EMERGING MARKETS

CUSTOM MEDIA

WORLD EXCHANGE CONGRESS 2015

Interview: David Wright, Secretary General, IOSCO

Interview: Rashid Al Mansoori, CEO, Qatar Exchange

MILA: Latin America’s Integrated Stock Market

Regional Markets: Asia, Africa, Latin America, Middle East

www.theworlDfolio.com

March 24.25, 2015

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3

STAFF

MESSAGE FROM THE EXECUTIVE DIRECTOR Welcome to this custom publication of TheWorldfolio magazine for the World Exchange Congress.

As part of our ongoing coverage of the most dynamic economies around the globe, this publication focuses on emerging and frontier markets and how they are gradually moving from the periphery to the mainstream of global investing.

ÁLVARO LLARYORA Chairman, The Worldfolio

ALEXI FERNÁNDEZ Executive Director, The Worldfolio

EDWARD HOLLAND Editor, The Worldfolio magazine

KRISTIN KJELLGARD Head of Journalism Dept.

Art Direction & Graphic Design:

Antonio Román, Eduardo Bertone, Taína Almodóvar, Shergio Serrano

Apart from providing a rundown of how securities markets are faring in Asia, Africa, the Middle East and Latin America, we offer interviews with experts on the ground, including the CEOs of stock exchanges in countries as diverse as Qatar, Bangladesh and Malta. Additionally, we examine the efforts to unify share trading among bourses in Latin America (the Latin American Integrated Market) and in Africa (the planned African Stock Exchange).

Finally, we cover some of the other issues to be addressed at this year’s World Exchange Congress, among them the rise of virtual currencies such as Bitcoin or the continuing debate over whether New York or London is the financial capital of the world.

Edward Holland, Rob Train, Paul de Zardain, John J. Gallagher

We hope you enjoy this special issue of our magazine and we encourage you to follow us at www. theworldfolio.com and to send your comments to contact@theworldfolio.com.

Printed By: Quad Graphics

Alexi Fernández Executive Director, TheWorldfolio

Contributing writers:

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TABLE OF CONTENTS

Worldfolio

EMERGING MARKETS TABLE OF CONTENTS

TABLE OF CONTENTS 07 List of Speakers at the World Exchange Congress 2015 09 Emerging Markets: No Longer the Wild Frontier

By Edward Holland

13 Keeping the Playing Field Level: Interview: David Wright, Secretary General of IOSCO 16 Regional Markets: Middle East and North Africa

By Paul de Zardaín 18 Interview: Rashid Al Mansoori, CEO, Qatar Exchange

20 The World’s Financial Capital: The Big Apple or the Big Smoke?

By John J. Gallagher

38 Interview: Paul J. Spiteri, Chairman and Eileen V. Muscat, Chief Executive Officer, Malta Stock Exchange

23 Regional Markets: Latin America

By Paul de Zardaín

40 Regional Markets: Africa

By Paul de Zardaín

25 MILA: Latin America’s Integrated Market

By John J. Gallagher

42 The African Stock Exchange: Creating a Continental Trading Platform

By Paul de Zardaín

29 Where the Big Ideas Meet the Deep Pockets: The Startup Stock Exchange

By Rob Train

44 Quantum Global Solutions: Managing Change, Mitigating Risk.

32 Regional Markets: Asia

By Paul de Zardaín 35 Interview: Swapan Kumar Bala, CEO, Dhaka Stock Exchange

48 Bitcoin: Solution to Currency Risk or Accessory to Cyber-Crime?

By Rob Train

Speakers WEC

7

Speakers

at THE WORLD EXCHANGE CONGRESS 2015

Principal speakers. Day 1

Principal speakers. Day 2

Dr. Robert Barnes

Alan Yarrow

Mr. Cees Vermaas

Mustafa Baltaci

Dato’ Tajuddin Atan

David Wright

Keisuke Arai

Nick Thornton

Mr. Ashishkumar Chauhan

Simon Culhane

Ms. Nandini Sukumar

Andras Simor

CEO, Turquoise

Managing Director and Chief Executive Officer, CME Europe

Chief Executive Officer, Bursa Malaysia Berhad

Chief Representative in Europe, Japan Exchange Group

Chief Executive Officer, BSE Ltd

Acting CEO, The World Federation of Exchanges Limited

David Mercer CEO, LMAX Exchange

Mr. Nondas Cl. Metaxas

Director General-Chief Executive Officer, Cyprus Stock Exchange

Brendan Bradley Chief Innovation Officer, Eurex

Lukas May

Team Leader, Financial Conduct Authority

Ian Haet

CEO and Co-Founder, Startup Stock Exchange

The RT Honorable Lord Mayor, City of London

Secretary General, Federation of Euro Asian Stock Exchanges

Secretary General, IOSCO

Senior Vice President, Global Head of Market Solutions, Euronext

Chief Executive Officer, Chartered Institute for Securities & Investment (CISI)

Vice President Finance and Chief Financial Officer, European Bank for Reconstruction and Development (EBRD)

Dr. Christian A Katz

President of the Federation of European Securities Exchanges (FESE) and CEO, SIX Swiss Exchange

Lars Ottersgard

Executive Vice President, Head of Market Technology, NASDAQ

Stephan Pouyat

Global Head of Capital Markets, Euroclear

Dr. Fadi Khalaf

Secretary General, Arab Federation of Exchanges

Prof. Swapan Kumar Bala CEO, Dhaka Stock Exchange Ltd

Scott Cowling

Managing Director and Head of EMEA Equity Trade, BlackRock

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Emerging and frontier markets

EMERGING MARKETS:

NO LONGER THE WILD FRONTIER Emerging and frontier markets are shedding their image as a risky area to which investors should dedicate only a small portion of their portfolios. Robust economic growth, along with more open capital markets, are making these countries an increasingly attractive investment destination.

By Edward Holland

Not many years ago, the markets characterized as “emerging” and “frontier” were regarded as the wild west of investing — a perilous place on the outer reaches of the financial world, and not for the faint of heart. Today, these markets – particularly those in the Asia, the Middle East and Latin America — are playing an ever-greater role in the global securities industry, as investors view them as a way to spread risk and make their portfolios less vulnerable to events in the developed countries.

More than a hedge against risk, investing in emerging and frontier markets is seen as a bet on the growth of their economies, which are home to more than half of the world’s people, and already produce more than a third of global Gross Domestic Product. Although emerging markets as a whole suffered from the oil price collapse in 2014, global investors are still drawn to the most rapidly-expanding economies among them.

“High economic growth rates will remain a key attraction of many emerging markets in 2015,” Mark Mobius, Executive Chairman of Templeton Emerging Markets Group wrote on his website recently. “Even with major economies like Brazil and Russia slowing down, overall economic growth in emerging markets during 2015 is expected to be comfortably in excess of developed markets, with China and India likely to drive the Asian region to particularly strong growth.”

The IMF’s Economic Outlook for 2015 supports this view.

It forsees average growth of 5% among emerging economies

this year, compared to 2.3% among developed economies.

In recent years, investors have abeen anticipating this trend and adjusting their portfolios accordingly. According to iMF direct, the International Monetary Fund’s global economic forum, emerging and frontier markets represented 13% of the developed countries’ investment portfolios in 2012, up from 5% in 2002.

Emerging or frontier?

While the definitions of what constitutes an emerging or frontier market may vary, the standard for categorizing them is the Morgan Stanley Capital Indices. The MSCI today ranks 24 countries as “emerging” and another 33 as “frontier” — as a function of the size and liquidity of the securities traded and the accessibility of the market to foreign investors.

When MSCI published its first emerging market index in 1988, the list contained only 10 countries and the traded companies together represented only 1% of world market capitalization. Today, the indices contain over 800 securities, accounting for 11% of global market cap.

The indices are reviewed regularly and an upgrade from “frontier” to “emerging” can mark a difference in foreign inflows. Such was the case in Qatar and the United Arab Emirates, both of which were upgraded to “emerging” status in June, 2013. Meanwhile, Saudi Arabia, despite having a $531 billion stock market, is classified as “frontier,” although that

Emerging and frontier markets

could change as it eases restrictions on foreign investment in 2015.

How to get in Most international investors enter these markets through Exchange Traded Funds (ETFs) — funds which can be bought and sold on stock markets, and whose underlying investments consist of a basket of securities across different emerging or frontier economies.

For example, the SPDR S&P Emerging Markets Dividend ETF, invests in basic materials, telecommunications, financial services and technology stock in five countries: Brazil, Thailand, Taiwan, South Africa and China.

There are also industry-specific options. Anyone optimistic about the rise of telecommunications stocks in the developing world, for example, could purchase an ETF based on the MSCI Emerging Markets Telecommunications Index.

Winners and losers Although ETFs have made emerging and frontier markets more accessible, they still contain an inherent degree of risk from currency volatility, political instability or regulatory uncertainty — not to mention the possibility of nationalization. The motive for investing in them is simple: greater risk, greater return.

The conventional wisdom has been that these markets were a way to diversify risk, as they are decoupled from events affecting the major world economies. This notion has been challenged of late, as some emerging economies have begun to move in tandem with the developed world, while frontier markets are less affected.

This occurred in 2014, which opened with a surge in emerging markets. However, the collapse of world

Emerging and frontier markets have a growth story linked to the flowering of their economies and to market-friendly reforms.

10

EMERGING MARKETS Americas

Europe, Middle East & Africa

Asia

Brazil

Czech Republic

China

Chile

Egypt

India

Colombia

Greece

Indonesia

Mexico

Hungary

Korea

Peru

Poland

Malaysia

Qatar

Philippines

Russia

Taiwan

South Africa

Thailand

Turkey United Arab Emirates

Source: Morgan Stanley Capital International (MSCI) oil prices, starting in September, was a game changer. The upshot was that oil exporters suffered and importers recovered, with the latter likely to do even better this year, provided crude prices remain weak.

A case in point is Egypt. While its Middle Eastern neighbors were reeling from the oil market debacle, Egypt, a net importer of petroleum, was benefitting from lower crude prices and from growing domestic political stability. According to the Financial Times, the Egypt was “the best destination for stock market investors in 2014,” as it yielded a total return of 30%, including dividends and increases in share prices.

This compares to a 14.5% total return on stocks in the U.S., the best—performing among the developed economies.

Go with the growth However, emerging and frontier markets are more than just a reflection — or not — of what happens in the developed economies. They have a growth story of their own, more often than not linked to the flowering of their economies or to policy reforms which make them more attractive investment destinations. Even

more compelling is the fact that more than half the world’s population today lives in economies classified as “developing” and that their needs will produce a growing demand for goods and services over the coming decades.

McKinsey & Co. has called this phenomenon “the biggest growth opportunity in the history of capitalism.”

In a 2012 study, the global consulting firm predicted that by 2025, consumer spending in emerging markets will account for half the global total, or some $30 trillion (up from $12 trillion in 2010). Given the increasing urbanization of the populations, market—friendly economic policies and the removal of trade barriers, the consuming population in emerging economies will nearly double to 4.2 billion, out of a total world population estimated at 7.9 billion.

“As a result, emerging-market consumers will become the dominant force in the global economy,” McKinsey & Co. said.

The big winners in this opportunity are likely to be companies that respond to this demand: producers of consumer goods or providers of services such as construction, telecommunications and banking.

11

Emerging and frontier markets

The stars: China and India Much of this growth is expected to take place in China and India, the two leading emerging economies, where financial markets are already showing strength, even in the face of short-term disappointments in key indicators.

Although China’s economy grew at its slowest pace in 24 years in 2014 (7.4%), the benchmark Shanghai Shenzen CSI 300 index closed the year with an increase of nearly 52 percent. The index rose 25% in December alone, marking its best month since April 2007.

In India, meanwhile, the $1.7 trillion equities market continued a rally — significantly, driven not by exporters but by stocks which are dependent on domestic demand, such as banks and infrastructure companies. The benchmark Sensex index rose nearly 30% in the year, its best showing since 2009. Foreign investment in Indian stocks totaled $16.2 billion, the most of any Asian market outside Japan.

Investors from abroad were attracted by

the political stability following the Indian elections and by optimism over forecasts for the country’s medium-term growth.

With the bull market continuing at the start of 2015, small wonder that India Exchange Traded Funds are being touted as the best among emerging markets this year.

More than a peripheral play Besides simply acting as an alternative for global investors, securities markets in emerging and frontier economies are increasingly serving their basic function as a source of capital for local companies. Seeing that they cannot rely on banks to provide financing, entrepeneurs are turning increasingly their countries’ capital markets.

In Africa, where stock markets as a whole suffered in 2014, the number of Initial Public Offerings (IPOs) nearly doubled. The Johannesburg Stock Exchange, the continent’s stellar performer, had 23 new listings and has more in

the pipeline for 2015. All told, African equity markets raised $11 billion from IPOs and follow-on proceeds, almost equal to the total of the previous two years.

The same is true of the Middle East, where the total number of IPOs in 2014 was 27, with a total value of $11.5 billion, and the best year for new listings in the region since 2008, according to global consultants Ernst & Young. The offerings included the $6 billion IPO by Saudi Arabia’s Commercial Bank, the region’s largest ever — and the second largest in the world last year after Ali Baba’s debut on the New York Stock Exchange.

With more listed companies, greater liquidity, and a wider range of choice for investors, the emerging and frontier markets are likely to account for a growing share of global investment portfolios in the years to come. As Wasatch Capital, in a report on frontier markets, put it, they represent “a vast opportunity for investors willing to do their homework and put boots on the ground.”

FRONTIER MARKETS Americas

Europe & CIS

Africa

Middle East

Asia

Argentina

Bosnia Herzegovina1

Botswana1

Bahrain

Bangladesh

Jamaica

Bulgaria

Ghana

Jordan

Pakistan

Croatia

Kenya

Kuwait

Sri Lanka Vietnam

1

Colombia Trinidad & Tobago1

1

Estonia

Mauritius

Lebanon

Lithuania

Morocco

Oman

Kazakhstan

Nigeria

Palestine1

Romania

Tunisia

Serbia

Zimbabwe

Saudi Arabia2 1

Slovenia Ukraine

1.

The MSCI Bosnia Herzegovina Index, the MSCI Botswana Index, the MSCI Ghana Index, the MSCI Jamaica Index, the MSCI Trinidad & Tobago Index, the MSCI Zimbabwe Index, and the MSCI Palestine IMI are currently stand-alone country indexes and are not included in the MSCI Frontier Markets Index. The addition of these country indexes to the MSCI Frontier Markets Index is under consideration.

2.

The MSCI Saudi Arabia Index is currently not included in the MSCI Frontier Markets Index but is part of the MSCI Gulf Cooperation Council (GCC) Countries Index.

Source: Morgan Stanley Capital International (MSCI)

13

IOSCO Interview

Keeping

the playing field level:

An interview

David Wright, Secretary General of the International Organization of Securities Commissions (IOSCO) with

WF: The focus of this special edition of Worldfolio is emerging and frontier markets. The economies of these markets are all very different but, from a regulatory point of view, are there issues that are common to them all?

DW: I think the first thing is that, very encouragingly, all the emerging market countries that I have talked to know that, no matter how poor or emerging they are, they have to develop their domestic capital markets.

This crisis, and events before and since, I think have convinced all of these countries that they can no longer rely on the ebbs and flows of international capital from global financial institutions and that they have to intermediate their own savings and investments with their own stock exchanges and their own capital markets. This is a seminal moment in a way, a moment when IOSCO and others have got to step up and support and help these countries to develop their capital markets, which is what we are intending and trying to do.

Now, the regulatory issues. Of course, every market has its own culture and every country has its own ways of doing things. But I think the basic principles of capital markets and the IOSCO principles are the accepted set of standards for all securities markets; the fundamentals of markets — protecting investors, making sure that information is supplied to everybody, the principles of fairness and transparency — they apply everywhere.

David Wright, a featured speaker at this year’s World Exchange Congress, had a long and distinguished career in the European Commission before taking up his current post as Secretary General of IOSCO in 2012. As the EC’s Deputy Director General for securities and financial markets, he helped design the plans to integrate the European Union’s capital and financial services markets; he was later a member of the EC’s Task Force on Greece.

Today, as head of the organization which groups securities regulators in more than 100 countries, he has a privileged view of the issues facing financial markets and investors worldwide.

David Wright spoke to TheWorldfolio about some of them: the rise of off-exchange trading; cyber crime; investor education; and the erosion of faith in financial markets that has come with the current crisis.

WF: In a 2012 speech to the Atlantic Council, you proposed the idea of a global regulatory agency based upon the notion that all the markets are interconnected in one way or another. Certainly the crisis has proved that. Has that idea moved forward at all? Have you had any more reaction to it?

DW: What people say in private and what people say in public are two different things. I talk privately to many people from many different jurisdictions and they see the logic of what I said there. And the logic is simple, it is that in an interconnected world, with more and more big capital markets, unless you have some discipline in the implementation of a rule, then we are going to end up in a very complex matrix in which the number of interpretations and the number of the number of countries is going to proliferate. And you are not going to be able to solve those problems on a bilateral basis, you are going to need some form of collective discipline.

“Every market has its own culture and every country has its own ways of doing things…(But) the fundamentals of markets — protecting investors, making sure that information is supplied to everybody, the principles of fairness and transparency — they apply everywhere.”

Interview IOSCO

14

“Trading has to be fair and transparent, if it is not then I have a serious problem with any system that does not have those characteristics.”

Now, if there is insufficient political support for strengthening the global institutions in a legal way, what can you do? Number one: the international standards setters, like IOSCO, in the areas that we have to work in and clearly in global areas, we have to act upstream quickly, we have to set the upstream principle. Step two is that all the jurisdictions, having agreed to those principles, would then agree to cooperate in the implementation and interpretation of those principles. That is before step three: before anybody picks up a red pen and starts writing a law.

WF: What would you say are the most pressing issues right now for IOSCO? DW: I think there are a number of them.

One is certainly to build capacity to help emerging market countries develop their capital markets and securities markets.

Also, these cross border issues we have just been talking about. Improving our understanding of risks and vulnerabilities of securities markets; we still have a very, very imperfect understanding of how, for example, so called “shadowbanking” functions.

I would say securitization. I think many people feel we need to improve and help the emergence of new forms of market-based financing. And that would be certainly one of them.

Our work on enforcement. IOSCO has a remarkable instrument here called the Multilateral Memorandum of Understanding, which has got over 103 countries signed up, on mutually helping each other on enforcement. The whole area of benchmarking is incredibly important because we have seen very serious damage by the manipulation of benchmarks and we have to put this right. If you don’t have trust in the

basic numbers of financial markets, they will be working sub-optimally. And if you look at the surveys of lack of trust in the financial industry, it is almost rock bottom today.

Two other issues which are high on our agenda are cyber resilience, cyber crime; a lot of people are very worried about this and how it can affect markets, participants in markets and so forth. And the other one is the quality of audits in general of companies who are listed.

Interestingly, the IOSCO report on cybercrime said that 53 percent of the members of the World Federation of Exchanges had experienced some sort of hacking incident, but that there wasn’t necessarily a financial motive behind them.

DW: I think the motives are very different here; they can be financial or other that want to disrupt the global financial system; it can be political, it could come from North Korea or it can be for personal gain in a financial sense or from anti-capitalist tree dwellers.

Now, we were the first of the standard setters, I think, to start taking this subject very seriously and the work we did with the World Federation of Exchanges I think was pretty exemplary in that respect. There are implications for enforcement, implications of exchanging information, implications for intermediaries. Almost every IOSCO committee we have is looking at how we can possibly cooperate more on subjects like this.

15

IOSCO Interview

I don’t really care who does it, that is irrelevant, but it has got to fulfill those conditions. And that is the job of regulators, to make sure that these markets function according to the principles and rules that are fundamental to securities markets. Otherwise, we will simply see that if investors lose faith in the benchmarks of a market or the types of trading in a market, then they will just not invest, they will just buy houses, and that isn’t good for the economy.

Investor education is a big issue for IOSCO. Where do you think this should begin?

Photo: Kristin Kjellgard

“Dark pools” of off-exchange securities trading and high-frequency trading have been big issues during the past year.

The SEC recently leveled its biggest fine ever, this one against UBS, for the manner in which it operated a “dark pool.”

How can regulators protect investors in these venues?

I don’t think anybody sees necessarily a problem with trading off-exchange, crossing networks, multilateral trade platforms, whatever they are; but they have to treat everybody fairly and the rules have to be clear and non-discriminatory. It is also important for the whole of the market that this trading is disclosed to regulators, so consolidated tapes can be put together as they are in the U.S., to disclose all the trading to the market; that has not yet happened in Europe.

So per se, I don’t have an issue with that, but I do have an issue if there is discriminatory trading or non-transparent trading and so forth. Trading has to be fair and transparent, if it is not then I have a serious problem with any system that does not have those characteristics.

I worry about incentives in a system which helps an asset manager to get privileged access or an investment firm to be able to get better conditions; it has got to be fair to everybody, including and most importantly, to retail investors; their savings and pensions are tied up in all of this.

Anything that is unfair, privileged or conflicted is not acceptable as far as I am concerned. The basic fundamental public interest principles of the securities market have got to be applied and

DW: In school, in primary school. We have to teach children about money, teach them what it is. You learn Latin, cooking, gymnastics at school, but we don’t learn about a fundamental part of our lives, which is money and how finance works.

We can’t expect investors to make good decisions in their lives if they don’t know anything about money and finance. You have a biased asymmetric information system here. In other words, all of the information is with the supply side. The ordinary consumer, by and large — and all the surveys show this — knows next to nothing. We have seen endless examples of consumers being ripped off, legacy bonds sold to aging grandmothers and all sorts of packaged up insurance products, bundled with bank loans, misselling of multiple forms.

Now, you are never going to solve all these problems by educating, but you’ll do better. Along with that, we need Draconian sanctions for all those who missell and defraud. And that, for me, means jail. It is very simple: anybody who deliberately mis-sells products to a retail investor should spend time reflecting in a fairly cold, dark, damp cell about the evil they have committed, because what they do is ruin people’s lives.

THE MIDDLE EAST AND NORTH AFRICA MARKETS WITHSTANDING THE ENERGY SHOCK IN Reverse

By Paul de Zardain

Most stock markets in the Middle East and North Africa ended 2014 lower as a result of the oil price collapse, but the value of IPOs was more than four times that of the previous year. During 2015, foreign investors will be eyeing the Saudi market, which will be open to them for the first time.

The sharp drop in oil prices during the second half of 2014 soured the mood at trading floors in the Middle East and North Africa.

Still, the regional stock markets managed to end the year on a positive note, as local companies increasingly turned to the stock markets as a source of financing.

According to Ernst & Young, the value of Initial Public Offerings in the region totaled $11.5 billion in 2014, four times that of the previous year. The number of new listings is expected to slow in 2015, at least until the oil market settles.

Oil prices stood at $115 per barrel in June 2014, but had tumbled to $53 by December (and to $49 per barrel in March, 2015). After five years of growth, the equation between supply and demand led to downgrades in projected demand for 2015.

Stock markets in the Middle East and North Africa will need to adapt to stock market turnover driven by new fundamentals.

In 2015, all eyes are trained on Saudi Arabia’s Tadawul, which is opening its doors to foreign equity investors for the first time. This could signal the rise of family-led small and medium enterprises (SMEs) looking to tap domestic capital markets. With regulatory upgrades and more investor education, fresh competition could drive up the Tadawul All Share Index (TASI).

In Saudi Arabia, half of the population already holds equity investments, with many subscribing to IPOs online. In November, 2014, the Electrical Industries Company, a power utility serving the entire Kingdom, became the latest company to float its capital. The move toward equity listings began when Saudi companies realized that rates offered by Tadawul were more attractive than traditional banks.

By end-November 2014, the TASI had posted a year-to-date increase of 1.05%. However, by year-end, Tadawul’s benchmark index was down 2.4% as low oil prices impacted on the energy companies that weigh heavily on Riyadh trading floors.

For Tadawul’s Capital Market Authority (CMA) the challenge is now to devise regulations that will lure foreign capital to Riyadh. Size, capital, professional skills and certification will be the key determinants of market turnover. The litmus test, however, will be in future returns.

The highest returns for investors in the Middle East and North Africa are still on the trading floors of United Arab Emirates (UAE) and Qatar (See the accompanying interview with Rashid Al Mansoori, CEO of the Qatar Exchange). Stock market development there took off when domestic investors began to allocate their petrodollars to domestic and regional markets due to higher levels of scrutiny abroad.

In contrast to other regional markets, trading floors in Qatar and UAE have few shock-absorbing counterweights to financials

and real estate. Fluctuations in oil prices can quickly affect stock valuations. Still, stock market turnover is expected to increase because only a fraction of companies in the Gulf Cooperation Council (GCC) are listed.

In 2013, the Morgan Stanley Capital Index (MSCI) upgraded the Qatar Stock Exchange (QSE) from frontier to emerging market status, due largely to changes in rules and procedures. Also that year, the Doha Bourse became a member of the World Federation of Exchanges. QSE is now seen as a global exchange in the middle of an elite capital pool.

By end-December 2014, there were 43 listings at the QSE, including companies in banking, consumer goods, manufacturing, insurance, real estate, telecoms and transportation. The QE General Index rose 18.4% in 2014, while the 21.8% growth in Qatar’s All Share Index made it the best performer in the GCC. The Egyptian Stock Exchange (EGX) received the award for Most Innovative Stock Exchange of the Year in 2014 from the Africa Investor Foundation. It also hosted its first IPO Summit. Though the country exports oil and gas to neighboring states, it has officially become a net oil importer. As such, the EGX, unlike other regional markets, will see a positive effect from lower oil prices in 2015.

According to EGX Chairman Mohammad Omran, confidence in the EGX in 2014 pushed traded volume past the symbolic figure of LE 100 billion, or $13.9 billion. For the first time since 2010, there was also a significant increase in foreign investor trades. By December 2014, the EGX had 214 equity listings and market capitalization stood at $69.9 billion.

“The main role of the EGX is to help increase the country’s economic growth by providing funding for companies and to help implement their expansion plans,” Omran has said.

But the thrust at EGX in 2015 will be SME promotion and trading in exchange traded funds (ETFs), which began this year, another step in its modernization. Since the strategic launch of NILEX, small private firms have been added to the innovative platform. By end-2014, the total number of companies listed on NILEX had grown to 33. “Turnover rates at NILEX are also twice as high as on the main market of the EGX,” says Omran.

In 2013, the Morgan Stanley Capital Index (MSCI) upgraded the Qatar Stock Exchange (QSE) from frontier to emerging market status, due largely to changes in rules and procedures.

Interview QATAR EXCHANGE

18

INTERVIEW An

with

Rashid Al Mansoori, CEO of the Qatar Exchange

WF: What role will the Middle East play in shaping future investment trends?

RAM: Notwithstanding current regional geopolitical tensions and their effect on the risk appetite and confidence of the investment community, the Middle East, and the Gulf Cooperation Council (GCC) countries in particular, will continue to grow in importance as both investors and as investment destinations.

The upgrade of Qatar and the UAE to emerging market status by both MSCI and S&P, and the proposed changes to investment laws in Saudi Arabia, have led to a surge of interest in the Gulf economies. These countries, and others in the GCC continue to generate significant wealth, for both states and individuals, the majority of which will continue to be channeled towards investment, whether locally, regionally or internationally. If and when political tensions ease in the Middle East, those countries with large, young and well educated populations and with significant natural resources will increasingly impact investment trends, both regionally and globally.

WF: What role does the Qatar Exchange play in promoting the country’s economic development?

RAM:We provide information on our leading companies and giving investors the opportunity to benefit from their continued growth. We are in constant contact with privately held and family companies, as well as govern-

The upgrade of Qatar from “frontier” to “emerging market” status, and the increase of foreign ownership limits from 25% to 49%, have raised the country’s profile as an investment destination. Rashid El Manoori, CEO of the Qatar Exchange, spoke to Worldfolio about the bourse’s perspectives and its part in developing the Qatari economy. ment-owned entities, advising them of the advantages of being listed on the exchange, and encouraging them to be part of our community.

We are very active in supporting investor relations initiatives and events, and spend considerable time and resources to provide education to the local investor community. We host, contribute to and sponsor both domestic and international events to promote Qatar as an investment destination.

WF: The Qatar Exchange is currently home to nearly 43 companies. How do they reflect the country’s economic diversity?

RAM: Our issuers and the sectors in which they are classified are representative of the economy as a whole, although we do recognize that some of largest companies in Qatar are not currently listed. The sectors are banks and financial services, insurance, industrials, real estate, telecommunications, and consumer goods and services, and in the majority of these sectors there are companies with globally recognizable brands with excellent reputations. As the exchange continues to expand its issuer base, more and more leading Qatari companies,

with international exposure, will further demonstrate the strength, diversity and excellence of our nation.

WF: Many economists have conflicting views on the benefits and challenges of Foreign Direct Investment (FDI). Some emphasise the “crowding out” effect, whereas others underline FDI’s central role in promoting economic growth and international integration. What role do you think FDI has played, and/or could play in Qatar’s future?

RAM: There is no doubt that FDI has played an important part in the development of Qatari industry, with numerous partnerships being formed to exploit our abundant natural resources. These developments have helped to elevate Qatar to a position of influence both politically and economically. FDI has also contributed to the development of our human capital, through knowledge transfer and education. Continuing large scale development of our nation’s infrastructure and industry would clearly benefit from further FDI, where international companies can share in the benefits of preparing for the hosting of the World Cup in 2022 and the realization of the Vision 2030 objectives.

19

QATAR EXCHANGE Interview

WF: How do you perceive the effect of this upgrade on the Qatari markets and the overall GCC economy?

RAM: There is no doubt that the upgrade has had a very positive effect on both the visibility of Qatar and the GCC as investment destinations and the performance of our exchange.

Liquidity has improved considerably and our investors have enjoyed strong gains in the value of their portfolio holdings. From an economic standpoint, the profiles of countries and markets and the issuers on our markets have all been raised considerably, which will benefit all of our economies going forward.

WF: Tell us about the transformation of the Doha Securities Market into the Qatar Exchange. Five years on, how it has achieved such a strong regional position?

RAM: The Doha Securities Market (DSM) was established in 1997. Since that time, DSM has been through numerous and significant changes.

A central registry was introduced in 1998 and in 2001 manual trading systems were replaced by electronic systems. In 2005 the market opened up for foreign investment and the DSM transformed from a fully self-regulated organization into a partially self-regulated organization overseen by a new regulator, the Qatar Financial Markets Authority. At the same time the DSM name was changed to Qatar Exchange, to better reflect its national identity. (The year) 2010 saw the introduction by Qatar Exchange of a state-of-the-art trading platform, UTP, which was originally developed by and for NYSE Euronext.

The present Qatar Stock Exchange is part of a national vision aimed at establishing Qatar as a world-class, internationally recognized market. The recent announcement by the government to allow for an increase in foreign ownership limits from 25% to 49% is a testa-

ment to that commitment. Qatar has benefitted from the upgrade, from frontier to emerging market in the MSCI classification system, which has led to an inflow of foreign capital, evidenced by a significant increase in trading volumes.

Qatar Exchange has ambitious and aggressive plans to introduce new products and technologies to meet the demands of both the domestic and increasingly international investor community.

WF: Tell us about the QE Qatar Venture Market programme, which allows small and medium-sized enterprises (SME’s) to raise capital more easily by listing on the exchange. What are the benefits for the companies and for investors?

RAM: The QE Venture market was introduced to create a platform for capital-raising for the benefit of SME’s which would benefit from a customized regulatory framework.

SME’s that are planning to come to market will not only benefit from an increase in capital. Being listed is a transformational process that will see SME’s engage with investors, explain their growth story and increase their overall visibility, benefits that go far beyond access to capital alone. For investors, having these SMEs come to the market will mean that they will have a greater range of investment choices, each with their own risk/reward profiles.

WF: What are the challenges you face as an institution in the medium term, in light of the increasing competition from other markets in this era of globalization?

RAM: Although there are obvious challenges for any business that is opening up to competition, one should bear in mind that the Qatari stock market is in the fortunate position of having a very strong local investor base, both institutional and

retail. This combination of a strong local investor base and increasing foreign capital inflows puts us in the right position for the future. Together with the high level of commitment that we have to develop our market, I strongly believe that globalization will be more of an opportunity than a threat.

WF: How accessible is your market, and how are you working to facilitate the growth of capital markets and attract Foreign Direct Investment by increasing investor confidence?

RAM: We believe that our markets are already accessible, to a large extent. Any foreign investor can open an account with our settlement organization, the QCSD, and we have a number of very good local custodians able to provide a wide range of services any sophisticated international institutional investor may require. As I mentioned before, we will continue to see a gradual increase in the levels of foreign ownership of Qatari listed companies, and at the same time we will continue to work tirelessly to reform the market and develop products and services that meet the needs of the investor community.

WF: Why do you think Qatar has had this flourishing attraction to investments in the UK? RAM: Clearly, there are strong historical ties between Qatar and the UK and Qataris by and large have considerable affection for all things British.

One of our destinations of choice continues to be London. We also recognize and respect the openness of the UK as an investment destination and the strong and globally respected legal and regulatory framework which protects the rights of individual investors, regardless of their origin. The UK is seen as a successful, vibrant and resilient economy, all attractive attributes when considering avenues for investment.

London vs New York

20

The

WORLD’S

FINANCIAL CAPITAL

THE BIG APPLE or THE BIG SMOKE?

By John J. Gallagher

New York displaced London for the first time in 2014 as the world’s financial capital. In the ranking compiled by the Global Financial Centres Index (GFSI), the City’s reputation suffered from a series of scandals, including banks’ abuse of clients and the manipulation of interest rates and other financial benchmarks. Has London lost its “mojo”?

The GFSI survey of more than 3,500 financial services professionals from across the globe showed New York nudging past London by just one point on a 1,000-point scale. The ranking evaluates 83 of the world’s top financial centers in five categories of competitiveness: business environment, financial sector development, infrastructure, human capital and reputational and general factors.

New York won the twice-yearly survey in March, 2014 and again in October, raising concerns about the future of the City in the rapidly evolving landscape of global finance.

In the most recent poll, the index’s authors blamed London’s slide on “uncertainty over the UK’s position in Europe, regulatory creep and the UK appearing to be less welcoming to foreigners.” But the report also showed a number of important long-term trends that could well play out in Britain’s favor in the years to come.

If London has lost a bit of its sheen as a global banking, insurance and securities trading powerhouse, it comes against the backdrop of prolonged economic stagnation and uncertainty in Europe, which continues to suffer from a malaise that has no doubt rubbed off on the continent’s leading financial market. In the United States, by contrast, the clear direction provided by the Fed, the surge in income from shale oil and gas production, and the sustained growth in the job market and consumer spending has pushed its leading stock market indices to record heights.

Dominated by major U.S. corporations, the Dow Jones Industrial Average has posted a six-year string of impressive

gains, briefly topping 18,000 last year, a historical record. The Dow’s winning run represents a dramatic turnaround from the financial crisis, during which it fell below 7,000, or more than half of its precrisis value. The broader U.S. benchmark S&P 500 posted its third straight year of gains and closed above 2,000, more than twice its level during the historical market downturn of 2009.

If London has lost a bit of its sheen as a global banking, insurance and securities trading powerhouse, it comes against the backdrop of prolonged economic stagnation and uncertainty in Europe.

New York’s financial industry has been a major beneficiary of the Fed’s commitment to historically low interest rates, which has prompted investors to plow large amounts of money into stocks.

Its flagship exchange, the NYSE, remains heavily concentrated in U.S. corporations, which account for the lion’s share of its nearly 1,900 total listed companies and massive $16.6 trillion total market capitalization. Equity trading and initial public offerings on the New York Stock Exchange have seen a similar resurgence and continue to be its dominant niche in

global finance. In 2013, for example, the NYSE led in global initial public offerings and capital raised with 157 transactions raising $59 billion in proceeds — more than the next three exchanges combined, according to its annual report.

The NYSE continued to dominate in 2014, bolstered by Alibaba Group’s $25 billion listing priced in September 2014, the largest IPO on record. New York’s two main stock exchanges, Nasdaq and the NYSE together in 2014 raised more than $80 billion in initial public offerings, accounting for more than 40% of the global total, according to Dealogic. That sum that roughly triples the total raised in London last year.

Counting over 2,400 companies from more than 90 countries with a combined value of over £4 trillion, the London Stock Exchange represents a more diverse and globally integrated market than its counterpart in New York. The City continues to hold a dominant global position in currency trading and over-the-counter interest rate derivatives, and its capital markets also benefitted from the continuing upward trend in the global economy.

The FTSE 100 rebounded strongly since bottoming out at around 3,500 in 2009.

London’s closely-watched benchmark finished 2014 about 300 points below its historical high of more than 6,900, set in 1999. The LSE ended the year with impressive gains in both the total number of trades and the overall value traded, which climbed by 94% and 109% respectively for the year.

After several years of declines, the LSE’s UK order book bounced back in

21

London vs New York

2014 with 21% growth in average daily trades. Looking at the longer-term picture, the value of trades on the LSE’s panEuropean Turquoise Equity platform has climbed by more than 43% since 2011, while volume grew by more than 44% during the same time and now surpasses its UK order book in terms of average daily volume. LSE Group’s MTS Repo market remains its most heavily traded business in terms of value, with nearly £238 million being transacted in 2014, up from about £212 million in 2011.

The finance industry in London and New York also remain heavily interconnected and interdependent. For example, Atlanta-based Intercontinental Exchange Group, owner of the NYSE, draws its two largest revenue streams from ICE Brent Crude futures and options contracts and U.S. and European cash equities on the network of exchanges it operates. LSE Group, for its part, has established itself as a leader in small-cap stocks, emerging as Europe’s technology startup hub. Its purchase of Seattle-based Frank Russell Company, owner of the benchmark Russell 2000 index, represents a deeper foray into the territory of technology-heavy small cap stocks. The $2.7 billion purchase, completed in June 2014, will help to transform LSE’s balance sheet, bringing in more than one-third of its total income from the United States, a total that will surpass its revenues derived from

New York’s financial industry has been a major beneficiary of the Fed’s commitment to historically low interest rates, which has prompted investors to plow large amounts of money into stocks. the UK and Europe, according to an interview with CEO Xavier Rolet published in The New York Times.

Both financial sectors continue to serve as critical hubs in their respective areas, and both have risen from the ashes of the financial crisis to assume their traditional roles at the centre of global finance. Their continued importance to the global financial system is a testament to the unique ecosystems that have developed around the cities themselves, which house the myriad relationships and the complex infrastructure that underpins the global economy. They offer the talent and expertise, as well as the heavy concentration of support and service businesses that major banks and multinational corporations desire.

A 2014 study on Global Mobility and Employment preferences by the Boston Consulting Group placed London and New York at the top of its ranking of global talent hubs. Despite its size and maturity, London ranked 26th in the Brookings Institution’s 2014 Economic Performance Index of the 300 Largest Metropolitan

Economies. More billionaires call New York home than any other city in the world, according to Forbes, which gave London the top spot in its 2014 ranking of the world’s most influential cities, thanks to its large volume of foreign direct investment transactions, interconnectedness to global air travel hubs, and the number of Forbes Global 2000 companies headquartered in the city. New York came in at a close second, despite being home to more major global company headquarters.

By various measures, New York and London continue to dominate the global finance and business landscape, and remain indispensable to the world economy. Yet the Global Financial Centres Index has shown some worrying trends for the two giants. When the survey began back in 2007, the divide between London and New York, and Hong Kong and Singapore, their closest competitors, stood at nearly 100 points. In the most recent index, that gap fell to just 22 points.

The study’s author called it a “landmark change in perception,” and said “the top places are vulnerable.”

London vs New York

Providing further evidence of the gradual erosion of the established financial order, all of the top ten Western European centres saw a decline in their ratings, as did 23 of the 27 European cities included in the survey. Emerging hubs in Eastern Europe and Central Asia, including Istanbul, Almaty and Prague all saw their ratings improve, while cities like Taipei, Beijing, Manila and Mumbai also made significant gains.

“Competition these days is coming from non-traditional markets,” U.S. Securities and Exchange Commissioner Daniel M. Gallagher noted in a Jan. 2015 speech in Washington D.C. “This is the case with Middle Eastern and Asian markets that did not experience the full brunt of the financial crisis, nor the resulting regulatory over-reaction prevalent in western countries. Instead, they have been spending the past decade enhancing the competitiveness of their markets.”

The Commissioner went on to list a series of indicators that have officials on both sides of the Atlantic wringing their hands, including the historic low score assigned to the competitiveness of U.S. primary markets by the Committee on Capital Markets in November 2014 and the low rates at which foreign companies are now choosing to raise capital through U.S. public markets.

Despite their comparatively smaller size, in 2014, Asia-Pacific markets had

The building known as “The Gherkin,” at 30 St. Mary Axe, in the City of London financial district.

22

more companies go public than any other region, with 546 IPO listings, including five of the largest ten global deals, according to Ernst & Young’s 2014 Global IPO Trends.

In addition, Hong Kong, which recently linked the Hong Kong Stock Exchange with the Shanghai Stock Exchange, now ranks second in the global IPO rankings, behind the New York Stock Exchange but ahead of NASDAQ and the London Stock Exchange.

“Even ancient countries are re-thinking their role in the global financial markets,” the Commissioner explains. “For example, the Turkish government is establishing the Istanbul International Financial Centre with an ambition for Turkey to rank among the world’s top 10 economies.

Likewise, the Governor of Tokyo is determined to make Tokyo an international finance centre. Last May, the metropolitan government held the first meeting of what they call the Tokyo international financial centre study task force, which is comprised of a group of financial experts and government officials that will examine various issues, such as the easing of regulations. In Spring 2009, the Chinese government announced its goal for Shanghai to become an international financial centre by 2020.

Consequently, the Chinese government established a free trade zone in Shanghai in 2013 where, among other things, restrictions on foreign investment are eased.”

But while these trends have caused concern, there is reason for London to be hopeful about its place in global financial marketplace of the future. Its unique history and geographic location have traditionally led it to look outward to maintain its relevance in an evolving world economy, while leaning on its well-established legal and regulatory infrastructure. London continues to be a preferred destination for IPOs for companies in emerging markets in the Middle East and Africa, has also become home to the first clearing bank outside Asia for the renminbi (the Chinese official currency) and has become itself as a leader in the growing field of Islamic finance. Its importance as the world’s biggest foreign exchange market owes itself in part to its central position between eastern and western markets, allowing traders to interact with their counterparts in Tokyo or New York during normal business hours. And while its institutions may not rival the massive investment banks in New York, it does have a deep pool of banking assets, half of which are owned by foreign banks.

23

regional markets Latin America

Latin America: taking the long-term view

By Paul de Zardain After a lackluster run in 2014, bourses in Latin America’s major economies - including Brazil, Mexico and Chile - began 2015 on the upswing, with the indices posting gains in the first two months.

However, the outstanding performer continued to be Argentina where despite ongoing political turmoil, the benchmark Merval index rose 11.92%.

The calculus by portfolio managers is that stock prices in Latin America are currently undervalued because investors aren´t looking at the long term. Take Brazil, for example: with a median age of 29 and a potential consumer base of 195 million people, the country has the critical mass to generate higher returns in coming years. A similar long-term strategy applies to Mexican equities.

Initially, foreign investors had high hopes that lower share prices in 2013 would trigger sales the following year. Likewise, weak currencies throughout the region would allow investors to pick the best in Latin American shares at bargain prices.

However, the only country where this conventional wisdom seemed to work was Argentina, which made headlines in September, 2014, when the benchmark MERVAL Index reached an all-time high of 12,593.07 points.

Though the economy was in trouble, investors in neighboring Brazil and Uruguay snapped up shares in Argentine telecoms, energy, banking and steel companies. In the process, MERVAL was listed among the top 40 global stock markets. The companies that fared best included energy heavyweights such as Petrolera Pampa and Transener, followed by financials such as BBVA Banco Francés. Market capitalization by year’s end reached $59.4 billion.

Regional investors took a long position on their southern neighbor, disregarding Argentina’s macroeconomic fundamentals, including inflation of nearly 40%, a debt stock of over $US 15 billion and the sharp depreciation of the Argentine peso.

In neighboring Brazil, however, the benchmark Ibovepsa index dropped 2.91% in 2014, while market capitalization for the 363 listed equities dropped to BRL 2.24 trillion, from BRL 2.42 trillion at end-2013. The exchange nevertheless announced annual records in daily averages and in the total number of trades.

The 2014 decline in stock valuations in Brazil was attributed to softer demand for commodities in China, the country’s main trading partner. With an economy that depends on petroleum and mineral exports, Brazil’s Stock Market was unable able to

contain its exposure to extractives that weigh heavily The calculus by in Ibovepsa. portfolio managers At the Mexican Stock is that stock prices Exchange (Bolsa Mexicana de Valores, BVM), the loosin Latin America are ening of state oil company currently undervalPemex’s monopoly in the ued because invesenergy sector and landmark reforms aimed at tors aren´t looking opening up telecoms, are at the long term. expected to give markets a shot in the arm in 2015.

Stock performance at the BVM in 2014 did not reflect the government’s reformist agenda, however. This was attributed to the complexity of implementing reforms in the key oil sector.

Though Mexico’s exchange posted a slight annual gain of 0.98% in its nominal benchmark index (IPC) in 2014, traders pointed to the 10.42% decrease in US dollar terms. By the fourth quarter of the year, the collapse in international oil prices further exposed the BVM to a source of volatility.

Still, there were 19 IPOs in 2014 and three historic peaks in trading volume at the BVM in the month of September, indicating the potential of Mexican equity markets to bounce back.

At Chile’s Santiago Stock Exchange, the IPSA index tracking the top 40 equities closed the year with an increase of 4.1%, in sharp contrast to its 14% drop in 2013. The positives for Chile include government transparency, balanced trade and over $42 billion in foreign currency reserves. This makes Chile largely immune to the volatility that made equities tumble elsewhere in the region.

Though the Argentine economy was in trouble, investors in neighboring Brazil and Uruguay snapped up shares in telecoms, energy, banking and steel companies.

Photo: Uirauna Buenos Aires Stock Exchange

25

MILA Latin American Integrated Market

MILA:

LATIN AMERICA’S Integrated Market

By John J. Gallagher

The stock exchanges in four of Latin America’s most dynamic and open economies – Mexico, Colombia, Peru and Chile – have joined forces to integrate securities trading. The project still faces technical obstacles, but holds the potential to become one of the region’s major trading venues – particularly with the addition of Mexico as its newest partner.

In a major milestone for financial markets in Latin America, late last year Mexican companies executed their first trades on the common equities market known as MILA, the Latin American Integrated Market, or Mercado Integrado Latinoamericano in Spanish.

Launched in 2011, MILA has grown into the region’s largest exchange by number of listed companies, and now links together bourses in four of the region’s most open and dynamic economies: Chile, Mexico, Peru and Colombia. Together, they account for more than one-third of the region’s total economic output.

The addition of Mexico comes after years of negotiations, and nearly doubles MILA’s size, giving it a combined market capitalization of about $1 trillion and nearly 1,000 issuers, a figure that surpasses Brazil’s Bovespa, which has long held the title of being Latin America’s largest and most liquid financial exchange.

The inclusion of the region’s secondlargest economy is already breathing new life into the international trading platform. MILA’s trading volume went from $6.9 million in November, 2014 to $18.8 million the following month, with the Bolsa de Valores de México making up more than 79% of the total.

“It’s a matter of leadership. Having a new player is interesting,” says Mauricio Baquero, a Professor of Banking and Financial Regulation at the Universidad Externado de Colombia, who was involved in

early discussions that led to the creation of the common exchange. “The Mexican stock exchange is big. They do interesting things. They can become the new leaders and they can do more to move MILA forward. Mexico might create a new energy in the process. It may give a new impetus, but it also adds complexity.”

Adding another financial market, with its own set of laws, regulations and distinct culture, presents further difficulties for a system that has struggled to get off the ground. Despite its size and the number of firms listed on the common exchange, MILA has so far failed to attract significant activity. To be sure, there have been some impressive gains; its monthly trading volume of $18.8 million is triple that of three years ago. However, MILA is still dwarfed in this category by Chile’s Bolsa de Santiago, Mexico’s Bolsa de Valores and Brazil’s Bovespa.

MILA’s proponents hoped to achieve greater liquidity, larger economies of scale, and a system of uniform and harmonized information and regulatory updates.

Its leaders also saw the opportunity to achieve a greater diversity of listed firms, and the creation of new financial products, as well as the potential for exposure to markets in each individual country that are typically known for being heavily concentrated in specific areas: Chile in retail, services and mining, Colombia in energy, insurance and finance, and Peru in mining and mineral extraction.

In theory, the market would facilitate investors’ access to a much wider market while opening up the potential for IPOs to an expanded investor base in all four countries. Other benefits of having a common financial market for four of Latin America’s best-performing economies include increased competitiveness and broader international visibility, and the attractiveness of a single entry point to four distinct markets. Yet even as stakeholders in the respective countries tout MILA’s achievements, experts point to various obstacles to reaching a fully functional, integrated market.

“I am a bit less optimistic than before,” says Professor Baquero. “MILA was

“The beauty of MILA is that it’s the first private attempt in Latin America to create an integrated financial market. It’s not forced or created by the government. It was created by the stock exchanges,” — Professor Mauricio Baquero, Universidad Externado de Colombia

MILA Latin American Integrated Market

26

“The money is there. The key is the implementation. If you look at Latin America as a region, there is a lot more strength in alliances than in going it alone.” — Steve Phillips, Latin America area expert for NASDAQ OMX. structured in phases,” he explains. “They haven’t been able to finish the first phase, which was supposed to be the exchange payment and settlement systems connections.”

Problems emerged in the early stages of MILA’s development, as organizers grappled with the task of producing a common trading system that links exchanges built on fundamentally different models. What emerged is a series of mechanisms built on top of the existing structures of each country, instead of a separate exchange.

“It’s not a fully integrated system,” says Professor Baquero. “It’s a way of doing business internationally through an intermediary.

That’s how MILA works today.”

The idea was to use these initial linkages to spur activity and bring the exchanges closer together through an ongoing process of streamlining and harmonization, but progress on this front has been slow. “[The organizers] were very optimistic from the beginning,” Professor Baquero explains. “They thought that it would take 2-3 years at the most to get to full integration. It’s been about five years now and they haven’t finished the first phase yet, and I don’t see a fully integrated MILA coming in the near future. It’s not only the exchanges that need to come together, but also the regulators, the ratings agencies and the relevant public sector entities. It’s a matter of putting together all of these institutions and regulations and public and private supervisory authorities that are all involved in trading activities. It’s one of the difficulties that MILA has. The member governments are not following up on the major changes that this integration needs.”

Despite the difficulties involved, the upside remains tantalizing. “They put this together and said, we’re going to do it slowly, says Professor Baquero. “I think it’s the right move, but they were overoptimistic. There are more issues that have to be dealt with.

It’s very difficult to reach the confidence that is essential in all financial markets, to have that environment where everyone feels safe. Investors must understand what their rights are locally and in the other MILA member countries. Who is going to enforce these rights? How protected are international investors? But the beauty of MILA is that it’s the first private attempt in Latin America to create an integrated financial market. It’s not forced or created by the government. It was created by the stock exchanges. It means a lot.

The private sector needs to come together.”

“The potential is there,” says Steve Phillips, head of Latin America and Caribbean new business development and a Latin America area expert for NASDAQ OMX. “There are some great companies in every country. The largest cement company in the world is actually Cemex, a Mexican company. There are some fantastic companies in Colombia. There is a lot of untapped potential.

The strength is that they got an agreement. The weaknesses are

Photo: Chivista. Headquarters of the Mexican Stock Exchange (Bolsa de Valores de México)

still in the harmonization area. This is an ongoing process. These kinds of things take time.”

While activity has until recently been minimal, other signs have emerged that the process is indeed moving forward. “What MILA has also done is open up a lot of other successes besides trading volume,” says Phillips. “The major brokerage houses in all of the MILA countries have all opened brokerage offices across the region.” Many observers also see the attempt of Brazil’s Bovespa to obtain a stake in the main exchanges of Mexico, Colombia, Chile and Peru as an acknowledgement of a threat to its predominance.

Ongoing tax, regulatory, and currency exchange issues still present obstacles, while a lack of analyst coverage for many of the listed companies on the exchange prevents many of them from grabbing the attention of major outside investors. But as they struggle with the complex task of creating a common legal, financial, and regulatory infrastructure, MILA’s member countries have the added benefit of belonging to the Pacific Alliance trade and economic bloc, a set of agreements and policy framework that can be used to further the development of the common financial exchange. “The potential to leverage that bigger scope agreement would obviously help,” Phillips says.

The Pacific Alliance countries also happen to have well-funded institutional investors that could become major assets for MILA, according to Phillips. “If I were running these exchanges, I would be going to these pension funds and pitching my country and my listed companies. We’re talking billions of dollars of potential trading volumes,” he says. “The money is there. The key is the implementation. If you look at Latin America as a region, there is a lot more strength in alliances than in going it alone.”

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29

STARTUP STOCK EXCHANGE Interview

WHERE the

big ideas MEET THE DEEP POCKETS:

By Rob Train

The Startup Stock Exchange (SSX) was created by co-founders Ian Haet and Brian Niessen in 2011 to connect promising startup companies directly with international investors. There is no minimum investment required and investors have 24/7 access to their trading accounts through an online brokerage system, permitting complete freedom over the buying and selling of shares.

When shares are sold on the exchange, SSX takes a 1.5 percent commission on each trade.

For start-ups, the platform provides the opportunity to raise capital with all the benefits of crowdfunding but without the security risks and public exposure, and with considerably lower costs than other methods. When a start-up applies to be listed on SSX, it is put through a rigorous due diligence vetting procedure and, as a publicly listed company, issues regular reports to investors. From application to eventual registration on SSX the fee for a start-up is fixed at $5,525, regardless of the amount of capital they plan to raise; they retain complete control over the capital after funding is raised. Companies from all business sectors can apply.

A support network of global advisors provides SSX with upto-date information on local markets and the exchange’s board of experts offers continuous oversight and mentoring for companies. SSX operates through the Dutch Caribbean Securities Exchange (DCSX) in Curaçao. The DCSX is an international exchange for the listing and trading of domestic and international securities, similar to the NYSE or London Exchange. Curaçao is a constituent of the Kingdom of the Netherlands and abides by Dutch and European laws.

Since opening, the exchange has attracted investors from over 100 different countries and has three companies publicly trading: Aurantium Capital Ltd., a portfolio of 14 Latin American startup companies managed by Cygnus Capital; iRocket B.V., an investment vehicle for Rocket.la, a Latin American personal financial management website; and ColInnovation Investments SAS, a portfolio of Columbian startups.

Ian Haet, Co-Founder and CEO of the Startup Stock Exchange, responded to questions from TheWorldfolio about this unique new bourse, the vetting process for companies which want to be listed on SSX and the expectations for its growth.

THE STARTUP STOCK EXCHANGE

WF: SSX seems a natural evolution from the crowdfunding phenomenon. What was your experience of seeking funding for your previous enterprises and how did that lead to the creation of SSX? IH: SSX is a creation based on the experience of my business partner and I as entrepreneurs. We started a business together in Costa Rica and we had a very difficult experience in finding expansion capital from seed investors. First, because Costa Rica had a very limited supply of angel investors and second, because the traditional process of fundraising was incredibly time-consuming and closed to entrepreneurs without the right connections. This experience and others in the Caribbean led us to say “there has to be a better way.” This led to the Startup Stock Exchange. SSX is based on bringing both the investor and entrepreneur together in a transparent, liquid and regulated marketplace.

WF: How many companies are currently involved in the application process and how many are currently trading publicly? Are you on course for the 15 to 20 firms you’ve predicted would be up and running by the end of 2015?

IH: We have evaluated over 850 companies from 96 countries for listing. As of today we have three companies trading representing approximately US$1.5 million. We are working every day to find the very best companies to bring to the market for our clients. We are solidly on track to bring the 15 to 20 companies we predicted by the end of 2015.

“SSX is based on bringing the investor and entrepreneur together in a transparent, liquid and regulated marketplace.”.

Interview STARTUP STOCK EXCHANGE

WF: How does SSX’s vetting procedure work? What do you look for in a company applying to go public on your platform?

What’s the reasoning behind the $3 million maximum investment?

IH: We put every company through a six step due diligence process. That information is compiled into a public offering prospectus and then approved by the DCSX regulators. We are seeking a company that is sustainable and compliant.

It does not mean the investment is not risky or even it’s a company that I personally would invest in, as we have investors seeking different types of companies with different risk profiles and through SSX they have the capability to invest as much or as little as they wish. Our job is to ensure the company is qualified to list and that the process is transparent and simple for the company and investor.

We are focused on the funding gap that exists between $100,000 and $3 million. Before $100,000 you have friends and family and over $3 million you have larger venture capital or even other marketplaces. The funding gap is so large and such a problem globally that it makes sense for us to focus on this level alone. Also, given the importance of regulating the marketplace, we feel that we can be more focused and diligent by focusing on a specific size.

WF: You’ve spoken previously about SSX’s responsibility in terms of investors potentially being linked to illegal activity. How do you safeguard against such eventualities? Does SSX accepting Bitcoin, for example, make the process easier or more problematic?

IH: We take the responsibility of preventing illegal activity such as money

laundering very seriously. We have documented processes and procedures approved by the regulators that we follow for every new and existing client. This includes receiving government identification from them, checking they are not politically exposed individuals and checking them against international databases. I can be held personally liable if my company doesn’t follow the correct procedures when dealing with clients and their funds.

We have multiple layers of checks in place to prevent illegal activity. We have integrated with a number of payment processors that allow individuals to deposit U.S. dollars in their trading account. This includes one that allows an individual to sell Bitcoins for dollars and those dollars are deposited with SSX. By working with these processors we had an additional layer of due diligence and safeguards to the funding process.

WF: When do you envisage receiving approval from the US Securities and Exchange Commission to accept applications from US investors, and how will that change the focus of SSX? IH: We expect to enter the U.S. by January 2016. We will enter the U.S. market by becoming a registered broker-dealer or working with one. I don’t envision it changing the focus of SSX since the process for SSX investors and companies will be the same. That is why we have waited to enter the U.S. market, we wanted to ensure we could enter with publicly traded shares. We could have entered earlier by acting like “Angel List” which connects entrepreneurs and investors but doesn’t provide a liquid marketplace for trading the shares after investing.

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WF: Most of the major start-up ecosystems are in the US but there are plenty emerging scattered around the globe, in Europe, the Far East, Latin America, India, Australia… with an estimated 3 billion internet users worldwide, the possibilities for SSX appear limitless.

IH: The market is very large. The U.S. has been the focus of many but we believe the global market holds the greatest potential. The available investment capital outside of the US is tremendous and it has not flowed in early stage businesses because of a lack of transparency and structure. These are both problems SSX solves.

We source the deal, conduct the due diligence, structure them and then provide the investors a liquid market to control the buying and selling of their shares.

The World Bank projects that by 2015 the global “crowdfunding” investment market will be $93 billion.

WF: According to Bloomberg, one of Uber’s major investors, Google, is preparing to go into direct competition.

Twitter first round angel investor Greg Kidd has invested in SSX... Do you foresee similar ventures to SSX springing up in the future?

IH: I think the market is very large, so other ventures can spring up, but SSX has spent over three years working on its processes and procedures and technical systems to ensure a solid marketplace for both investors and entrepreneurs. The work that was required to create a regulated marketplace that allows public trading of startup shares was tremendous. So I believe other ventures that want to work in this same space will be partners of SSX rather than competitors.

“We are focused on the funding gap that exists between $100,000 and $3 million. Before $100,000 you have friends and family and over $3 million you have larger venture capital or even other marketplaces”

Ian Haet, Co-founder and CEO of the Startup Stock Exchange

Asia: leading the race

Regional Markets Asia

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among top-performing exchanges India, Philippines and Thailand are at the head of the pack In 2015, small, open economies such as the Philippines and Thailand will need to spend less on costly imports of oil and gas. At these equity markets, sectors likely to profit from cheap oil include telecoms, banks, technology, industrials and logistics.

By Paul de Zardain In a fickle year for emerging markets, Asia surged ahead in the race among the top-performing exchanges. Led by India, the Philippines and Thailand, solid fundamentals gave Asian exchanges their advantage. The race in 2015 has a few obstacles along the way, but Asian markets will likely outpace their competitors again.

The BSE Sensex index at the Bombay Stock Exchange closed the year with an increase of 29.89% year-on-year.

Meanwhile, the CNX Nifty (Nifty 50) tracking the largest companies in India marked a whopping 31.39% increase over 2013.

Top gainers in Nifty 50 included electronics firms, industrials and chemical plants.

The MSCI India Index, covering 64 of the largest Indian equities and tracked by global investors, put annual performance in India at a lower figure of 26.41% in December 2014. Shares on Indian trading floors tend to underperform in US dollar terms, not due to any misaligned market fundamentals, but because the rupee is undervalued; the weak domestic currency often erases a portion of returns for foreign investors.

Despite this erosion in earnings, it’s no mystery why investors are still upbeat about India. Real GDP is expected to grow by 6.3% in 2015 and 6.5% in 2016. India is likely to return to a high-growth path after its slowdown in 2013–2014 and government reforms are expected to give markets a thrust.

The collapse in oil prices was good news for Southeast Asia.

In 2015, small open economies such as the Philippines and Thailand will need to spend less on costly imports of oil and gas. At these equity markets, sectors likely to profit from cheap oil include telecoms, banks, technology, industrials and logistics.

The Philippine Stock Exchange outpaced many of its competitors in 2014 based largely on expectations. Real GDP in the Philippines is the second-highest after China, with 6.3% projected for 2015. Consumer price inflation, meanwhile, is expected to stay under 3.9% this year. The renewed confidence also stems from robust domestic demand. This bodes well for IPOs since the market will be awash in liquidity.

By end-December 2014, the benchmark Philippine Stock Exchange Index (PSEi) was up 21.56% year on year. The PSEi tracks 30 of the largest listed equities, including First Gen Corporation, a power company, Universal Robina, a foodstuffs concern, and JG Summit Holdings, a conglomerate with interests in transportation, banking, utilities and real estate.

In 2014, the high returns on the Manila trading floors vastly outperformed bonds and other traditional savings instruments.

According to equity analysts, the PSEi bull market was largely based on corporate earnings and an expansion of price-to-earnings ratios. But the positive global dynamics — including the oil price reprieve — are serving as fuel for the Philippine economy.

In Thailand, the new government managed to build investor confidence in the second half of 2014. The incoming civilian government is committed to infrastructure investments and to putting the country back on a high-growth track. Real GDP growth

Headquarters of the Philippine Stock Exchange in Manila is expected to leap from 1% in 2014 to 4.6% in 2015. Consumer prices are projected to stay constant at 2% this year.

Stock Exchange of Thailand (SET) closed 15.32% higher than the previous year. Despite political volatility, 16 companies decided to float shares at the SET in 2014. With 502 equity listings by year’s end, market capitalization rose to USD 11.7 billion.

However, Thai trading floors are more exposed to oil prices than their counterparts in Manila. Further declines in oil prices in 2015 could put pressure on earnings at the SET, where energy and petrochemical equities are some of the heavyweight listings. In 2015, the best performers could be small-cap manufacturers such as Pan Asia Footwear, steel producers such as Asia Steel or Asset Bright, a conglomerate with real estate and e-commerce interests.

The Egyptian Refining Company (ERC), Qalaa Holdings´ US$ 3.7 billion greenfield oil refinery in Greater Cairo, is a strategic national project in Egypt second in size only to the New Suez Canal. The second-stage refinery, which will reduce Egypt´s present day diesel imports by more than half and cut current sulfur emissions by nearly one third, is a key component of Egypt´s energy security and a direct solution to one of Egypt´s most pressing economic problems. The fully-financed project is now almost 50% complete and is on track to begin production in 2017.

For more info visit: qalaaholdings.com

The Egyptian Refining Company is a subsidiary of Qalaa Holdings Other Qalaa Holdings energy companies include:

QALAA HOLDINGS IS A LEADER IN INFRASTRUCTURE & INDUSTRY IN EGYPT & EAST AFRICA

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Dhaka Stock Exchange Interview

Interview with

Swapan Kumar Bala, Managing Director and CEO of Dhaka Stock Exchange, Bangladesh

GROWTH THROUGH MODERNIZATION

WF: What are the opportunities available in the financial sector and specifically those facilitated by the Dhaka Stock Exchange?

SKB: Actually, our market has many opportunities emerging, because earlier it was a very limited market. Our market is normally a purely equity cash market.

That means it needs to be diversified. We have very few corporate bonds and very few mutual funds, and now we have an opportunity to include innovative instruments. We have launched a new automated trading system, which is capable of trading everything. We have met with our regulator to discuss our plans for new instruments; we will introduce an exchange credit fund, then an Islamic corporate bond that is called a Sukuk.

We will also incorporate a clearing company very soon. We have no central clearing company at the moment. Our clearing and settlement is within the exchange as a separate department. The establishment of the central clearing company and our risk management with our booking company will be better and we will expand the market. Particularly now, our market is based on pre-validation; that

“Foreign portfolio investors are very eager to invest in Bangladesh due to its growth potential.�

Prof. Swapan Kumar Bala was appointed Managing Director and CEO of Dhaka Stock Exchange Ltd. (DSE) in April, 2013.

Under his direction, the DSE has become a demutualized exchange and has implemented a new automated trading system.

In an interview with TheWorldfolio, Prof. Bala talked about how automation has benefitted the DSE; he also spoke about plans to launch new products, including Sukuk, or Islamic bonds. means fundability and availability of securities. From July onwards of this year, there will be significant improvement in terms of providing trading facilities, in terms of adding new instruments for the exchanges. We have a special drive for bringing quality companies in the IPOs also, so we have a separate market development division. And our exchange was demutualized in November 2013, which means that management professionally runs the exchanges and our Board of Directors are purely guiding the exchange management as a policy.

WF: So how has demutualization and that reorientation towards profit benefited the DSE and its members?

SKB: After demutualization, our objective is how the exchange can be made profitable. So our initial attempt is how we can manage it efficiently. We have taken a lot of revenue diversification initiatives. Particularly, our researchoriented revenue generation is very limited and now we have the scope to sell our archival data and other things and research-based publications, so that will be a major focus of future revenue generation. Also, through new instruments we will increase revenue from

listing fees and we have other types of initiatives so that market liquidity can be improved, and our trading volume can be increased. That will ultimately enhance our revenue, because our main income is based on transaction fees and trading activity.

WF: Despite these measures, you’ve decided this year not to issue dividends, is that correct?

SKB: This year dividends will not be taken; you cannot say that we are not giving.

Actually, this was a consensus amongst shareholders. But we have that ability to give dividends, and in our country we can give interim dividends, so even a few months later we can give this interim dividend also.

So another objective is how we can actually improve the future potential of selling or offloading our shares at a better price; that is also one of the objectives. So we can distribute cash dividends that might not help us in improving the price of our own shares. Because 60% of our stock exchange shares are within our control and will be offloaded to strategy investors and institutional investors. So we are trying to improve these shares; that is why there is no dividend distribution.

Interview Dhaka Stock Exchange

36

“We have launched a new automated trading system, which is capable of trading everything.”

WF: What do you see in terms of the opportunities within the region, do you differentiate Dhaka from say, the Indian capital markets?

SKB: Actually, the Indian capital market is a mutual market.

They have a strong bond market and a strong derivative market, which is not available here but we have the Sukuk product which is one type of Islamic corporate bond. We are trying to introduce it within a very short time and then it will have its own unique features. And another thing is the corporate bond market here is very limited and that is due to some regulatory restrictions; our fiscal regime is totally against this bond market.

However, this type of barrier can be removed and ultimately this type of bond market can be facilitated here.

Another thing is a derivatives market. As you know, we have no central clearing company and normally that is a precondition of starting derivatives markets, so within a few months this company will be established. In this country we have a pre-validation based market which is very unique, in most of the countries this is a speculative market and risk management is normally handled by brokerages, but in our country there are pre-validation conditions. Pre-validation means that if you have no money you cannot buy, if you have no securities you cannot sell.

So in comparison to the regional stock exchanges, we are far behind in this respect. With demutualization, we were given the ability to improve and implement these things, so hopefully within a few months, I think within six months, you will see a lot of changes.

Bloomberg, Reuters, so that information dissemination will be virtually instantaneous. So hopefully after June, foreign investors will have no barriers.

WF: You will be speaking at the World Exchange Congress on improving performance through trading systems.

SKB: Actually, what we want to speak on at the London conference is based on our launching of this new automation. Not only this automation, but how this automation has created a huge potential for us, that is the thing.

Our OTC market is a very small market that is not at all attractive and now we are thinking how this market can be expanded, because the whole Bangladeshi corporate sector can be incorporated here.

So this is how you’re really attracting all of these familyowned companies that haven’t been listed and you’re trying to bring them on board with the stock exchange. And now it is not an electronic Board, this OTC market, but our new automation that has this facility. After taking regulatory vetting, we will introduce our OTC market in a totally different style and then I think the whole corporate sector of Bangladesh will be associated with our stock exchange.

WF: What can be done to attract international investors to Bangladesh?

WF: And in terms of increasing the momentum of the IPOs? What sort of speed will you be thinking about?

SKB: Currently, in terms of the foreign portfolio investment in Bangladesh, our net foreign investment every month is being increased. With our market situation, our foreign portfolio investors are very eager to invest in Bangladesh due to growth potential. At this moment, it is to some extent costly in terms of transaction fees, due to some barriers. However, our regulator has removed all the barriers now. There is a new service open for those banks that start giving services to foreign portfolio investors. Particularly, those banks can be clearing members of our system, whereas earlier they were custodian banks. In this way, we have taken initiative so that one local bank and three foreign banks, are giving these services. So our cost of foreign investment will be significantly reduced.

Another thing is, our automation will be fully completed by the end of May or June this year and there will be iPad-based solutions and mobile apps so that virtually any place around the globe, any investor can trade directly. We are also working with

SKB: That will be facilitated by our market development division. We have a plan to see to it that big corporate groups can be associated with us, because our market interest rate is around 18%, but here a 10% cost of equity might be enough.

Our interest rate in the banking sector is more than 18% and that has significant other compliance costs, also. Because sometimes it is free also, sometimes you can, say, defer your dividend payment, but normally here the cost of equity on an average is hardly ever 10%.

Moving from that, (due to) political instability and volatility as I read in the paper the last few days, the market has taken a bit of a beating. What I’d like to say is that despite the situation, the underlying growth, the underlying opportunities, are still well and truly on track.

In the long run it should be improved, otherwise how general people can be associated with the regular activities. So hopefully it will resolve very quickly.

“Despite the situation, the underlying growth, the underlying opportunities, are still well and truly on track.”

Interview Malta Stock Exchange

38

Malta Stock Exchange WF: Tell us about the beginnings of the Malta Stock Exchange and how you managed to convince so many people on this small island nation to become investors.

PS: When someone mentions “stock exchange,” most people think of the New York Stock Exchange or the London Stock Exchange, but you don’t need to be big to be a good exchange. The Malta Stock Exchange was set up back in 1990. The first trading day here was in January 1992. When we started there was no equity, fewer than eight government stocks, and something like 8,000 account holders of government stocks.

In contrast, now we have 23 equities quoted, 44 corporate ones, and over 50 government stocks.

EM: From the start of operations, the MSE provided trading and the posttrading facilities. Today, close to 80,000 individual investors hold listed securities; that is approximately 50% of the adult population. Within the last 20 years of the market, there has not only been a huge penetration, but the holdings of the Maltese people have diversified. Maltese are by nature savers, they are not risk takers, and that is another obstacle to market liquidity that we had to take on board. But what we have seen is that most of these holders also hold equity, and it is a penetration that I call, “vertical and horizontal,” because it is penetrating the different instruments evenly.

WF: You’ve certainly had great success among domestic investors. What will you need to expand internationally?

EM: The current board and the previous board have focused on increasing the MSE’s international footprint. Malta is a small country, and there is a limited potential growth rate if we are going to re-

Small is not only beautiful, but efficient The Malta Stock Exchange opened its doors a little more than two decades ago, but since then has made enormous strides. Today, about half the Mediterranean island’s adult population own securities traded on the bourse. Building on its domestic success, the MSE is now preparing to expand internationally. Worldfolio spoke to Paul J. Spiteri, Chairman of the MSE, and Eileen V. Muscat, Chief Executive Officer, about the exchange’s past successes and future plans. main a domestic market. To participate at the international level we have to stay connected to the international markets, so we need to have the infrastructure that will help us do it. We changed our trading system in 2011 for a European system, and now we have connectivity.

Next June, we will participate in Target-2 Securities (Note: a new European securities settlement engine to provide centralized delivery versus payment settlement in central bank funds in all European securities markets). We are investing very much in technology that will take us to the next level of development, and using technology as a business enabler to support the MSE’s strategic goals.

The last few years have been dedicated to preparing all the necessary groundwork to be able to take on international business. We have also developed our custody business, which is something completely new. The Xetra trading platform has provided, not only connectivity, but also visibility and indeed, last year, the MSE approved its first international member. Another

“International investors are attracted to do business with us because of Malta’s reputation as a highly regulated and reputable financial center.”

reason why international investors are attracted to do business with us is Malta’s reputation as a highly regulated and reputable financial center, its stable economy and the banking sector.

PS: Successive boards focused on acquiring a good reputation, which is very difficult to do because it takes a very long time to build a reputation, and it goes away if you do not care for it carefully. Malta has gained reputation through the financial sector and especially the Malta Financial Services Authority. We were not looking for quantity, but quality.

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Malta Stock Exchange Interview

WF: Why have you been able to innovate while your competitors stay static?

EM: Being small has been a benefit with regards to innovation, as we can be flexible in our operations and can offer a whole value chain of services.

We have been able to, in the face of certain requests, take one step back and say, “How can we be flexible in our rules?” It is very difficult to have that flexibility in Europe, with all the regulations that exist. But we want to offer a more personalized service to be able to do things that one client might want, but which is not of interest to another.

We have all the legal frameworks, IT systems, international connectivity, and proprietary systems that allow us to be quite flexible.

An added advantage is that Malta’s business language is English, which facilitates operations. As an example of innovation and “thinking outside the box,” early this year we started to offer facilities for the reporting of applicable trades under EMIR (European Market Infrastructure Regulation) requirements. Another important aspect for innovation is that we maintain open communication channels with members, listed companies and other market practitioners in order to remain cognizant of market needs and develop accordingly. Competitive pricing throughout the entire financial sector also supports Malta’s bid to continue to develop as a leading financial center.

the recently revamped MIFID (Markets in Financial Instruments Directive).

Malta is no different. The MSE is working on creating a market for such companies within the framework of MIFID II with emphasis on disclosure and supported by IT solutions that provide quick and efficient processing.

WF: What kind of timeframe can an SME expect?

PS: We are hoping to launch the (SME) market within the next 12 months. We are presently drafting the necessary regulations to establish an SME marketplace. We are also contemplating the introduction of some form of tax incentives, but we need to liase with our minister of finance first in order to present our proposals.

EM: We are seeing much interest in the market from the SMEs side. All the new regulation is a challenge, but there are huge opportunities. The idea is that by the end of this year, we will have the framework ready.

PS: It is possible to consider the countries around the Mediterranean rim with the intention of setting up a regional stock exchange. The European Investment Bank is taking the initiative in this respect. It is a very early stage of the process, but we wish to take an active part. One advantage we have is that we are full members of the EU with passporting rights.

WF: What do you see as the largest threats to the continued growth of Malta Stock Exchange?

WF: Can the MSE be used as a steppingstone for African and Middle Eastern countries?

PS: At the moment, the problem that we face is the lack of liquidity. Unfortunately international investors and institutions do not see an exit route; we tried to introduce some market-making regulation. However, this has not been taken up by the brokers.

EM: Certainly; we do meet people from these jurisdictions to which culturally we are quite close. Furthermore, as a small exchange we can offer a very specialized and personalized service which may be less daunting for a company coming to the market for the first time.

One reason why we consider the MSE as a natural home for SMEs is because, like many other small markets, our business model is not based on attracting huge trading volumes but on providing a whole range of services from which potential users may pick and choose. With

WF: What incentives do you provide for SMEs? EM: SMEs (Small and Medium-sized Enterprises) are the backbone of many EU economies, as acknowledged by specifically addressing this market segment in

“To participate at the international level, we have to stay connected to international markets, so we need the infrastructure that will help us do it.”

regard to the SME market, at the start we will focus on the domestic market, but there are thousands of these companies and they are all looking for an opportunity to raise capital on a market.

WF: How are you working to build trust and confidence? How are you creating awareness in the international community in what you have to offer here?

PS: We hope to achieve this as a result of our history. The MSE is a scandalfree exchange operating to international standards and as I mentioned earlier we have passporting rights within the EU.

WF: What are the particular qualities of being Maltese that help you in this enterprise?

PS: We are a Mediterranean people. Because of that fact, we have had close to 200 years of British rule; we have benefited from their presence here and gotten accustomed to their culture and ways of living. In Malta, English is widely spoken in addition to our native language that goes back a very long way.

We have to continue to preserve our language because it makes us unique.

EM: What describes us is our adaptability; throughout history we have always learned something from other cultures that have been here. It has been this adaptability that has enabled the Maltese to survive and indeed flourish under the different regimes. While we have been self-governing for many decades, we are not immune to the effects of globalization. Malta is small and we have always had to fight to make our voice heard, which continues to strengthen us as a nation.

Regional Markets: Africa

40

Africa:

the decoupling of the Johannesburg Stock Exchange

By Paul de Zardain

African equity markets overall made a poor showing last year and have remained weak in the opening months of 2015. The continued stellar performance by the Johannesburg Stock Exchange places it in a class apart from the rest.

In 2014, a sampling of eight African stock markets by Morgan Stanley Capital International (MSCI) revealed they had lost 14.5% of their value during the year.

However, the data left out the continent’s largest exchange by market capitalization, the Johannesburg Stock Exchange (JSE), whose All Share Index ended the year with an 8% increase.

Market performance at the JSE in the first two months of 2015 has confirmed South Africa’s market rally. The JSE’s All Share Index was up by 3.01% in January and by 3.94% in February, posting a new year-on-year increase of 12.15%. The All Share Index represents 99% of all equities listed on the JSE’s Main Board, a total of 160 companies as of December 2014.

Despite labor unrest and elections-driven uncertainty dur-

The South African bourse has a reputation for depth, liquidity and global connections. ing 2014, the sale of shares by JSE-listed companies and initial public offerings (IPOs) were up 58%, netting $US 13 billion for issuers. The bourse’s currency, bond and derivatives markets are among the top 20 worldwide.

“Today, the JSE is one of the most liquid, developed and efficient markets on the African continent. It is the sixth largest among emerging economies,” says Bert Chanetsa of the Financial Services Board (FSB), the market regulator.

For 2015, JSE authorities insist that sales of shares will keep up with the exchange’s nine-year high. The momentum is easy to understand, given JSE’s role as a capital-raising platform for the entire continent. After all, the South African bourse has a reputation for depth, liquidity and global connections.

With 23 new companies floated on the exchange in 2014, eight of which were property businesses, the JSE has also been quick to

Johannesburg Stock Exchange adapt to market trends. Its Listed Property Index managed to grow 22% last year, outpacing the All Share Index by 13.5%.

The JSE’s performance contrasted sharply with others in Sub-Saharan Africa. The Nigerian Stock Exchange (NSE) ended the year with a 33% decrease in its All Share Index, another casualty of the oil price debacle. This, coupled with a revision in budgetary spending plans was largely behind the downturn at Africa’s largest petroleum exporter.

For 2015, the JSE and NSE have announced a new partnership that will open trading floors to mutual issuers and investors.

Cross-border listings have become popular in Africa because of the impact on market liquidity. In addition, the opportunities for higher returns are spread across an entire continent.

According to JSE’s Director of Capital Markets, Donna Oosthuyse, this lack of connection between stock markets has been a challenge. The joint partnership will soon allow South African companies to list at the Nigerian Stock Exchange and vice versa.

“Nigeria faces almost the same challenges we face in South Africa, which is how to transfer the expertise in educating the issuers and investors in terms of what value the exchange brings to the economy,” Oosthuyse told Asoko News in January.

Currency stability and industry trends can put selling pressure on share prices, often leading to sharp fluctuations in African markets. Fears of depreciation usually result in an outflow from equities by foreigners.

At the Ghana Stock Exchange (GSE), market activity was hindered by the plunge in the value of the Ghanaian cedi. As the currency lost value, the GSE’s Composite Index fell from a high of 2,438 points on February 20 to 2,286 points in late December, a decrease of 6.2%.

African Stock Exchange

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The African Stock Exchange:

creating a continental trading platform Tiny Mauritius could soon be home to the first truly pan African stock exchange. Leveraging the island’s reputation for investor protection, the creators of the African Stock Exchange (AFSX) hope to provide a venue for trading the continent’s blue-chip stocks and government bonds - one that will attract regional and foreign investors alike.

By Paul de Zardain Mauritius has a why not? attitude that belies its tiny size. In October, 2014, local businessman Dhaneswar Damry announced plans to partner with Germany’s Deutsche Bourse to create the African Stock Exchange, a new Pan-African bourse to be based on the Indian Ocean island.

The project is meant to provide a trading venue for blue-chip equities and government bonds from across Africa.

The big idea is a classic for Mauritius. Except for large exchanges such as the Johannesburg Stock Exchange (JSE), capital markets in Sub-Saharan Africa often lack the regulatory frameworks and clearing mechanisms that foreign fund managers have come to rely on. The plan is to set up a secure and liquid trading platform based on the trading technology in use at the Frankfurt Stock Exchange. AFSX will target foreign investors keen on investing in African securities, but who are looking for a secure, transparent venue in which to do so.

“We felt that the local exchanges in SubSaharan Africa, between South Africa and one or two North African markets, are weak and don’t really attract international investors,” Damry said at the time. “We realized that these countries need a stable platform without excessive risk and without currency issues. It’s a way of de-risking Africa,” he added.

AFSX, which is set to launch in the final quarter of 2015, plans to install the proprietary technology of Deutsche Börse and create a platform that allows market participants to interact on an even playing field. The new bourse seeks to become a gateway that integrates domestic exchanges in Africa, as well as one that injects a healthy dose of liquidity. Clearstream, part of the Deutsche Börse Group, would be responsible for settling the trades.

“The trading system is based on very stable and reliable technology, and also stands out due to its low latency. This high-level technology used by Deutsche Börse at its own trading venues—Xetra and the Frankfurt Stock Exchange— makes the markets more transparent and secure,” said Hauke Stars of the Executive Board of Deutsche Börse.

AFSX is still in the planning stages and before its launch, the regulatory framework for the Pan-African bourse will need to be ironed out and a robust market oversight mechanism put in place. (Calls and email messages to the Mauritius Financial Services Commission about whether AFSX had been granted a license to operate were not answered.)

Mauritius, a country of 1.2 million, has an unrivaled track record for good governance. The Doing Business Report of the World Bank ranks Mauritius 12 out of 189 economies worldwide in terms of protecting investors. In 2014, the country placed first in the Ibrahim Index of African Governance (IIAG)—as it has for eight years in a row. Its main African contender for accountability is an ocean away, the archipelago of Cape Verde. In addition, Mauritius has signed an Economic Partnership Agreement with the European Union (EU) that came into effect in May 2012. This double allegiance to Africa and to the EU has endowed Mauritius with a powerful toolkit for trade.

The AFSX team would also be able to piggyback on the experience of the Stock Exchange of Mauritius (SEM), incorporated in 1989. Publicly listed since 2008, the SEM is a small pre-emerging exchange with the technology and regulatory framework that make it a leading African bourse despite its market size.

The SEM operates two floors, the Official Market and the small-cap Development & Enterprise Market (DEM). Foreign investors drive nearly 40% of the SEM’s trading activity.

The new bourse seeks to become a gateway that integrates domestic exchanges in Africa, as well as one that injects a healthy dose of liquidity.

Interview Quantum Global Solutions

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QUANTUM GLOBAL SOLUTIONS: Peter Murphy, Managing Director, Quantum Global Solutions

An Interview with

MANAGING CHANGE, MITIGATING RISK

Peter Murphy, Managing Director, Quantum Global Solutions

WF: Qatar has become a magnet for investors and contractors from abroad in recent years, due to its booming economy and of course, the preparations for the FIFA World Cup in 2022. Is there still space in the Qatari market for mezzanine foreign investors, and in which sectors?

PM: According to a recent report by Qatar National Bank, Qatar’s economy has started a new diversification phase, as large investment spending in the nonhydrocarbon sector accelerated growth to 6.5% in 2013 (6.1% in 2012) with the main areas of investment shifting from oil and gas to construction and transport.

The population has more than quadrupled in the last fifteen years and is expected to continue to increase for the foreseeable future. This rapid growth leaves continued demand for services across all sectors. Qatar is a multi-cultural, rapidly developing economy and as such, the business environment offers multiple opportunities.

In addition, the business environment is tax-free for expatriate employees and companies pay a fixed rate of income tax on foreign ownership profits.

With over fifteen years of experience working in Qatar, I believe that with every ‘high potential gain’ opportunity, there are significant risks. That said, provided investors enter the market with a long-term view, an adaptable approach to developing regulations and an understanding of the risks to mitigate, there are tremendous opportunities in this dynamic and exciting market, unlike anywhere else in the world.

Qatar’s building boom has attracted a multitude of construction and engineering companies from abroad, all intent on obtaining a part of the estimated $200 billion that will be spent on infrastructure in the next five years. However, not all are prepared for the changes that can lead to unforeseen delays and cost overruns for their clients. Quantum Global Solutions shows them how to manage the unexpected.

WF: Over the next five years, it is estimated that Qatar could spend over $200 billion on infrastructure projects alone.

How do you evaluate the current infrastructure boom and the supply of civil engineering and construction companies to meet the demand?

PM: The current infrastructure boom provides tremendous opportunity for multiple construction disciplines, including designers, material suppliers, plant and equipment providers, contractors, sub-contractors, supervision consultants, specialist services and finally, facilities management companies to manage the increasing infrastructure portfolio.

The scale and number of infrastructure and civil engineering projects in Qatar is unprecedented, but given the highprofile award of the FIFA World Cup 2022 the ‘boom’ has been expected for some time. As a result, many companies have established a base in Qatar. Many have formed joint venture partnerships which brings to the country a blend of local knowledge and international experience, making them ready to take advantage of the large volume of work to be awarded. This includes many companies previously supporting the growth in the UAE There remains a surplus in supply of civil engineering and construction companies ready to support the infrastructure boom. However, there are signs that some

companies now have full order books and are unable to take on further projects.

At Quantum, we recognize that Qatar’s buoyant and dynamic market offers our clients tremendous opportunities; however, these are not without risks and all construction companies should understand the risks and mitigate accordingly when pricing and carrying out the works.

WF: What would you say are the benefits of doing business in Qatar?

PM: From a business perspective, with its stable political system and a solid platform of growth supported by the country’s energy sector, Qatar is one of the most prosperous and vibrant countries in the world to do business. Remarkable opportunities exist for professional organizations which have been greatly enhanced

by Qatar being chosen to host the FIFA World Cup in 2022.

In addition, for employees Qatar is one of the world’s safest and most hospitable countries to live in, with excellent educational and healthcare services.

Qatar’s economic stability and budget surplus over recent years enabled the development of five-star hotels, several museums, including the Museum of Islamic Art and the upcoming National Museum, as well as family cultural facilities such as Katara and Souq Waqif.

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Quantum Global Solutions Interview

“Qatar is a multi-cultural, rapidly developing economy and as such, the business environment offers multiple opportunities.”

WF:Would you share with us more about Quantum Global Solutions, its genesis and development?

PM: I came to Qatar in early 2000 as Country Manager and Project Director for an international construction company. The population of Qatar was around half million at that time and it was much different to the country it is today. However, the same challenges exist then and now for contractors in this rapidly developing country. Change is inevitable in almost all construction projects and it is how this change is managed that is the key to success.

Having faced these problems first hand, I could clearly see the need for specialist contractual, commercial and forensic planning consultancy support for contractors. Quantum Global Solutions was established in Qatar in 2007 in partnership with Quantum International from the UK headed up by Issa Abdul Rahman Al-Mannai as Chairman and myself as Managing Director.

With a customer-focused emphasis on solution-based services, we provide our clients with expertly managed, high quality, tailored services to meet specific business objectives in a professional and efficient manner.

Quantum has rapidly grown and we currently have around 100 experienced, multi-national consultants based in Qatar, operating around the GCC region and to wider international locations.

Our success is based on client satisfaction, repeat calls and reputation.

WF: Could you expand more on the Quantum brand and your regional and international presence?

PM: Quantum is a recognized and trusted brand locally, regionally and internationally. Qatar is our headquarters and primary market and we have ongoing operations in the Middle East, Europe, Asia, US and Africa. This growth has been driven through the demands of our clients who also operate on a global basis.

At Quantum, we work according to a company-wide philosophy of seven

core values: vision, excellence, customer-focus, integrity, innovation, solution-based creativity and the Quantum family. All of these values are intrinsic in how we do our business, how we become partners with a common goal with our clients and how we develop the highest quality of employees in our industry through continuous professional development, on-the-job training and knowledge sharing. Innovation, finding solutions, being creative with vision and excellence are what we stand for.

WF: How attractive is it for UK engineering firms and construction companies to operate in Qatar?

PM: Qatar is an excellent market for UK engineering firms and construction companies with English as the primary business language and the UK’s reputation for high quality and performancedriven project management clearly understood and valued.

For employees, Qatar offers a tax free, safe environment with excellent education and health care services well suited to family postings. There are excellent transport links to the UK and a time difference of only three hours in winter.

In line with the Qatar National Vision 2030 and the developments surrounding Qatar’s hosting of the FIFA World Cup in 2022, the pace of construction in Qatar is phenomenal; I’d estimate 30 years’ of development being carried out within the next five years.

On top of that, the scale of the projects is enormous. According to Qatar National Bank, US$183 billion of development remains to be completed by 2022.

From a professional, business and personal perspective, where else in the world are such tremendous opportunities available?

WF: What challenges do you face while advising clients to achieve or surpass objectives?

PM: Most of our clients are experts in their fields, constructing amazing, uni-

que and massive projects under challenging time deadlines. Due to the rapid pace of development and the urgent need for the facilities, the projects are commonly not fully designed at award stage and undergo substantial change during the design, development and construction period. It is the management and negotiation of this change, in coordination with the client, where Quantum can truly add value.

Many clients accommodate the many changes during the course of the project resulting in large overruns in time and cost, having not dealt with these issues as they arise. This results in a dispute with their client, who is suddenly hit with massive delays and a significant cost increase at the latter end of the project, without the opportunity to discuss and mitigate such overrun and additional costs.

Our key challenge when initially meeting potential clients is to get them to understand the value of partnering together with Quantum at the earliest stage to help mitigate issues before they arise.

Using the analogy of a new car – most people understand the need for regular service and preventative maintenance rather than waiting for it to break down before fixing it. A construction project needs the same approach.

Many of our new clients are carrying out projects which have effectively “broken down,” whereas with many of our repeat clients, we partner from the start of the project dealing with issues as they arise and before they become problems or disputes.

We want our clients to look after their projects whilst we look after their profits.

“the pace of construction in Qatar is phenomenal; I’d estimate 30 years’ of development being carried out within the next five years.”

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Growing economies and formerly developing countries play an increasingly important role in the world today. It’s essential that international investors and companies - and indeed, all readers with global interests – hear what the leaders of growing and emerging economies have to say. That means government ministers, business people, economists and experts of all kinds.

Understanding their viewpoints is key, not only to being well-informed, but to doing business in these countries.

We provide that information through our network of correspondents, which each year is present in an average of 80 locations around the globe in more than 50 countries.

Our correspondents conduct an average of 3,000 one-on-one interviews annually with government officials and senior business people. This means an average of six interviews a day with the most influential leaders in the world´s fastest-growing economies.

oUr NewS, YoUr BUSiNeSS

BITCOIN

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BITCOIN:

By Rob Train

solution to currency volatility or easy accessory to cyber-crime?

Bitcoin, the best-known of the virtual currencies, has been gaining increasing acceptance among merchants and businesses, even as its market value has declined sharply and news has emerged of it being used in online crime.

We look at both sides of the Bitcoin debate.

The trial in U.S. Federal Court in New York City last January was, on the surface, not an unusual one. Two men were convicted for their part in selling millions of dollars in illegal drugs, with the principal defendant also facing charges that he allegedly conspired to murder five possible informers. The witnesses included a convicted heroin dealer and a Department of Homeland Security agent who had infiltrated the criminal ring.

The difference was that in these transactions, no money changed hands. The sales of illegal drugs were made using the virtual currency Bitcoin on an exchange called Silk Road, whose founder used it as a marketplace for the narcotics trade, charging a commission for the transactions.

The Silk Road trial was the latest and most notorious setback for Bitcoin, the virtual currency that appeared on the scene in 2009 amidst predictions that it would spark a revolution in online payments and alter traditional financing forever, eventually even replacing the currencies used in the equity and bond markets.

Although convictions were handed down the Silk Road case, the jury is still out on Bitcoin itself. Proponents say it protects users against inflation and currency volatility, while critics warn that it will give rise to more crime because it operates in a milieu where there is no supervision and where law enforcement lags behind technology.

Bitcoin first emerged as an open-source project created by the still-unidentified Satoshi Nakamoto as a form of non-centralized currency that could be transferred with minimal fees, or none whatsoever, and considerably faster than via traditional methods.

It was also conceived as a more secure way of performing transactions online and to be inflation-proof, as production will

cease when 21 million Bitcoins are in circulation. Its defenders say that due to Bitcoin’s revolutionary blockchain system, it is virtually impossible to corrupt and not prey to human error. The blockchain is a public ledger on which all confirmed transactions are recorded. Each block contains code that directly links back to the previous block, ensuring data can never be duplicated and is physically impossible to alter.

Beyond the potential Bitcoin represents for altering traditional financing is the blockchain technology itself: some see the system as a way of eventually exchanging equities and bonds, and a much more efficient manner of transferring property rights.

Advocates also maintain that many aspects of traditional banking could be replaced entirely by virtual currencies, which could provide a safeguard against individual losses when a lender or a national economy goes down, as with the Argentine corralito in 2002 and the Cyprus crisis of 2012-13. The spectre of a Greek exit from the euro has sharpened such lines of thought. In theory, Bitcoin holdings are untouchable by central banks.

Proponents say Bitcoin protects users against inflation and currency volatility, while critics warn that it may give rise to more cyber-crime because it operates in a milieu where there is no supervision and where law enforcement lags behind technology.

In 2014 Malta Stock Exchange (MSE) has been named the Most Innovative Stock Exchange at the prestigious Acquisition International Magazine Business Excellence Awards – clear recognition of the dedication and investment that the MSE has put into developing its services and creating an environment that makes Malta an attractive capital market domicile for companies seeking new sources of capital.

BITCOIN

Major international institutions, including the Bank of England, the World Bank and the IMF have been discussing Bitcoin, while the world’s largest cryptocurrency has steadily been gaining regulatory approval and financial backing.

Apart from the financial markets, there is considerable interest in how the evolution of Bitcoin could be employed to bridge the financial inclusion gap between the billions of “unbanked” people in the developing world and everyday financial services. With global remittances now exceeding $400 million annually, Bitcoin represents a way to bypass the traditional exchanges and deliver local currency across the world without thirdparty fees. In Africa and Latin America experts predict an explosion in the use of virtual currency in line with mobile telephony penetration.

The notion has significant backing: Bill Gates told the Sibos convention in Boston last October of an ambitious plan to develop low-cost digital payments and identity services via mobile telephony, expanding on ideas such as Apple Pay and Vodafone Wallet and using cryptocurrencies like Bitcoin to ensure lower overall costs compared to traditional transfers and credit card transactions.

There is also the potential to apply Bitcoins to travel and tourism by converting the virtual currency into hard cash at destination, with no foreign exchange fees. Airlines are already taking note: Bitcoin payment processing company Bitnet in February entered into a partnership with United Air Travel Plan, a payment network owned by major international airlines including BA, American Airways, Lufthansa, United Airlines and Qantas, to start accepting Bitcoin.

But the other side of the coin is that the anonymity offered by the framework; users are registered under pseudonyms and, with no oversight, transactions are essentially untraceable. This is certainly is appealing to criminal enterprises such as the Silk Road entrepreneurs. But are virtual currencies, and Bitcoin in particular, fuelling illegal activity on the dark net or are cyber-criminals simply taking advantage of a convenient method while the opportunity is there?

While the debate goes on, the number of legitimate users of Bitcoin is ris-

ing all the time. As of 2015, there were 100,000 merchants accepting Bitcoins, as well as several high-profile NGOs, including Greenpeace and the Wikimedia Foundation. Researchers also contend that Bitcoin users are far from untraceable and the authorities have concentrated their efforts on the exchanges where cryptocurrencies are converted into hard currency.

Recently-introduced US legislation requires Bitcoin exchanges to verify the identity of any users wishing to convert their holdings into dollars. But there remains no regulation over individual exchanges mixing coins to try and conceal the identities of their owners. The theft of a user’s private key does not prevent the subsequent use of stolen Bitcoins, and the block chain has no protocols in place to identify the origin of the hack.

Unlike bank accounts, Bitcoin wallets are not insured by the FDIC. Many regulatory advisors and Bitcoin advocates agree that over-regulation could lead to Bitcoin and other cryptocurrencies being pushed further underground and overseas, making it even harder for illicit activity to be investigated.

Bitcoin gained further traction following the Internal Revenue Service’s decision to tax Bitcoins as property, but not currency. The decision meant that Bitcoin miners now have to declare their earnings as taxable income, and in the case of mining syndicates, salaries are taxed as well. As Bitcoins have become more elusive for its “miners,” more and more are pooling their resources using cloud services and distributed computing.

The crypto-curerncy community has also been buoyed by the first regulated U.S. exchange being created in January by Coinbase, the company behind the most-used Bitcoin wallet globally. Lunar, the exchange name chosen by Coinbase, has received regulatory approval in

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half of U.S. states. A funding round has raked in over $100 million and investors include the New York Stock Exchange and Spain’s second-largest lender, BBVA (Banco Bilbao Vizcaya Argentaria). Bitcoin ATMs have been installed in Canada and the United States and United Kingdom are expected to follow suit.

“A proper U.S. exchange that’s trustworthy, that’s insured […] that will really help bring a dampening of volatility,” said Coinbase co-founder Fred Ersham.

It was certainly a shot in the arm for Bitcoin, after a series of damaging security lapses. Tokyo-based Bitcoin exchange Mt. Gox’s filed an insolvency petition in April 2014 after 850,000 Bitcoins, worth around $450 million, went missing.

The news hit Bitcoin’s standing hard: the cost of a Bitcoin on the exchanges dropped 65 percent last year.

The cryptocurrency’s historical high was some $1,146 in November 2013. As of March 9, 2015, the value of a Bitcoin had slumped to $279, not aided by the suspension of trading two months earlier by Bitstamp, the second-largest exchange in the world. The UK-based company said a security breach had resulted in the loss of 19,000 Bitcoins, valued at $5.1 million. Bitcoin holders were assured, in a company statement, that Bitstamp’s reserves would cover their losses. Before Bitstamp’s shutdown, Bitcoins had been enjoying a spike and changing hands for over $300 for several weeks. Several other major marketplaces and online wallet providers, as well as exchanges and storage services, have been hacked, resulting in multi-million losses.

Whether or not crypto-currencies will evolve into a genuine threat to traditional banking, or if the battering Bitcoin has taken over the past year signals a downward spiral, remains to be seen.

But Bitcoin, and other crypto-currencies, have sparked debate on the very nature of finance in the modern world and will continue to do so.

there is considerable interest in how the evolution of Bitcoin could be employed to bridge the inclusion gap between the billions of “unbanked” people in the developing world and everyday financial services.