The Abu Dhabi Securities Market (ADSM) and HSBC have jointly signed a custody agreement in a landmark move to both encourage and facilitate further international investment in the United Arab Emirates (UAE).
Mr. Rashed Al Baloushi, Acting Director General of ADSM said that custody accounts are a relatively new concept in the Gulf region. “Custody accounts will be of particular benefit to foreign investors who will now have the opportunity of appointing a sub-custodian to safekeep their investments in the ADSM. Under this custody agreement, they now have assurance that HSBC, as the sub-custodian, will handle this on their behalf, as is standard best international practice.”
Mr. Arindam Das, Senior Vice President Middle East, HSBC Securities Services, HSBC Bank Middle East Limited, said: “HSBC is the only international bank offering sub-custody services in all the Gulf Cooperation Council (GCC) markets and several MENA markets. Over the last few years there has been an increasing amount of interest in UAE securities. We are delighted to be able to offer our clients custody services on the ADSM, which completes the suite of markets in the GCC where HSBC acts as a sub-custodian and will enable investors to have one service provider for all their investments.”
According to Mr. Al Baloushi, Emirati investors make up the majority trading in the Abu Dhabi Securities Market, accounting for 61 per cent of total investors. The number of GCC investors, not including those from the UAE, accounts for 34 per cent, with foreign investors making up just 5 per cent (as at June 2006).
Currently, international investors are permitted to buy shares in 36 of the 60 listed securities on ADSM, and this number is expected to grow over the next few years with an increasing number of companies, both UAE and non-UAE, expected to list.
“Non-UAE nationals now make up nearly 40 per cent of investors in ADSM,” said Mr. Al Baloushi. “We expect this number to grow as our custody agreement with HSBC increases market confidence and makes it easier for foreigners to buy securities here.”
A custodian is an integral part of the chain of intermediaries that constitute the investment for foreign institutional investors. While the execution of trade takes place through brokers, a custodian performs key functions like opening of cash and securities accounts, settlement of trades, collection of income and processing of corporate actions apart from management reporting and reconciliations. A custodian does not provide investment advice but helps in explaining the operational nuances to international institutional clients.
Since the end of 2001 the number of listed companies on ADSM has grown fourfold; there are now nearly six times as many brokerage firms; market capitalisation is 20 times higher; there are 50 times as many shareholders registered and ADSM is a model emiratisation employer with UAE nationals making up about 74 per cent of employees.
