Mohamed Abdel Salam, the chairman and managing director of the Egyptian CSD, MCDR, doubles as president of the 38-member Africa and Middle East Depositories Association (AMEDA), which is hosting the World Forum of CSDs in Marrakech in April next year. The biggest challenge confronting his members, he says, is to ensure their revenues cover their costs in bad times as well as good. Raising operational and infrastructural standards to make their markets more attractive to international investors is a good way to do that.
It is not hard to guess why the president of the Africa and Middle East Depositories Association (AMEDA) reckons implementation of the CPMI-IOSCO Principles for Financial Markets Infrastructures ought to be the highest priority for his members. Mohamed Abdel Salam would never claim that a central securities depository (CSD) can transform international perceptions of the investment opportunities in a market, but he does know that a failure to provide efficient settlement and asset servicing and safety can tip the balance against investing.
In this respect, some members of AMEDA have work to do. When consultants Thomas Murray surveyed the AMEDA membership at the end of 2015, it found that half of the members had yet to complete even a CPMI-IOSCO self-assessment. Improvement has proceeded slowly since. “Only four of the CSDS among our membership are close to finalizing their adoption of the principles,” says Mohamed Abdel Salam. “Two of them are already finished and the other two are close to finishing.”
Compliance with CPMI-IOSCO principles is a priority
With the exceptions of South Africa and Turkey, AMEDA members are conspicuous by their absence from the list of jurisdictions judged by the Bank for International Settlements (BIS) to have published implementation measures, let alone implemented them. To help, AMEDA will at its meeting in November put the CPMI-IOSCO compliance programme at the heart of the agenda.
“We are planning to offer training at the next meeting of AMEDA for all the members on how to comply with CPMI-IOSCO principles,” explains Mohamed Abdel Salam. “We will describe what is going on, how many members are finished, and we will ask those who are not ready what difficulties they face in finalizing the principles. We will also decide on a date by which every one of us will commit to finalizing our implementation of the principles.”
This is not a new departure for AMEDA. Training is an established activity of the association. As Mohamed Abdel Salam points out, the differences between the most developed CSDs that belong to AMEDA and the least developed members is wide. To bridge the gap, developed AMEDA members have agreed to train individuals from other CSDs, and contributed to an on-line training system. This programme is likely to be expanded.
Like compliance with the CPMI-IOSCO principles, raising the industry knowledge of staff at every member-CSD are just one of the ways in which AMEDA is encouraging its members to grow their revenues. The expectation is that foreign investors will be attracted as local market practices rise to global standards. This is, after all, one of the principal objectives of the association. In addition, AMEDA is continuing to work with Thomas Murray, which has the data to enable markets to benchmark themselves against global standards.
The goal is to raise standards without imposing solutions
“Lifting the smaller markets to raise them to the same level as the developed markets in the region, without risking their stability or their core functionality, is one of our highest priorities,” says Mohamed Abdel Salam. “All of us ultimately work for the investors, so we should be sure that all the CSDs in the region can provide excellent services to investors. That will encourage them to come to the region to invest their money.”
That said, the wide range of jurisdictions that AMEDA members represent imposes a natural limit on the ability of AMEDA to raise all markets to a common standard. Corporate actions are a case in point. AMEDA is looking to standardize the way corporate actions are issued and instructions received across its entire membership but recognizes that imposing a single standard on so many different countries is a hopeless ambition.
“Rules are different in every country, so we cannot make a single standard for a corporate actions process to be used by all the members, but we will highlight some key factors to be considered when processing corporate actions according to local laws and regulations,” explains Mohamed Abdel Salam. “We cannot unify the laws and regulations between all the countries but we can flag the main issues and how to deal with them. Each one of us can then implement them according to our own laws and regulations. We can increase efficiency by standardizing the ways we deal with the same issues.”
But if variation in law and regulation is a constraint on standardization across markets, ownership rarely limits the ability of members of AMEDA to innovate. Unusually for CSDs, four out of five of AMEDA members are profit-seeking. Many also have limited legacy in terms of technology and services and so can be more adventurous in developing new products. “In Egypt, we are looking at Sukuk,” notes Mohamed Abdel Salam of his own market. “The government recently passed a law which allows some Sukuk to be traded on the stock exchange. We are working on that now. We find there is no big difference between a bond and Sukuk.”
Blockchain is an opportunity as well as a threat
But the biggest opportunity he sees for the members of AMEDA is not in a new asset class but a new technology: blockchain. “This is very important,” says Mohamed Abdel Salam. “We will be running educational and training programmes on blockchain at future meetings, to explain the benefits to our members of using it. It is almost certainly a technology of the future, so we are determined to ensure that our members are from the beginning on the same level as the developed markets.”
He adds that AMEDA is looking for a suitable partner to work with on blockchain. “We are now in the period of finding out who will be the best choice for AMEDA members, and we will look at more than one company,” says Mohamed Abdel Salam. “We are of course interested in the experience of those companies which have helped CSDs in this area before, what levels of success they had, and the price. Not all African and Middle Eastern countries can pay the high prices currently demanded for blockchain advice and technology, so we will need to compromise between the best product and the best price.”
The AMEDA president is not naïve. He sees that blockchain is a threat as well as an opportunity. But he sees the volatility of international capital flows as a bigger problem for his members. In the aftermath of the acute phase of the global financial crisis in 2008-09, a number of AMEDA members found their revenues no longer covered their costs, MCDR among them. “CSDs need to find other sources of income to increase our revenues because in 2008-2009, when the international problems started, some CSDs were making losses,” says Mohamed Abdel Salam. “That cannot be allowed to happen again.”
 Committee on Payments and Market Infrastructures (CPMI) and the Technical Committee of the International Organization of Securities Commissions, Principles for financial market infrastructures, April 2012.