Kuwait's upgraded exchange gears up for more business

The Kuwait Stock Exchange (KSE) has come a long way since its inception back in 1983. A steady stream of developments have brought various modern innovations to the bourse and set it up for further progress. The biggest event of the past few years saw KSE sign a partnership contract with international platform, Nasdaq OMX, which brought the X-stream trading system and the 'Smarts' surveillance system to the exchange.

“All the technology has been finished,” says Issam Al Usaimi, a member of the transformation committee at KSE. “There has been a lot of [development of] infrastructure, technology and support systems. On the technology side, this has all been done very well. We have a new website and a data warehouse. There has been a lot of development.”

According to Mr Usaimi, the major product development coming the exchange’s way in the future is the introduction of international standard call and put options. Call options are currently available on the KSE, but only to local Kuwaiti specifications, he says.

New referee

Trading activities in Kuwait are currently regulated by the recently established Capital Markets Authority (CMA), but previously the function was carried out by the KSE itself. And improved corporate governance is one of the big issues on the agenda for the new supervisor, according to Mr Usaimi.

“As the Kuwait Stock Exchange, we used to regulate the market,” he says. “Now this regulation part has been taken by the CMA and we are operating as a stock exchange only. I think the implementation of corporate governance is a big issue right now. The law is already established. There is a waiting time for it to be fully implemented… all the companies have to comply with it.”

Faisal Al-Hamad, managing director of brokerage and research at Kuwait-based financial services firm NBK Capital, believes new regulatory changes implemented by the CMA will reflect positively on the market. “It provides a filter for the quality of issuances that come to the market in addition to increasing transparency among the current listed companies,” he says. “These two factors should result in a leaner and more transparent market that will attract investors and increase liquidity.”

Critical mass

Mr Al-Hamad expects a relatively healthy pipeline for listings this year in Kuwait compared with the past couple of years. “There are several quality names looking at coming to the market this year as there is pent up demand due to the dearth of quality listing in the past and the large amount of liquidity that has been accumulating on the sidelines,” he says.

Brokers such as NBK Capital will be fighting hard to secure new business as the KSE continues to develop and bring in more customers through the new products and systems that have been put in place.

“The brokerage environment is very competitive in Kuwait with 14 licensed floor brokers in addition to a number of investment companies that offer brokerage services vying to build market share,” says Mr Al-Hamad.

But the tightening up of regulations is not good news for all the market participants, according to Mr Al-Hamad, with some less prominent players in the market possibly struggling financially. “The new CMA rules will have an impact on the smaller players as their cost of [implementing and complying with] regulations are relatively high compared with the volume of business they serve. We believe the new regulations will ultimately benefit those companies with a resilient balance sheet and critical mass in terms of volumes," he says.

“The current trading environment in Kuwait continues to be volatile with traders continuing to arbitrage smaller cap stocks… going forward we see a positive trend with the expected government increase in spending."