Thomas Murray, the specialist custody rating, risk management and research firm is pleased has issued a Public Depository Rating of ‘A’to The Misr Company for Central Clearing, Depository & Registry (MCDR) of Egypt.
The Misr Company for Central Clearing, Depository & Registry is the major depository for equities and fixed income securities in Egypt. MCDR has a sound ownership structure with ownership dispersed among market participants such as banks, brokers and the Cairo and Alexandria Stock Exchanges. By law, the maximum ownership is restricted to 5%.
MCDR has established settlement links with Clearstream Banking and Euroclear and has co-operative relationships with other regional depositories in Abu Dhabi, Kuwait and Libya. MCDR is regulated by the Capital Markets Authority (CMA). Internally MCDR has a centralised decision making structure with a nine person board and there are both Audit and Risk Management Committees in operation that report to the Board.
MCDR’s rating of ‘A’ relates to a low risk management profile and a ‘Stable’ outlook has been assigned by Thomas Murray. The outlook indicates that the rating of ‘A’ is unlikely to change in the near future. However, MCDR has a number of projects in progress that will help to mitigate risk and help to improve the rating in the future. One such development is the introduction of short selling and stock borrowing and lending arrangements which became effective in April. Another is the development of SWIFT 15022 messaging.
In general, MCDR has good clearing and settlement processes and has achieved a near 100% settlement rate by adopting pro-active fails management practices. In respect of asset servicing, MCDR has adopted an extremely flexible and client-orientated dividend distribution service. In its operations, MCDR uses manual processes in a number of areas but compensates for them with a strong operational control culture. Financial risk is considered to be low as MCDR has made healthy profits in recent years, despite being a not-for-profit entity.
It has gradually increased its reserves through retained earnings and has had approval to further increase the paid-in capital to EGP 140 million. MCDR has significant levels of liquid assets available and has recently increased its insurance coverage to EGP 38 million although it does not carry Professional Indemnity cover.
There are also areas of its operations that could be improved; with broker – custodian settlement not being centralised in MCDR and thus brokers not achieving true DVP settlement, external operational audits have not been conducted and MCDR faces ongoing expense and effort in having to keep physical documents. Furthermore DRP and BCP arrangements could be upgraded.
“Thomas Murray is delighted to be able to announce the public rating of The Misr Company for Central Clearing, Depository & Registry. MCDR has taken a positive approach to the implementation of sound risk management controls and adopts processes that work well within the current Egyptian marketplace.
“It has developed a business model that has placed it in a central position within the Egyptian capital market infrastructure, clearing and settling most kinds of Egyptian securities and acting as central registrar to listed companies for both retail and institutional investors. Nevertheless MCDR faces challenges in the future in enhancing the infrastructural processes to improve efficiency and further mitigate risk. Overall MCDR has operated a successful business that is well-supported by the market participants,” says Simon Thomas, CEO and chief ratings officer, Thomas Murray.
“The Misr Company for Central Clearing, Depository & Registry is pleased to have worked closely with Thomas Murray on the Central Securities Depository rating. We found that Thomas Murray’s rating methodology provided our business with a comprehensive benchmark assessment of our operating processes and has been helpful in identifying areas on which to focus our future risk development efforts.
“While we are pleased with the progress we have made over the years and the award of an ‘A’ rating reflects this, we remain dedicated to further mitigate risk and improve our rating over the next few years. We are sure the rating from Thomas Murray, being an independent expert, will give the Misr Company for Central Clearing, Depository & Registry a platform on which to further develop and improve its business for the benefit of the Egyptian securities market,” adds Mohamed S Abdel Salam, chairman and managing director, The Misr Company for Central Clearing, Depository & Registry.
The Central Securities Depository rating assesses the performance of the CSD to mitigate risk in its activities of safekeeping and the clearing and settlement of securities, where applicable. It assesses six key risks. 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 rating, the scope and quality of the depository’s services is assessed. The ratings are on a consistent global scale, using the familiar AAA to C ratings scale. Once the rating is assigned there is an ongoing surveillance process to monitor the depository.