OBG talks to Saleh Al Falah, Chairman, Kuwait Capital Markets Authority (CMA)

Interview: Saleh Al Falah

How will privatising the Kuwait Stock Exchange (KSE) boost its competiveness in the region?

SALEH AL FALAH: Building a competitive, functioning stock exchange is very important to facilitate investments inside Kuwait, as well as to attract foreign direct investment. When I say that the country needs to attract investments, I don’t mean money; we need to attract expertise. While privatising the stock exchange is a unique task which poses many legal and technical issues, it is well known that private stock exchanges are better run than public exchanges. So if we are to maximise the utility of the KSE, we must create an environment that is as good, if not better than, regional exchanges. To be competitive in the future we need to boost our know-how and expertise in financial markets. This, coupled with an attractive investment environment, will transform the exchange into a place which is sought out by investors worldwide.

What steps is the CMA taking to prepare for a functioning and productive secondary market and for more complex financial products?

AL FALAH: We are trying to take one step at a time. After we privatise the KSE, and we build our internal capacity, we will focus on expanding the secondary market. It takes some time for new financial products to become accepted and widely utilised in any market, so we must first create an environment where the primary market can flourish before we focus on the secondary market. The board is discussing several studies prepared by our CMA teams in regards to establishing a secondary market. This requires thorough study, evaluation and scrutiny to make sure a secondary market serves the benefit of investors and our economy as well.

What do you identify as the most important priorities for the CMA going forward?

AL FALAH: Kuwait still has a way to go to make its capital markets appealing for international investors accustomed to more developed markets. The regulation and oversight of the financial system needs to be clear, fair and effectively protect the investor. The CMA Law of 2010 revised the capital markets regulations in Kuwait and established the CMA to enforce the law.

Therefore, the main priorities of the CMA are to implement and apply regulations while building capacity to regulate the market as it grows. We have implemented the X-Stream system on the KSE, which is designed to support simultaneous trading of multiple products including equities, debt, exchange-traded funds, futures, forwards and options. Although I feel this is a step in the right direction, we must also prevent the misuse of these new products.

A project which we feel is of the utmost importance is the privatisation of the stock exchange. We have signed an agreement with HSBC to act as an advisor and help facilitate the process, and it is doing a good job. Although the process is moving slower than planned, we are taking our time to make sure things are done properly and our market is developed correctly.

What do you say to the argument that the market is stagnant because there are no viable companies or products for financiers to invest in?

AL FALAH: You must look at the financial markets as a package. In general, there are few opportunities which are attractive for investors. In this regard we must develop the market in order to create more opportunities.

The private sector plays a big role here, and the more active it is, the more attention the country will get.

On the other hand we are also building the capacity for more diverse financial products. As the market matures and becomes ready for these products, the CMA will be ready and willing to regulate.

We are also aware of the country’s challenges and competencies, and are working to do what it right and will benefit the market. Stamping out insider trading, increasing transparency and creating a level playing field for everyone are our central objectives – we have no choice but to achieve all these regulatory goals.