June 7 (Bloomberg) -- Bahrain’s exchange plans to start short-selling and the so-called delivery-versus-payment system in 2012, criteria for an upgrade at MSCI Inc., as it seeks to boost trading volumes amid unrest in the Middle East.
"The changes will lead us eventually to meet the criteria" at the index provider, Khalifa Bin Ebrahim Al Khalifa, deputy director at Bahrain Bourse, said in an interview at the Bloomberg office in Dubai today. "We have a competitive advantage against the regional stock exchanges; with these changes, we’ll have even more."
The measures will be implemented in the first quarter of 2012, and DvP will be started "to an extent," he said. Bahrain has no foreign ownership limits in stocks, Al Khalifa said, unlike Qatar and the United Arab Emirates, which also have frontier market status at MSCI.
The index provider will announce on June 21 its decision on whether to upgrade the U.A.E. and Qatar to emerging market status after the exchanges introduced the DvP system. Popular demonstrations that toppled leaders in Egypt and Tunisia and reached Bahrain have hurt the Middle East’s financial markets, with the Bloomberg GCC 200 Index losing 3.9 percent this year. That compares with a 2.6 percent gain for the MSCI World Index.
Trading volume on Bahrain’s bourse was 572,800 shares today. That compares with a 12-month daily average of 1.7 million shares.
MSCI classifies six of the Gulf’s seven bourses as frontier markets, a designation that typically applies to economies and financial markets that are less developed than emerging markets and that have more restrictions on foreign stock ownership. Saudi Arabia’s market is not categorized.
"External factors including the current political climate in the GCC and the Middle East" are affecting volumes in Bahrain, Al Khalifa said. "We don’t expect the market to recover in coming months, but we expect the natural cycle of economy to take place."
The BB All Share Index retreated 6.5 percent this year as the nation witnessed anti-government protests and imposed a three-month state of emergency in March. The measure rose 0.5 percent today after dropping to 1,332.48 yesterday, the lowest close since July 2004, when Bloomberg began tracking the index.
Delivery-versus-payment is a securities industry procedure in which payment for a security must be made when the security is delivered. Usually, the payment is made to a bank, which in turn pays for the security. Short sellers borrow and sell an asset, hoping to profit by buying it back later for less.
--Editors: Shaji Mathew, Claudia Maedler
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