QSE set for CCP debut to cut counterparty bilateral risks

26/05/2014 06:11 AST

The Qatar Stock Exchange, which is in the fag end of Phase I, is all geared up to introduce central counterparty (CCP) to eliminate bilateral counterparty risks, after which it will see the advent of derivatives.

The move had been planned as part of its three-phased strategy that was chalked out much before the global index compiler MSCI decided to upgrade the bourse into ‘emerging’ market from ‘frontier’ status.

In the second phase, QSE will see introducing CCP, whose importance is growing owing to globalisation of the electronic trading platforms. The move is aimed at permitting settlement netting and the resultant reduction in the settlement volumes and costs.

The CCP steps into the contracts as intermediary and represents the buyer to each seller and the seller to each buyer to eliminate the counterparty risks, thus enhancing market efficiency and promoting financial stability.

The CCP nets all the gross trades in a given security to generate a single net settlement instruction. Settlement, the final link in the change-of-ownership process, occurs at a central securities depository (QCSD) through the DVP (Delivery-versus-Payment) process, according to NYSE Euronext, which has extended its advisory services to the QSE, after exiting QSE last year.

QCSD is a service providing company, licensed by the Qatar Financial Market Authority, engaged in providing safekeeping, clearing and settlement of securities and other financial instruments listed on the Qatari bourse.

“The implementation of CCP is for exchange and off-exchange transactions, especially cash equities, fixed income and derivatives,” a highly-placed source in the QSE said, adding the implementation would also result in a multi asset class derivatives market.

However, he said it was dependent on the how liquidity is enhanced in the cash market, which has been the main objective of the first phase the plan.

It is not clear as to whether there would be a single or multiple CCP for stocks and debt instruments.

“We believe we have made significant progress at a legislative and technical level, infrastructure and systems, disclosure and governance practices, awareness-raising and spreading the culture of investment; as well as the diversification of investment tools and services provided to investors,” QSE CEO Rashid Ali al-Mansoori recently told international investors in London.

Gulf Times