The ‘platformisation’ of capital markets, or the adoption of ‘platform ecosystems’ as they are commonly known in the big tech sector, is happening right now in the UAE and opportunities abound for innovative market players that will lead or participate in the process.
The UAE’s economy has been rapidly developing for decades. As the country seeks to fund the next stage of growth beyond fossil fuels, the time has come for the local development of capital market platforms to enable the allocation of capital to desired sectors and projects meaningful for sustainable economic prosperity.
While the informational nature of capital markets is widely acknowledged, the potency of modern financial technologies (fintech) to extract value from information has become such that market structures and business models are being transformed rapidly. We read in the news last month, for example, that Goldman Sachs is moving into the cloud computing business. In partnership with Amazon Web Services (AWS) and after two years of preparation, the investment bank is opening up access to its trove of market data and software tools to hedge funds and asset managers.
The global banks with presence in the UAE may have been the traditional importers of market innovation but probably lack the same commitment to R&D and interest to offer their expertise in an open platform.
This presents a significant missed opportunity. As London Business School’s Professor Michael Jacobides observed in In the Ecosystem Economy, What’s Your Strategy?, there is an abundance of opportunity presented by the confluence of technology and business ecosystems (HBR, September–October 2019): “In ecosystem competition, success is as much about helping other firms innovate as it is about being innovative yourself. Companies that have built a successful ecosystem have often done so incrementally, broadening the value proposition of their core offering by finding opportunities to apply one of its features or functionalities to some previously unrelated product or service... Competing is increasingly about identifying new ways to collaborate and connect rather than simply offering alternative value propositions... We must shift from rigid strategies based on prescriptive frameworks to dynamic experiments based on a process of inquiry.”
This time around, the local stakeholders seem determined to initiate market innovation themselves with the establishment of regulatory frameworks and the launch of platforms of systemic importance.
More specifically, the UAE regulatory authorities jointly issued last month the Guidelines for Financial Institutions Adopting Enabling Technologies setting out the best practices when adopting enabling technologies for the development of innovative products and services. The enabling technologies considered are: Application Programming Interfaces; Big Data Analytics and Artificial Intelligence; Biometrics; Cloud Computing; and Distributed Ledger Technology.
Beyond policy, we see in action market players across the full spectrum experimenting, successfully and not, with the development of capital market platforms in the UAE.
On one hand, we have developers of digital asset (crypto) platforms the potential of which, in my view, is more limited than enthusiasts appreciate and the integration with the real economy less obvious.
On the more systemic end of the spectrum, the UAE Central Bank, for example, recently launched the M-Bills platform replacing the conventional certificates of deposit. These securities will be auctioned and traded through Bloomberg’s primary and secondary market solutions and settled through a local platform built and operated by Euroclear Bank. In another major project, the UAE-headquartered Arab Monetary Fund has launched Buna, a centralized multicurrency platform aiming to enable financial institutions to make cross-border payments across the Arab region and beyond with the ultimate objective to enable the integration of the Arab economies.
The UAE marks its golden jubilee this year and is widely acknowledged that it has become a financial powerhouse that is helping to shape the fortunes of the GCC countries and the broader Arab world. And it is these powerful changes to the capital markets, combined with adaptable regulatory policy frameworks, tech savviness and an ever-increasingly markets openness, which will underpin the growing fortunes of this dynamic economy.
Dimitrios Vourakis, Chief Strategy Officer, Wethaq Group.
This article originally appeared in Arabian Business.