Thomas Murray, the global post-trade risk and custody specialists, has upgraded the CSD assessment for Oman’s Muscat Clearing and Depository Company SAOC (MCD) from BBB to A, which denotes a ‘Low Overall Risk’.
The Overall Assessment of ‘A’ reflects a weighted average of eight risk components. Six risk components have been upgraded and one downgraded:
- Asset Commitment Risk from BBB to A, as there is no requirement to pre-fund securities positions for custody clients, though this measure is still in place for broker clients.
- Counterparty Risk from A- to A, due to enhanced information obtained relating to DVP, participation requirements and monitoring and the features of the settlement guarantee fund (SGF).
- Asset Safety Risk from AA- to A+, as a result of some issues surrounding account controls for broker clients and the protection of client cash held with MCD’s banking arrangements.
- Asset Servicing Risk from A- to A, based upon enhanced automation for entitlement calculation and vote collection.
- Financial Risk from A- to A, due to increased capital and consistently increasing profits posted in recent years giving strong ratio performances.
- Operational Risk from BBB to A-, reflecting improvements in internal controls, audit, IT and disaster recovery procedures.
- Governance and Transparency Risk from BBB to A, on account of better disclosure of corporate and statistical information on MCD’s website, and improved management arrangements
- MCD, MSM and CMA are working on the implementation of a centralised securities borrowing and lending facility, which initially will operate as a fails management mechanism. However, if fully activated to support regulated short selling, the initiative (which is currently with the CMA for approval) could introduce further liquidity to the market.
- MCD and the regulator are considering the inclusion of custodians as clearing members (though this is awaiting MCD Board and CMA approval). This could bring more transparency to the settlement process and reduce the exposure and burdens assumed by brokers when covering payments linked to trades pending settlement from custodians.
- The Draft Securities Law is in the process of being updated by the CMA following the receipt of market feedback. This law will provide legal clarity and backing on a number of areas including; recognition of CSD records as official legal register and a legal recognition of the concept of finality.
- MCD will be developing a full Risk Framework, which will include employing a Risk Manager within a dedicated Risk Management function. A Risk Committee has recently been constituted, and will increase its level of involvement over time.
Jim Micklethwaite, Director, Capital Markets for Thomas Murray said: “Thomas Murray is delighted to announce an upgrade to the overall risk assessment of MCD. The upgrade across several areas recognises the significant and widespread improvements to processes and controls put in over the last few years by MCD, particularly due to the upgraded functionality within its new core system, UCSD. We will monitor MCD’s improvements as they continue to adopt international best practices.”Haitham Al Salmi, General Manager of MCD said: “In line with our vision of strengthening the investment environment in the country and the region, we have been working continuously to embrace the best practices around the world that would systematically reduce risks, enhance operating efficiency and minimize cost. We are very pleased that Thomas Murray, while undertaking overall risk assessment of MCD have recognized the same through a risk grade upgrade. Taking note of the areas of further improvement, we have created our online platform and messaging services to reduce our asset safety risk by informing clients of any movement of securities from investor account with us. We renew our commitment to keep our focus on further improvements through working on the areas that would take us higher on the risk grade scale in the years to come.”
The CSD risk assessment assesses the risk exposures for investors associated with the processes the CSD has in place to facilitate the safekeeping and the clearing and settlement of securities, where applicable. It assesses eight key risks (assessment components). The methodology considers the capabilities of the depository and the quality and effectiveness of its operational infrastructure. It also assesses the depository’s willingness and ability to protect its participants or clients from losses. As part of the assessment, the scope and quality of the depository’s services is assessed. The assessments are on a consistent global scale, using the familiar AAA to C grading scale. Once the grading is assigned there is an ongoing surveillance process to monitor the depository.
Thomas Murray maintains proprietary assessments of over 140 CSDs globally as part of the Thomas Murray Depository Risk Assessment services.