ARMCHAIR TRADING

Lebanon 2019 | FINANCE | INTERVIEW: ELECTRONIC TRADING PLATFORM

Electronic trading platforms have grown enormously over the last 10 years and will be essential to Lebanon's recovery.

An essential part of the global finance landscape, electronic trading platforms (ETPs) continue to evolve and grow in Lebanon. Just over a decade ago, most trading activity was executed by banks and financial institutions via phone and in trading rooms. Trading via e-platforms was something relatively new; only a few brokerage companies in Lebanon demonstrated an active interest in investing in their IT and ETP infrastructure. Nevertheless, the results of such investments soon proved to be a winning card for the brokerage houses that ventured in this direction, enabling them to reduce trading costs and offer highly competitive services. Zeina Zeidan, Chair of Royal Financials BoD, recalls her experience: “Back then, Lebanese investors had a choice between investing in the local markets presented by the Beirut Stock Exchange, which has but a few banks and companies listed, or looking for other investment opportunities. Investing in ETPs presented a whole new investment avenue for retail and professional investors. ETPs gave access to the global capital markets and made it easy to invest in liquid asset classes such as currencies, metals, commodities, stocks, ETFs, and CFDs."

ETPs reshaped the Lebanese trading landscape, granting small investors access to the capital markets and presenting renewed investment alternatives to SMEs. The industry operates in a healthy, regulated environment, whereby competition is based on criteria such as quality of market access, best execution, technology, and pricing. Inevitably, the market has become highly competitive, with a growing number of companies offering low-cost services, a large choice of asset classes, high-speed and high-tech execution, and superior customer service. Investing in IT is arguably the key factor in determining the strength and success of an ETP company. This includes first providing the best platform available.

Given the elasticity and scope of ETPs, it is unsurprising that these platforms are expected to play a key role in the recovery of the Lebanese economy, where capital markets are in bad need of revival due to many years of falling trading volumes and a depletion of liquidity traded on the Beirut Stock Exchange (BSE). The latter has failed to promote a dynamic exchange to attract new companies, resulting in a stagnant number of listed companies and a deterioration in trading volumes. This is also reflected in its small size and short trading hours, with a market capitalization not exceeding USD9.2 billion, meaning the BSE has the fourth-lowest global market capitalization in 2018, dropping by 17% since 2017, with a trading volume down 36%.

The need for change is evident in certain asset classes, particularly with regards to Lebanese debt. The banking sector and financial institutions are now demonstrating goodwill in response to the current Capital Market Authority (CMA) request for proposal (RFP) strategy aimed at helping the economy by properly establishing and growing the capital markets via digital means.

The ETP bid was recently awarded to Bank Audi in partnership with Athena Stock Exchange. This plan includes a new ETP and the development of capital markets to cater for start-ups and provide the proper solution for investors to exit. Indeed, while in the past few years Lebanon has seen a number of laws and initiatives to support investing in start-ups, one of the main disadvantages was the lack of exit strategies for start-ups. The only way to exit was by selling to a private investor, without having the proper infrastructure for these start-ups to get listed. This set of plans should boost the confidence in the VC ecosystem by ensuring easy divestment through various methods and liquidity options.