By Mark DeWeaver.
On March 3, the ISX posted the following notification on its website:
“No institution or competent body has requested a license to act as custodian pursuant to Decree No. 17 of 2012.
“Therefore, the Depository Centre remains the sole body conducting the transfer of securities from the account of the investor [registered] with the Centre to the account of the investor [registered] with the broker and vice versa in accordance with the procedures and applications of electronic trading on the Iraqi Stock Exchange.
“Please be advised of the above and [of the fact that] the Board of Governors has a plan to encourage Iraqi and non-Iraqi financial and banking institutions who wish to provide this service.”
(The original Arabic version is available here. Hat tip Ali Albazzaz for this excellent translation.)
This took me a bit by surprise. As I wrote in my last post, National Bank of Kuwait (NBK) seems to be all set to start custodying Iraqi shares. Fellow Iraq fund manager Ali Albazzaz and I also coauthored two articles that mentioned NBK’s custody breakthrough--one for the Financial Times “Beyond Brics” blog, the other for the Emirates leading English-language paper, the National.
Has the ISX contradicted our story? Well, not really. We were wrong about NBK’s subsidiary Credit Bank of Iraq (BROI) having a custody license. They actually have a letter of authorization from the ISX Board of Governors. Thus, BROI’s authorization comes from the ISX rather than the Iraq Securities Commission, which issues licenses.
But does this make any difference to the foreign investor?
Given that custodians do not usually take over the functions of depository centers, it is also unclear what the second point in the notification signifies. Presumably the Iraq Depository Center (IDC) would transfer shares among depository center accounts in any case. Is the ISX simply making sure everyone understands that NBK will not be replacing the IDC?
Finally, what is the Board of Governors' plan to encourage those who wish to provide this service? Will the ISX be using Letters of Authorization as a means to do this, as the case of NBK might suggest?
Given the importance of the custody issue to foreign investors, it would be helpful to have a bit more clarity on what the ISX is trying to tell us.