First Abu Dhabi Bank
Paul Voce
12 December 2023
Paul Voce, former head of repo trading and global securities finance at First Abu Dhabi Bank, speaks to Carmella Haswell about the opportunities available in the Middle East and his hopes for the further development of the region
Image: stock.adobe.com/ pinkrabbit/Paul Voce
Having covered securities finance within the MENA region for more than 15 years, how well connected is the Middle East with global markets?
The Middle East typically consists of a client base that is banked by major international banks. Key securities finance players are involved in the Middle East and North Africa region, with some choosing to be on the ground with a local presence.
Having introduced a securities lending product in my previous role as head of global securities finance at First Abu Dhabi Bank (FAB), it remains to be seen how long before this product takes off regionally. However, the potential is there, especially as the region is liquid. Long term holders of bonds and equities could seek to enhance their returns via securities lending.
How do you analyse the performance of the Middle East repo market in the past 12 months?
Despite higher interest rates, continued excess liquidity has reduced demand for the regional banks to require financing of their bond portfolios and, where there is a requirement, the tenor has typically shortened in duration due to the shape of the interest rate curve.
The market can be divided into two types of repo, conventional repo and Islamic repo. Conventional repo is becoming more embedded within banks’ treasury and markets divisions, but it typically plays a supporting role to the unsecured markets. I anticipate Islamic repo, with the help of institutions such as the International Islamic Financial Market (IIFM), will continue to grow, especially with local central banks supporting the drive.
What are the key challenges and opportunities presented by regulation and technology developments in the region?
Globally, regulation continues to throw ever more challenges at the markets. I see technology, in terms of both pre- and post-trade, making business easier to transact and settlement more instant. Platforms such as Absolute Collateral will help local banks be more efficient in dealing with each other and will bring further transparency in the form of market and transactional data.
What trends have you identified within the securities finance market and how have these been shaped by client demand?
Despite the rising interest rate environment, there has been a more liquid environment in general, typically leading to somewhat reduced demand for financing and a shortening of duration — there is no need to take expensive long term funding.
As the rate cycles are at, or close to, topping out, this view will evolve and clients may take longer term funding when they think interest rates will become more stable again.
What is required to build a successful securities finance platform?
If you ask in relation to a platform such as Absolute Collateral, an electronic platform, then it must primarily offer ease of use. This will encourage more take up or usage, which then becomes self fulfilling. The more counterparts that are using the platform, the more liquidity there is in terms of available pricing and this encourages competition.
These days, it is a given that any platform should be able to link up with a counterpart’s trading system and offer seamless straight-through processing, as well as full lifecycle deal management on the platform.
How do you anticipate the Middle Eastern market will develop in the next five years?
Markets remain highly liquid for the time being. With international banks becoming more ‘intermediaries’, I would look forward to seeing some of the larger regional banks developing their own securities finance business along the lines of that created in my previous role. The optimisation of collateral and liquidity, combined with servicing your chosen client base, should be a core pillar of any markets’ business.
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