A small matter of perspective

It’s time to break the silence on the CMA

From the position of Lebanon’s Capital Markets Authority, the world is a garden of well-tended and super-fragrant roses, especially in regard to its own achievements. Thanks to the CMA’s regulatory progress, financial markets should finally start growing to the benefit of Lebanon if all stakeholders would just close ranks and stand shoulder to shoulder with one another. Problems according to this view are only political and all that the CMA has done in the past few years was “send very positive signals of trust to both the stakeholders and the investors” – so the CMA thinks.

This can be seen quite differently, however. There is no argument over the CMA’s regulatory function or the need to have a “new sheriff in town”. But when it comes to the issues of market control and the thorny problem of preserving free markets in Lebanon’s clientilistic environment, the CMA’s self-image of being a pristine agent that only serves the nation gets shaken.

Executive takes exception to the idea that Lebanese investors have to be protected from every conceivable risk. We have more faith in the Lebanese investor, not actually in the individuals but in their freedom to take moderate amounts of risk. Because risk is the defining ingredient of an economy where it is possible to achieve honest gains.

From Executive’s vantage point, it plainly does not convince us that a regulator is justified in removing the freedom of currency traders to offer leverage at the same level practiced in leading international financial environments, namely offering 50 to 1 leverage ratios for deals in major currencies (as prescribed since 2010 by the Securities and Exchange Commission in the United States).

The CMA has directed Lebanese traders to bring leverage down to only five times (see story here), and has done so, say market insiders, at the behest of the chairman. Not the financial market regulator of Cyprus or of England, which could conceivably see an advantage for their financial markets if Lebanese traders would migrate their business to either of these lands. No, the hyper-protectiveness of the CMA seems to be behind the stiff restriction on leverage ratios in the Lebanese market. The fact that critique of the decision was only voiced behind closed doors and the fact that all Lebanese CMA decisions are presented by its dependents (essentially every actor in Lebanese financial markets) as infallible dogma and beyond question even when competitiveness is obstructed, these two facts worry us.

Executive believes that a measure such as restricting leverage to – for currency trading – ridiculously low levels will not help with the growth of local capital markets, nor serve Lebanese investors who have built their reputation as skilled traders by calculating risks, not by avoiding them. Sure, this involved some painful lessons, but such is capitalism. The real essence of capitalism is not money, but the ability to learn from your financial mistakes and economic errors.

Or should there be another rationale behind the restriction of leverage to a level that is unsustainable for currency traders? We have received word that the plan is to ease leverage restrictions, once the pet project of an Electronic Trading Platform (ETP) at the Lebanese level becomes operational. Does this mean that some people in high places are inclined to consider the “casino” of currency trading to morph from an ethical liability to an asset once it is “our casino”? Does that mean that it will stop being considered a “casino” when the Lebanese capital markets become welcoming harbors and comfy havens for currency traders, when a monopoly of market control would guarantee that shares of revenues from currency trading fees and commissions would flow to the entity running the local ETP? (as the CMA’s Safieddine clearly revealed to Executive, see here).     

The narrative of the ETP has, in different iterations, been bandied around for more than two years, but has never answered all the questions regarding its feasibility or value added. We call for more clarity about the process of producing its prospectus and the alleged pre-selection of parties that would be prone to benefit financially from operating the ETP. We further call on the authorities to respect the freedom to take risks, which is integral to the formation of Lebanese capital markets. We also call for a declaration that any measure in the regulation or structuring of capital markets will guarantee the preservation of competition and will include safeguards against any monopolistic practice or imposition of a monopoly operation that would favor any private entity. The Lebanese have suffered more than enough repercussions from monopolies. We finally call for stakeholders in financial markets to be brave enough to call a spade a spade and openly and honestly voice their concerns over decisions from the top of the financial regulator. 

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