Debt market players favour remote membership
Firms operating on the Bond Exchange of South Africa (BESA) yesterday welcomed a proposal to allow remote membership of the Exchange. Representatives of many of BESA's members (referred to as authorised users) were attending the Remote Membership Symposium hosted by the Bond Exchange in Johannesburg.
The question of whether foreign-domiciled participants should have direct access to the local capital market as fully-fledged authorised users has long been a matter of debate. The consensus reached at yesterday's symposium, attended by a wide range of BESA's users as well as regulators, the National Treasury and the South African Reserve Bank, will now allow BESA to flesh out the rules and procedures to allow foreign-based players to join the local bourse. "There is no question about if, but rather how and when remote membership will be introduced," said Garth Greubel, BESA's chief executive.
Current regulatory requirements prevent foreign participants from becoming BESA authorised users unless they have a local presence. However, the involvement of foreigners in South Africa's capital markets has increased significantly in recent years despite this restriction.
"There is evidence to suggest that the growth in the London market has been at the expense of the local market, local players and BESA," stated Greubel.
He explained that the continued growth in the off-shore market, to the point that the size of the Rand-bond market in London is significant in relation to that of the local market had precipitated a further review of the remote membership issue. This had been re-inforced by repeated requests from foreign participants to join BESA.
Allowing remote membership will require several important market issues to be addressed. Foremost among these is how foreign participants will be regulated as they fall outside the national regulatory ambit of BESA.
The local bond market is advanced and sophisticated, especially by emerging market standards, and has contributed materially to the fundamental transformation of the economy since 1994. According to Greubel, this is especially evident in the significant growth in the volumes of SA Government bonds traded in the London market off the back of local price discovery.
Commenting on the support shown by local users for opening-up the market, Greubel said that there were key objectives to be borne in mind. "It is imperative that we secure a vibrant and healthy domestic market in fixed-income and other debt-securities in South Africa by seeking a solution that addresses the current fragmentation of volumes between local and offshore markets," he said.
"It is also important to ensure that the regulatory standards which we have established are not compromised. In addition, the solution to unlocking the potential behind remote membership must also take the current market microstructure into account, and ultimately lead to building a better market for all its players," concluded Greubel.
