Date: 17/11/2008

Behind the buffered bourse
 
OBG talks to Samir Jaradat, CEO, Securities Depository Center

How can institutional investment be increased? 
JARADAT: Generally speaking, investors and fund managers look at certain things in any market before they make a move. They scan the country, the stability of the regime, and the political and economic structure. Then they look at the capital market to ensure it is up to international standards. Finally, the examine the companies they may want to invest in.
Politically, Jordan is very stable. We manage, by the wisdom of the Hashemite family and despite all the conflict around us, to stay stable and enjoy good terms with our neighbours. Jordan can be looked at, around the region, as a safe haven. We are democratic, unbiased and continue to respect diversity.
Similarly, in the economic arena, Jordan has embarked upon a new programme of liberalization and globalization. Our privatization scheme has been successful and encouraging. We have seen and we will continue to see more international involvement in the Jordanian economy, especially in real estate and technology, and I am sure eventually we will see more foreign participation in banking and insurance.
Jordan's capital market structure meets international standards. We have an independent regulator, the Securities Commission, and we have two entities empowered to provide executive oversight of the markets, the Securities Depository Center (SDC) and the Amman Stock Exchange (ASE). Each institution is autonomous but closely liked. There are 105 nationalities now listed as owner of Jordanian shares, holding close to 50% of market capital. The biggest funds in the world are there and they are increasing their holdings and activities. Manoeuvring their money in and out is simpler than in other developing countries. There are no restrictions; no capital  gains tax, no tax on dividends and no restriction on ownership.
Similarly, Jordan's capital market are now playing a leading role in the drive to improve the securities business, vis-a-vis transparency and information. With our online portals, we make all the  information allowed by law accessible and update it daily with changes to board members, their ownership levels and their movements. If there is any violation of capital market laws or the companies law, we flag this.
 
How much fallout from the US subprime crisis will be felt in Jordan in 2008?
JARADAT: Increasingly, investors are discovering that the correlation between developed markets, such as Europe or the US, and emerging markets is really very minimal. Jordan has not really been affected by the subprime crisis. While this is financial event that will touch markets worldwide, its effect will vary from country to country and here in Jordan we are relatively immune. As a result, investors have increased their holdings in those emerging markets where they and their investment decisions are buffered.
I think this crisis also opens up opportunities in emerging markets for new financial instruments, such as sukuk. A sukuk is like a bond but it has to have real assets behind it as a paper to be tradable. This is where you could guarantee the credibility of your instruments because, if it goes wrong, there are actual assets behind it. It is not just a paper.

How confident are you that activity on the bourse is not simply hot money?
JARADAT: There are certain indications that will tell you if a trade is suspicious or not. The SDC, the ASE and the Securities Commission all have the means and technology to detect these things. From the SDC standpoint, we have seen no evidence of hot money activity. Jordan’s capital market boast a wide range of investors, from well-known fund managers and global custodians of international banks to private individuals and occasional speculator. However, their strategy and their investment steps are normal and transparent. Certainly there is no sign yet of investors simply looking to slough off liquidity into the market and the chances of capital flight are very low.

The CEO highlighted that the SDC has been building on its bilingual Securities Central Operation Registry Processing and Information Online (SCORPIO) system in order to provide new services to investors.
The new services include a Members Area Services, which was introduced in 2007. The system allows SDC to view their information on the SDC database so that they can verify its accuracy as well as request any updates using the SDC Intranet. It also started offering an e-IPO services that allows invertors to fill their IPO subscription forms electronically and print them out, an approach that saves times and guarantees accuracy. It has also developed a disaster recovery and business resumption site.