bring comfort to all market participants.

Is this a trend that is being seen across different firms? Are you experiencing
this from a London perspective, Andrew?

Andrew Stephen: Definitely. Saudi Arabia has long been a key market for J.P.
Morgan, and we went live with securities lending in the region late last year,
and since then, we have started to see clients show significant interest.

The Middle East is interesting because it is home to international investors
that have been active in securities lending for many years with their
international portfolios, but who are now looking to understand how they can
enter the domestic markets as they open, and how they can capture the
significant revenue potential on offer. Further, clients are grappling with the
understanding of how entering the local market could differ from the
international models that they have today.

We are also seeing an increasing number of ‘single country’ portfolios,
consisting entirely of Saudi assets, and they are coming to market –
particularly from clients that we never would have spoken to previously, because
lending wasn’t available in Saudi Arabia. Now, a whole new segment of the market
is opening, which are typically Saudi-domestic firms with domestic investors,
which we are only now able to target.

This dimension of domestic and crossborder is arguably recent and visible. Is
this something that you are seeing? What other trends have you noticed?

Sarah Alothman: Edaa, the Saudi Arabian central securities depository (CSD),
launched the securities lending and borrowing regulation that was approved by
the Capital Market Authority (CMA) back in 2017. The market infrastructure,
Edaa, and the exchange, along with the market participants, the brokers, and the
custodians, along with the investors, have collaborated for the sake of
enhancing SBL in the Kingdom of Saudi Arabia. As a result, updates have been
made to allow the expansion of agent services with a third party, so this has
added efficiency within the securities lending and borrowing programme in Saudi
Arabia.

Andrew Geggus: The trends that we are seeing from our client base in the region
and elsewhere, is interest in the markets. What's going on? Is there a potential
for securities lending? Can they access it? What does it mean for their local
securities? But also, where is the future direction of travel heading? We have
seen trends from international investors more broadly, beyond securities
lending, of investment into the Middle East. And with that, we are beginning to
see dual listings.

Darren Crowther: We have seen an interest in the last two or three years around
technology solutions from the market. The onboarding process has gone positively
well, because — and using Saudi as an example — they've used an international
standard framework for the way they approach things. So when companies are
trying to educate their clients on how the market works, and who the
participants are, the systems behind that already meet those standards — there’s
always some customisation or specifics per client but we found quite a lot of
interest, due to the out of the box support for many aspects.

Jalal’s prior comments on market numbers are quite interesting. The Saudi Market
went from zero to 30 or 40 names, to now 160 names. You can no longer really run
things manually on this side, you need technology underpinning the operational
risk. So that's where the demand is coming from. The number of trades that are
out there is now making it operationally challenging for firms to do a manual
method. This aligns to the demand for technology.

We have spoken about Saudi Arabia. How is the rest of the region benefiting?

Arlando: There's definitely an opportunity, I think that's why we're all here.
And it's not just a Saudi story — Saudi is just the front runner, the early
adopter. To Darren's point, Saudi Arabia has embraced the technology solutions
that are available in order to help that growth happen. If you speak to the
various different regulators in each of the GCC countries, they're all trying to
observe how Saudi Arabia is evolving, and also then looking at how their own
markets can follow suit.

The opportunity in Saudi Arabia is larger because of the number of securities
that are listed on the exchange, which is greater than any of the other markets
in the region. The other markets definitely have potential, but in terms of the
scale of the Saudi market, it perhaps offers greater potential from a revenue
perspective. And we're all here because we're trying to generate revenue in some
way, shape or form. Saudi definitely offers the biggest potential for that
revenue.

Geagea: Saudi is leading the growth in the market, it is not a surprise, Saudi
is the biggest economy in the GCC market. Having said so, Saudi will not be an
isolated case. DFM and Qatar have implemented a similar SBL model. We believe
and we expect that DFM and Qatar will witness the same successful story in the
future. On the Abu Dhabi Securities Exchange (ADX) and Kuwait side, they will be
encouraged to implement the same framework as well. As for Oman and Bahrain, we
believe they will follow the same route and try to develop their SBL market as
well.

The beauty of this region is that each country has its own growth agenda and
vision plan, the momentum is done on an individual and collective basis —
whatever is a successful story in one market is replicated into another market.
Whatever is a failure in one market is avoided in the other markets. All of the
GCC countries have promising projects, and they are on the good track. We highly
believe that GCC countries, individually and collectively, will take part of the
securities lending growth.

Alothman: I couldn't agree more with Dimitri. It's a mutual benefit across the
region. For example, if we have a local lender and a qualified foreign investor
based in Dubai or in any other area in the region, each jurisdiction within the
GCC are enhancing and developing their SBL framework, and eventually growing the
economy across the GCC. And I couldn't agree more with Elie mentioning that the
Saudi exchange is the largest in the region. In fact, it became the 10th largest
exchange globally in market capitalisation. This is a milestone for the Saudi
exchange.

Geggus: If you look at Asia as an example, the size of the markets doesn't take
away from the opportunity for some of the smaller markets as well. They're all
growing at their own speed. There's a bit of fragmentation around rules and
implementation, but that's fine. The opportunity in APAC demonstrates what we've
done in the world. So some of the markets are very large and liquid, others are
a bit smaller and have different rules, but the opportunity for those markets
has been excellent, and now we're seeing this mirrored within the Middle East
region as well.

Faruki: One key thing from all of these markets in the region is that they all
have the infrastructure, they all have the regulations, and they have people
willing to lend inventory. The driver in Saudi, for it to really pick up — and
it was years after the regulation was there — was people willing to pay. We have
to make an investment in technology and capability, the same for any
international custodian. They have to invest in building the legal opinions and
building the documentation and all of the infrastructure for that market to
work. Until you have borrowers willing to pay to borrow those shares, it's not
going to get going.

And we have something in common in a lot of the regional markets that's helping
with that. There are market making frameworks in the UAE, there are also
exchange listed derivatives in the UAE, Saudi, and other markets also. These are
all also drivers of demand for stock loans, and they're part of making it an
economically viable product. Otherwise, no one is going to really invest in the
capability to deliver.

Stephen: A lot of these countries in the GCC are on a journey, evolving from a
frontier market to an emerging market. One of the prerequisites under MSCI is to
have an established SBL framework. But it’s not just the framework, they also
need to be able to demonstrate that it’s a functioning framework, and that you
can trade with it. One of the interesting things that we’ve seen is that there’s
always this halo effect — when you see something happening in one market,
immediately the countries across the GCC will say: okay, we see what’s happening
over there, how can we implement it? How can we benefit from it?

One of the benefits of the Saudi story is that there’s lessons to be learned.
Saudi went in first, they worked with market participants, international banks
came and worked with the regulators. To implement, jurisdictions need to get
buy-in from the international community. Other regions can learn from the wrong
terms that were taken in Saudi, and they can now implement with less friction.
← Previous fearture

Preparing for DORA: The countdown begins
Next fearture →

Completing the circle

NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this
year, make sure it is your free subscription to Securities Finance Times

Subscribe today

Get in touch

Home

Facebook

RSS feed