Qatar Exchange (QE) has been working on its strategy to enhance the market infrastructure over the last one year. The first major enhancement was the upgrade of its trading technology and model in September, 2010. In continuation of implementing the reforms, QE has adopted Delivery Versus Payment (DVP) rules.
After extensive consultations with market participants, global custodians, international investors and regulators, QE has now issued the new rules and operational procedures for its upcoming DVP implementation.
“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,” says Nasser Al Shaibi, CEO of Qatar Financial Markets Authority (QFMA). ”I would like to thank the Qatar Exchange for their cooperation in the successful implementation of this move toward full DVP. QFMA is active supporter of all changes which will make the QE market a more developed market”.
QE CEO Andre Went says: “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.”
The new rules will be effective from April 11, 2011 meaning that the first settlement under the new rules will be conducted on April 14, 2011.
The process is designed in a way that allows flexibility to the custodians to adopt procedures as per the readiness of their clients. After the implementation of the new rules, the custodians should be able to participate in the cash settlement cycle. At the same time, custodians will have 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 have full control of securities thus making it optional to operate dual accounts.
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 MSCI for a potential upgrade from frontier market to emerging market. The main issues highlighted by MSCI during the 2010 review included lack of true DVP, mandatory use of dual account structures i.e. custody and trading accounts and stringent foreign ownership limits.
By adopting the DVP rules, there is no longer a requirement to maintain dual accounts. However, the clients will still have the option to continue using dual accounts if they desire so. It was identified during consultations with the customers that some would like to keep dual accounts since it helps towards the safe keeping of their assets.
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. The State of Qatar and QE will continue making great strides in terms of improving market liquidity, accessibility and efficiency.
