Scheduled to begin trading in phases from the first quarter of 2003, the license for IBX was granted on 8 May 2002 by the Ministry of Finance, Brunei Darussalam. Asian financial markets are fragmented, mainly with local emphasis, and are bound by different domestic rules and regulations – all limitations that are seen as opportunities by IBX.
Setting up of the IBX is part of the strategy to build Brunei as an international financial centre. It is an initiative that is reinforced by the nation’s neutrality and policy of friendly relations with all countries. Brunei is known for its pro-business climate with no capital control and basically no tax. Other positive factors include its sound infrastructure and international links as well as its good education, legal systems, and long history of peace and stability.
As an Islamic nation, Brunei is well positioned to offer both conventional as well as Shar’iah compliant financial products. IBX is in the process of setting up a Shari’ah Council, comprising a panel of eminent and respected Islamic scholars to provide guidance and counsel in product development. Investment funds from the Islamic world have been estimated to be in the range of US$1 trillion.
IBX is set to chart a course as one of the first exchanges offering a single membership to trade in both equity and derivatives markets. Member firms and their clients will be able to maximise their investment strategies from the added flexibility of IBX’s integrated operations. IBX will also offer access to new financial products from a pan-Asian perspective in terms of innovative derivatives, equities and structured products that have long been awaited by investors.
Strong synergy between Mid-East and Far East
Said IBX Chairman, B C Yong: “Asia combined is a large economy with more people than the rest of the world. However, there is, thus far, a lack of a unified regional marketplace.”
Bridging the capital and investments needs of the Middle-East with the rest of Asia is a cornerstone of IBX’s strategy. Said B C Yong ”The strong synergy between these two regions of Asia can be greatly enhanced by a market like IBX. The financial markets are currently not dynamic in meeting regional needs and it is IBX’s vision to present greater opportunities for capital fund raising, asset management and investment.”
Through its network of representative offices, IBX is well placed to leverage on the opportunities that are currently not provided by the respective domestic exchanges.
Brunei’s good infrastructure and being an Islamic nation on friendly terms with all countries are positive factors that will contribute to the regional role that IBX seeks to fulfil.
The exchange has been quickly ramping up its network of offices in key Mid-East and Asian cities as part of its outreach strategy to identify and develop financial products for the region. Market participants in the region will be involved in product development designed to attract intra-Asian and international liquidity.
Over the past few months, IBX has made significant progress in the Far East, including Korea, Taiwan, Hong Kong and Singapore. It is in the process of setting up a Middle East regional office in Dubai which will be followed by other offices in the region, including Bahrain.
“By bringing the Middle East with Asia in one united market, we are confident that IBX will demonstrate that one plus one can be far more than two,” said B C Yong
Characteristics of Asian investment community
To address the needs of the region, IBX has analysed the characteristics of the Asian investment community. The five-hour time zone within Asia should make it feasible for investors to monitor positions in the regional financial markets. Yet the high level of liquidity in Asia is not reflected in existing volume of intra-regional trading of securities and futures.
In addition to investing in their home markets, it is noted that Asian investors also take positions in US and European markets, rather than in other countries in Asia. This is partly due to the inconvenience based on the current setup of stock exchanges in Asia as well as a lack of understanding of other markets in the region. A significant part of the outgoing capital to Europe and US are re-invested in Asia by portfolio managers who charge a high price for their services.
Also, there is much scope not just for traditional financial products that are already available but also for products that are long overdue, where IBX will take the lead in product developments in keeping with the demand of a new generation of investors.
The situation in the Middle East, where liquidity is more than the market can absorb, affords added opportunities, a market which IBX is pro-actively studying to develop innovative conventional and Shar’iah compliant financial products.
By bringing Middle East and Far East markets together, IBX will be able to promote intra-Asia liquidity flow for the region to achieve higher level of growth and prosperity.
IBX Chairman B C Yong emphasised that Asia has everything and lots more than the west. “By investing in the region, we are investing in ourselves and our next generation,” he added.
Ground work to prepare IBX for trading from first quarter of 2003 has been progressing rapidly driven by a well experienced management team. The team’s knowledge and sound track record in previously managing leading Asian bourses, world-class information technology and e-commerce companies and international banks, including Islamic banks, as well as legal expertise in international finance, trade and settlement are being brought to bear in preparations for the start-up of the exchange next year.
The development phase for the trading and clearing operations and systems as well as legal framework and rules and regulations have all been completed. Exchange operations and production processes are slated for commissioning soon to allow for extensive trials of the trading, clearing and settlement systems.
Top tier brokerage houses in Hong Kong, Korea, Taiwan and Singapore have indicated strong interest in IBX and membership recruitment is currently underway.
IBX has signed memoranda of understanding with some firms in Hong Kong, South Korea, Singapore and Taiwan. IBX Chairman B C Yong is confident that the exchange will start trading next year with more than 10 listed members from abroad.
Full range of investment products
IBX is geared to offer a full range of investment products, as well as providing companies with the facility to launch Initial Public Offerings (IPO).
The Derivatives Market will kick off trading in the IBX which will initially comprise single stock futures, index futures, FX futures and Pan Asia Sector index futures. Because of its sheer market size and great investors’ interest, the index futures will consist of Islamic and Greater China related indices.
IBX is planning to offer two Islamic indices – Pan-Asia Islamic index and GCC index. The Pan-Asia Islamic index will comprise stocks from many markets in Asia that are Shar’iah compliant. The GCC index will compose of key shares from several Gulf States in the Middle East, weighted against the respective market capitalization.
The next focus will be on the equity market, namely the Asia Emerging Companies Market (AECM) and Developing Enterprise Equity Market (DEEM). The AECM is tailored for emerging companies in Asia to list and obtain funding. DEEM is targeted at pre-IPO companies with great upside potential which want to raise capital publicly to fund their expansion plans. Such companies present excellent investment opportunities.
Structured products have attracted much interest lately and IBX will develop a Structured Product Market backed by underlying assets including stocks, commodities, and debt instruments . They may span similar industry segments across the region which are developed to meet specific investors needs and offer unique risk and return characteristics.
The Main Equity Market will target profitable and established companies looking to raise capital publicly and to cash-out to capitalize on the investment returns for existing shareholders. This market sector will be developed at a later stage.
The rules of IBX have been drawn up to cater specifically for cross border trading, accommodating unique requirements and regulations of each individual market. Whilst taking into consideration the ever-changing environment of the financial market, the trading and clearing rules are aimed at ensuring the integrity of the marketplace and safeguarding the interest of its investors and participants.
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