LEBANON - Finance
Vice-President, Beirut Stock Exchange (BSE)
Ghaleb Mahmassani obtained a Bachelor’s degree in Political Science from the American University in Beirut in 1962, and licenses in French and Lebanese law in the same year. He received a PhD in Law from Lyon University in 1966. He has been an Attorney at Law since 1962, and has been active both academically and professionally at the international level. Mahmassani also served as a Member of the International Court of Arbitration of the International Chamber of Commerce (ICC) in Paris from 2000-2005.
The BSE is actually the second-oldest stock market in the region, first established in 1920 by decree of the French commissioner when Lebanon was under French mandate. In the 1950s and 1960s, there was a lot of activity on the BSE. Then, the civil war erupted in 1975 and the BSE closed in 1983 until it was reopened in 1996. Lately, the Lebanese parliament endorsed a new Financial Markets Law that resulted in the creation of the Capital Markets Authority (CMA) that aims to regulate and supervise the activities of the capital markets in Lebanon and create an adequate legal framework conducive to the development of the Lebanese financial markets. This new law previews the establishment of a Financial Market Court to adjudicate financial matters, and the restructuring of the BSE with a view to transfer its ownership to the private sector. Recently, in March 2014, the BSE signed an agreement with Euronext, a wholly owned subsidiary of Intercontinental Exchange Group (NYSE: ICE), for the implementation of a new trading application platform that supports the expected growth in equity listings and the entry into new asset classes in the Lebanese markets.
After the complete formation of its board of directors in July 2012, the CMA issued a series of circulars and resolutions aimed at regulating the disclosure policy of joint stock companies and mutual funds that have their shares or units traded on the Beirut Stock Exchange or on the over-the-counter (OTC) market, as well as of the firms’ obligations in terms of disclosing information to shareholders and unit holders. Likewise, the CMA also issued resolutions relating to the committees, units, and departments that must be met by these companies. These circulars specify that, by September 2014, joint stock companies and mutual funds that have their shares or units traded on the stock exchange or the OTC market, or that have more than 20 shareholders or unit holders, are required to have a compliance department and an internal audit department that shall be autonomous from other departments. The basic functions of the compliance department shall be to ensure the obedience of these companies and mutual funds with anti-money laundering laws and related Lebanese laws and regulations, while the internal audit department shall evaluate and improve the effectiveness of risk management, control, and governance processes. The CMA also issued circulars related to crowd-funding activities and to the requirements to practice specific functions in the financial sector in Lebanon.
Not yet, no. We started the process and we’ve been advising the market authority on that, but we’ve yet to get there. The first step is to get a decision from the Council of Ministers, so they can appoint a Founder’s Committee.
All around the globe, institutional investors have come to play a key role in the development of the capital markets. Recent studies show that most institutional investors share a preference for large, liquid, and widely held stocks, with high disclosure standards. Likewise, institutional investors are biased for stocks that are members of a regional or international index. As for Lebanon, we do believe that, in addition to political and security stability, the intelligent levels of corporate governance of listed companies is pivotal in attracting institutional investors to the Lebanese market as institutional investors rely on proper governance to enhance long-term investment returns and diminish risks. We are confident that the creation of the new financial market authority and the series of circulars that have been published and will be published in the future will give national and foreign investors a clear message that Lebanon now has the proper legislation to control and regulate its financial markets, which will help in attracting more foreign institutional investors.
I hope that the political and economic situation improves substantially and the country becomes once again truly secure and safe. From the standpoint of foreigners, we have the opportunity to improve and move forward. We need to become an offshore financial center, a real offshore center with real facilities for foreign companies. That’s very ambitious, but if the political and economic situation would allow for it, Beirut could perhaps regain its position as a financial center of the Middle East. We’ll never have a big enough industrial or agricultural sector, but we could go the way of becoming an offshore finance center. But none of this will happen; the country will not improve until Lebanon has a stable and secure political framework that inspires trust in foreign investors and companies.
© The Business Year – May 2014
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