A solid foundation: The BFX has a number of incentives to attract foreign investors

There is no doubt within the corridors of the Bahrain Financial Exchange (BFX) as to the new institution’s immediate strategic imperative: building up liquidity. In a bid to attract capital to Bahrain’s new exchange, the BFX management team has been shuttling around regional markets to sign up MENA financial institutions into one of various grades of membership.

COMPETITIVE ADVANTAGES: “As liquidity grows, launching the new products we have planned for will be easier – we’ll have a market that will be able to absorb them,” Arshad Khan, managing director and CEO of the BFX, told OBG. Bringing more participants to this member-to-member exchange remains the BFX’s single biggest priority, and its sales pitch has been strengthened by a number of obvious competitive advantages: the BFX is the first multi-asset class exchange in the MENA region; its Bait Al Bursa Islamic division is the only dedicated platform in the Gulf to offer exchange-traded solutions to the Islamic finance market; it is located in a business-friendly environment and it operates under a well-regarded regulatory structure which combines comprehensive oversight with a flexible and pragmatic approach to issues such as cross-border transactions.

STRATEGIES FOR SUCCESS: Nevertheless, since 2008 exchanges across the globe have found themselves operating in adverse conditions, characterised by reduced market capitalisation and anaemic trading volumes; bringing an exchange to life during this extended period of retrenchment is a particular challenge. The BFX, therefore, has taken a number of steps to make itself more attractive to potential members. One such move is the provision of a fully serviced office within the BFX’s headquarters in Bahrain Financial Harbour’s imposing East Tower. Here, the ranks of trading cubicles and real-time trading screen offer international companies an easy route to establishing themselves in Bahrain. “A considerable portion of our business will come from outside of the country, and therefore we have to persuade people to come to Bahrain and set up a company – having an office here is a legal requirement. So we went with the concept of a full-service office, making it cost-efficient for companies. We provide them with the outsourced trading system and the back office system,” said Khan.

TRAINING INITIATIVES: The BFX has also moved to raise awareness regarding the advantages offered by its innovative platform. The BFX’s outreach efforts extend across all market participants, the media and even members of the regulatory authority. Much of its effort in this regard is concentrated in the BFX Training Institute (BFX-TI), which the exchange set up even before its own operations had commenced. The BFX-TI has gained accreditation from the Chartered Institute of Securities and Investment, the Association for Financial Professionals, the Institute of Internal Auditors, the Institute of Credit Management and the Institute of Leadership and Management, and with their assistance is conducting training and development courses across the fields of capital markets, conventional finance, credit management and Islamic finance, in addition to offering bespoke courses.

The training initiative has broadened to include the market participants of the future. In March 2012 the BFX announced the launch of a series of educational workshops titled “Understanding the Financial Derivatives Markets from Theory to Practice” for university students. Under the new plan, training sessions were provided to top students specialising in the field of finance from the Royal University for Women, the University College of Bahrain, the Kingdom University and the University of Bahrain, followed by students from other universities and colleges.

The results of efforts to drum up interest, both in the domestic market and abroad, will be seen in the coming year. The signing of membership deals with several local financial institutions and steadily growing trade volumes over the first quarter of operation bode well, but the long-term success of the BFX depends on the exchange’s ability to attract highly coveted liquidity.