Qatar Exchange (QE) has issued the new rules and operational procedures for its upcoming delivery versus payment (DvP) implementation that remove the need for a dual account structure for securities.
The new rules will be effective from Monday 11 April 2011. Once they are in place custodians will be able to participate in the cash settlement cycle.
“We are delighted to implement this new DvP process in order to meet the demands of our customers. This is only the first step towards the enhancement of the post-trade infrastructure. We also plan to implement a central counterparty at a later stage as part of our strategy,” said Andre Went, CEO, QE.
Under current rules, the Qatar Central Bank carries out all cash settlement services between local brokerage firms and QE, for trades executed through the electronic trading systems.
The new regime will give custodians the ability to confirm or reject trades for settlement, whereby cash and securities settlement obligations for rejected trades will remain with the broker for settlement. This ensures that custodians can have full control of securities thus making it optional to operate dual accounts.
However, investors will still have the option to continue using dual accounts if they wish. It was identified during consultations with the customers that some would like to keep dual accounts since it helps towards the safekeeping of their assets.
At present shares must be moved from a custodian account to a broker account before they can be traded, which slows down the process and leads some investors to hold securities in broker accounts for the sake of ease.
Allowing the shares to be held with a custodian without inhibiting trading is likely to encourage overseas investors to participate in the market.
Rejected trades will be settled by the broker. The broker may use the newly introduced buy-in facility until T+6 to buy any shares required to settle the trade. Failing a successful buy-in process, a cash closeout will conclude the trade. Upon implementation these changes ensure DvP settlement.
Qatar is being reviewed by index provider MSCI for a potential upgrade from ”frontier market' status to ”emerging market'. The main challenges to the revised status highlighted by MSCI during the 2010 review included lack of true DvP, mandatory use of custody and trading accounts and stringent foreign ownership limits.
“These changes to Qatar Exchange's clearing and settlement process will enhance Qatar's financial services industry and help Qatar Exchange better serve investors and attract more participants when achieving the ultimate goal of upgrading the classification of Qatar to emerging market status in MSCI Index,” said Nasser Al Shaibi, CEO of regulator Qatar Financial Markets Authority.
The equity market reforms will continue during 2011 to enhance liquidity in the market. Some of the topics being considered are direct market access through sponsored access, securities lending and borrowing, margin trading and covered short selling.
QE has been working on its strategy to enhance the market infrastructure over the last year. The first major enhancement was the upgrade of its trading technology and model in September 2010.