Muscat Clearing & Depository Posted
FEAS holds an interview with the General Manager of Muscat Clearing & Depository Co. Mr. Haitham Al Salmi. Ms. Armenuhy Hovakimyan, FEAS Deputy Secretary General spoke with Mr. Al Salmi about MCD’s main projects, digital trends, how COVID-19 affects the market and more.
Armenuhy: Hello. This is FEAS Talks and I am Armenuhy Hovakimyan, Deputy Secetary General of the Federation of Euro-Asian Stock Exchanges. Our virtual trip lands today in Oman. We are virtually visiting Muscat Clearing and Depository Company which is a member of FEAS. Our guest today is a General Manager of MCD Mr Haitham Al Salmi, who is in a capital market industry for more than 15 years, starting from the regulator, from the supervisory thing, then moved to the private sector, now is back to the depository and managing the MCD currently. He is also a member of the Audit Committee of FEAS.
Thank you, Mr Haitham, for joining me today.
Haitham: It’s a pleasure. Thank you very much for having me.
Armenuhy: Mr. Haitham if you don’t mind, let’s start with a very short introduction about Muscat Clearing and Depository then we will proceed to some detailed questions from me.
Haitham: Muscat Clearing and Depository started in 1993. It was a department in the exchange: Muscat Securities Market. MSM was established in 1989. After that in 1993, the department was established where CSD operations were done. In 1998 the Royal Decree had issued and separated the rules: for the regulators, for the exchange and the CSD. So, in 1999 we started our operations. Now we have completed 21 years of operation. I will share with you a slide where all the details of MCD can be seen.
We follow the end-beneficiary model. It is a different model than it is used in Europe and mainly in the whole Globe. In Arab countries, we are mostly following the end-beneficiary model and that is also what we use.
So, as a company, we have been established in 1999. Our capital is 13 million dollars. Only last month we have raised our capital. It was 3 million Omani Real now it is 5 million Omani Real which is 13 million US dollar. It is 60% owned by the exchange. Here are the services we are providing. Because we have the end-beneficiary model, we are able to deliver a lot of services, extra services or accelerated services, like dividend distribution, AGM management, IPO services because we reach the end beneficiary.
We have the stakeholders who deal with us. There are exchange and regulator, the investors themselves, the issuers of the securities. We have lenders because we do pledge also on the securities, custodians, brokers, as well as Central Bank of Oman because we do REPOs for them and we give them some supervision rights to control banks and their portfolios. We have also other entities, courts and other regulators.
We are mainly focused on technology!
We are owned 60% by the exchange and the other 40% owned by the brokers. So, we have that sense being a service provider to the exchange plus we work as a commercial company as well.
Armenuhy: Thank you for the brief and all-covering introduction. Thus, you are mostly covering the whole spectre of depository functions, clearing and settlement, the corporate actions, plus, you are mostly the tech company. Technology provider with many solutions. I know your solutions and they are really impressive.
My first question is about strategic initiatives. What strategic initiative you have now and working on at this moment?
Haitham: We have a 5-year strategic plan which will end in 2021. As our concession agreement with the regulator that we provide the services of the CSD and clearing and settlement for 25 years. That agreement will end in 2024. So, what we did. We created a 5-year strategy that we are going to upgrade our services and from 2021 we will have a strategy about how we will continue the service. Whether we need to adapt to a different model. For example, the clearing and settlement. Do we need to adopt a CCP model? Is it needed here in Oman? Is it expensive, will the market accommodate that or not? That plan will start next year.
Until next year, we are only upgrading the service, we are creating automation of our processes as much as we can.
The biggest projects we did this year. The first one was the upgrade of our data centre. That includes equipment and software as well. It is a big enhancement project because since we created our UCSD system with ATOS, the French company, it was the end of 2014. So we have completed more than 5 years ago and it stood for an upgrade. We had a lot of upgrades in our systems including software and hardware and we needed to close a lot of security gaps.
We need to make sure that after this pandemic when we are working from home, we are using the internet much more than earlier, works securely. We have shifted the whole business from intranet to the internet. So, all is online. That creat a lot of threats, so we need to upgrade our system. We need to close those gaps. That was our major investment.
We have also invested in two major projects. As I mentioned, we are targeting the end-beneficiary. Those services for the clients are accommodated by us, not by the brokers that work in different models. Thus, we need to provide them with the right tools to use and exercise their rights.
We have the eAGM, General Assembly meetings. We have this service a very long time, and what we did with this service. We had to create the online platform with that investor can join the meeting online or through Zoom or other conference call applications and investors can also exercise. They can approve the financials, agendas and minutes of the meetings.
So, that had been created. It was targeted for this year and has been delivered in phase 1, phase 2 will be delivered by the end of this year. This is a blockchain technology application. Currently, it is totally online, the next step is to add it into a mobile application as well.
There is also eIPO system. The application was delivered two years ago, but it was only in phase 1. That includes the following process: whoever wants to apply for an IPO, he can use the e-channels of any bank. As we don’t have a lot of IPOs, we have to provide the service. In order to encourage the banking system to accept the online channels for the IPOs we have created the centralized model and we linked all the banks to us. So, that service allows the banks to use the e-channels for the IPOs cheaper. This system had been also delivered.
We also allow the brokers (as you know, the market is very small and brokers are hardly surviving with the pandemic) to be linked to this system as well. They are helping in the marketing of those IPOs. So, we allow them to the markets, they are getting commissions and we are reaching more clients as they deal with the clients directly. So, that is the whole objective of this project.
We also did a lot of automation in our processes. We are managing dividend distribution (which started in 2004). In order to upgrade this service, we created the links with the banks and now systems are going to reach each other; instead of sending excel sheets, a lot of documents and files. These all have B2B connection with the banks. This automation helped us during the pandemic and made it possible to distribute all the dividends while sitting at home.
So, these are the main initiatives of MCD. As I said, from 2022 we will have a totally different strategic plan, because we have an agreement which will end and we need to prove a new model that will help the next course of the exchange.
Armenuhy: This means next year we will be back to you and ask about new strategic initiatives. Which is really interesting in the technologically developing world.
So, coming to a global scale. What do you think, where is your company standing in terms of adopting new technologies and new trends in the market?
Haitham: Our company is a part of the Government. We are a state-owned company and we are a part of the eGovernment initiative. So, we have a lot of objectives in digitalizing our services as much as we can. That was created by the Government itself, it is not just our willingness. That is our willingness plus the Government initiative.
We have seen in the last two months and from the beginning of this year that the Information Technology Authority has been shifted and upgraded to the Ministry. That big upgrade showed the purpose of the Government on technology. How important are those technologies to us? There has been also established a college of cybersecurity. Big committees have been introduced focusing on cybersecurity.
A group of companies also has been established to help the Government investing and pushing the country adapting to the new technologies. So, we have a group called Oman Information Technology and Communication Group, which owns 4 companies investing in technology: Oman Technology Fund (focusing on the innovation of the SMEs and projects, investing there related to the technology), Oman Broadband (with the main purpose to expand the internet and the availability of the technology for the whole country), and third, we have Oman Space Communication Technologies. Along with that, during the last three years, MCD was engaged with Oman Blockchain services and solutions, as a Government own company, investing in blockchain. So they came with new services based on DLT technology. We introduced the first pilot project with them. We were in a constant discussion with this high technology team about how we can adapt it, what is the right time, is that a costly application, whether it is right to invest on it or not.
We had agreed with them to use this technology first for the General Assembly solution. So, we have started the application which was the first project with them. The next phase of this project (will be introduced next year) we will have the full automation of the process. It is not just MCD for the investors and the issues, it’s MCD with the regulator who approves the agenda of those meetings and minutes, then it comes to us. We approach the clients and they vote for the AGM. We approve the disclosers of the exchange.
So, it is the full automation of the processes that will bring efficiency, reduce overhead, help the market to get the information, help the investors to practice the rights.
We are looking for a totally paperless environment.
Armenuhy: So, you are covering the whole cycle. It is unique to cover the whole cycle starting from the regulator. Congratulations on that. Let’s come from the biggest part to the most important part: investors.
MCD has a mobile application which is giving the opportunity to the investors to track their investments. I guess investors are very good users of this. Are they satisfied, how you are measuring this? Are there any future developments in this application as well?
Haitham: Our clients can deal with any broker and at the same time with multiple brokers. Investors can have security here and there, but the main pool which gathers the main information is us.
So, the client needs our application to have a track for all investments. Moreover, we are managing also the investors unclaimed funds. So, whatever dividends they didn’t receive, it will be held with us till they approach us and get those funds. If the client has not updated their financial details with us, the bank account details or the address, they cannot receive dividends. While with that application, the whole information is in one place, showing what the investors own, what is the value of that ownership, what broker account are they on. So the investors have all details of their funds in this application.
There are also extra facilities there related to also our culture. We have linked families: I’ll be managing my kid’s accounts as well. So, I can link my kid’s account to my account and view all the activities of my kid’s account.
It will be segregated but I will have a total view, instead of having multiple applications.
We are receiving very good feedback from our clients. While our next target to upgrade this application to make it more user friendly and to add the e-AGM service. So, the clients will not only see their holdings but will practice their rights.
Armenuhy: Let’s proceed from the securities to another goal, which is developing fair and fast secure internal regulations. How are you measuring the success of these metrics?
Haitham: The security and safeness of all data we have under our custody is our purpose. This is what we do. We need to protect these data. The resilience of our systems is the most important thing. We have our own by-laws as well we are in a close relationship with the Regulator, in case of a new regulation they come to us and we communicate.
What did we do in the last 3 years? Just to ensure we have adequate systems, by-laws and processes, we called Thomas Murray for CSD rating. We were very happy that they upgraded us from ‘BB’ to ‘A’. That was a big jump for us and gave us comfort that we are on the right way.
We are also happy that drawdowns they raised were already on our pipeline. So, we were targeting the right ones.
As I told, we have good relations with the Regulator and we asked Thomas Murray to present all their findings to our Regulator and not only: the Regulator, the exchange, stakeholders. As we are a governmental entity, we also called state audit to come and see where we stand and what is missing. We get their support to upgrade the regulations to cover those gaps.
We also questioned Thomas Murray to do PFMI assessment and that also gave us the view for all gaps that we need to focus to solve oncoming years. Example, we used to have risk functions in our structure, now we have separate Risk and Compliance Department. So, we have upgraded the whole structure to accommodate and close those gaps as much as we can.
We insured our objective of creating a secure investment environment is accomplished.
Armenuhy: I like the way you work together with Regulator, advisors, community, which is the starting point of the success.
Haitham: It is the objective for all of us: Regulator, exchange and us!
Armenuhy: Coming to the pandemic. These last questions will be about the current situation and how you are managing it. What were the major challenges for your organization during this global pandemic?
Haitham: We had a lot of challenges. It was really difficult. When we started this, the main and most difficult situation we had was the closedown of the whole area of our office. The region Matrah, where our office is located, was totally closed because the spread of the infection was major here. The entrance of the region was closed, we couldn’t reach the office for more than 2 months, almost 3 months. The whole building was closed and we had to work from our disaster recovery site. Overall, this was shocking, but the good news is, that we have started one week earlier before that. Following the news and European CSDs actions (they have activated their business continuity plans), I have decided that we need to do the same. We didn’t know what would happen when we would stay at home, so let’s activate it. We did it one week earlier. That really worked. We completed all the processes and procedures, activated the plan when we only needed our critical resources, but later we managed to keep not only the critical functions but all the functions as normal from home. If you don’t mind, I will show you a slide which will show all steps how we managed the pandemic situation.
A week earlier to the closure, on 26th of March, we activated our BCM plan assuming that headquarter is not reachable. Then, we activated our E-services and decided that we will provide the service to the clients only through e-channels. Assuming that offices are totally closed, we are not receiving any client in the building. Who needs our service can approach us through e-channels. For that, we have also created Whatsapp services, dedicated emails for our clients to communicate with us.
We have divided teams of the company into 3 teams: one was working from disaster recovery site (almost 50km far from our headquarter), we had a team working from home and one team at the head office.
Then the lockdown happened. We had to merge team working from home and office team into distance working team. Thus, having two teams, one was working from disaster recovery site and the other one was working from home.
Following this process, we managed the dividend distribution. We agreed with CMA (Capital Market Authority), that yes, we cannot have general assembly meetings but as companies already disclosed to the market the agenda of dividend distribution, the exchange approved we got also approval letter from the general assembly after we managed the dividend distribution during lockdown working from home.
After that, we launched our eAGM system. eAGM was supposed to be launched in July (this month), but we discussed with our vendors and agreed to have the first phase launched earlier. Thus, helping the companies to face their legal obligation with the annual meetings. So, we managed to launch the application in just three weeks. We worked hard through the pandemic and launched before the deadline also having financial gains from that. Although we had a minimal service fee.
Without other options for the companies in the market, plus the Regulator came with the guidelines for eAGM service on how to conduct annual meetings electronically, we managed very fast. That helped us to streamline the service.
So, altogether, we managed for investors to attend AGM and receive their dividends on time.
Thus, we tried to reduce the risk on the market, because most of that dividends will be reinvested in the market. So, losing that dividend or delaying them, will affect the market sharply. This made us do the whole work.
So, in total we managed to distribute 589million OMR transfers. We conducted 180 AGMs until today. As well, we managed to update clients information. More than 6000 client accounts opening and updates.
We have also received from the Ministry of Commerce their acceptance to manage AGMs for Closed Joint Stock Companies. The whole system had been appreciated by market regulator institutions and players.
At the end, we thought, that we need to engage our employees. Most of them used to be linked to the office, mostly from the administrative and finance parts. The administrative works, especially building maintenance, they don’t have any work being at home. So, we were thinking how to engage those employees and use them while being at home.
We outlined 4 major pillars for that:
The first one was data. We are lying on a big data, which has to be upgraded and updated. So this update process has a right time when being at home. Our staff at home could find the information and fill that data. So, we were using that to clean our data and update it.
Second, we used our time to re-engineer our processes. We were updating our processes and procedures to the better ones and trying to find ways to accommodate new challenges that can happen because of the pandemic. We were thinking about how we can update those procedures to live with us.
We also focused on the people. How to use this time to train them. We had a lot of online sessions, training webinars and we were engaging our employees into that.
Fourth, we tried to find innovative solutions. We were gathering feedback from the employees. We were conducting online meetings with the employees using Zoom (which is a very nice application, helped us a lot) and Webex regularly, receiving from them ideas how we can update our services, bring new ones. This was a really good experience for us. Frankly, the pandemic was not that bad for us. It gave us an understanding of doing a lot of things in different ways.
Armenuhy: Looking at these schemes and following the steps that you have done, for me, it came, that you already know what to do according to your Business Continuity Plan, which means you have a good BCP and Disaster Recovery plans, meanwhile you are developing them while living in the situation. This is another main part of success. I am really happy when FEAS members are acting fast, appropriate and doing forecasts more precisely and managing them.
So, very impressive and I like the scheme of how you work.
The very-very last question, what do you think, what life will look like after this pandemic? What will be changed in our lives?
Haitham: Simply: we will be more digital. Yes, we will be cautious, a lot of cultural things will be changed. Even I believe, Corona will be around us all the time, although we get the medicine for that, how we think, how we deal with each other will be changed. The world will be more digital. I think this is the right solution, this is the right time to push everyone to be digital, to be able to do the work from home.
Commercially, it is creating a new trend, especially when we employ new staff: do we need them to be at the office? Can we reduce the cost, by reducing accommodation cost, transportation cost, reduce the salaries as well?
We will have a new trend on that especially when we think about managing new projects. Instead of having full-time resources, we can have part-time resources. That showed us that we still can work from home, increasing efficiency by being at home. There is a need to digitalize other services and create the linkages, cooperation between different stakeholders is very essential (especially when they are far away). If they can reach the offices, they will prefer to come to your door, knock the door, do the business they need to do and go to the next stakeholder.
For being at home, they need to have a centralized hub where they can do the whole process in one place. That is where we need to keep the focus. We learned that we need to be linked to each other.
Armenuhy: Thank you, Mr Haitham! Stay safe and hope to see you soon!
Haitham: Thank you very much! Appreciate it! All the best to everyone, stay save, stay home!