Absolute Collateral
Steven Griffiths
14 November 2023
Justin Lawson, Â鶹´«Ã½ Finance Times publisher, speaks with Steven Griffiths, CEO and founder of Absolute Collateral, about the firm’s newly launched collateral management trading platform and the Gulf bond market
Image: Steven Griffiths
What is the main objective of the newly launched platform, Absolute Collateral, and why have you chosen to launch in Bahrain and target the Gulf Cooperation Council (GCC) markets?
Several years ago, I visited Bahrain for the first time for a conference. From the start, its entire ecosystem — which is built up of the Central Bank of Bahrain (CBB), the Bahrain Economic Development Board (EDB), Bahrain Börse, the International Islamic Financial Market (IIFM) and the Bahrain Association of Banks (BAB) — were all, and continue to be, very welcoming and motivated to put ideas into action.
Bahrain stood out as an ideal place to launch this new collateral management trading platform due to the available access to key players that have the ability and desire to implement new and innovative ideas into the markets. I feel very lucky and proud to say we have launched from Bahrain.
How does Absolute Collateral aim to increase transparency in the Gulf bond market?
We are looking to increase trading cooperation between regional players and capture what is currently being traded off and on the platform, via the phone and email. This is the beginning of creating transparency in the market, to first shed light on what is happening and what is being traded.
Why is there optimism that GCC banks and international banks will adopt the standardised documentation provided by Absolute Collateral?
Motivation to sign our standardised trading agreements stems from the new trading connections that are being established, as well as the new players that are entering the market. Both require trading documentation and unilateral negotiations — which are more effective than bilateral negotiations.
What challenges do GCC banks face when trading with international investment banks, and how does it affect pricing?
For GCC banks, trading with any bank can involve multiple bespoke repo documentation. For market participants pricing repos, this adds an extra layer of complexity where it is imperative for traders to keep track of each repo agreement versus each client they want to show a price to.
This is not dissimilar to what the Interest Rate Swap market historically experienced with its multi-currency, multi-haircut Credit Support Annex (CSA), where now the trend is to have single currency agreements. In short, documentation complexity and variety can create noticeable price variances for the same trade. As a result, some clients would be more adversely affected than others.
What is currently lacking in the GCC repo market, and how can platforms like Absolute Collateral help address this issue?
From our perspective, a tradable market includes repo, securities lending, the secondary trading of bonds and equities, as well as derivatives. The GCC greatly benefits from this tradable market. For this to happen effectively, I believe greater intra-country trading — banks within one country trading with each other — is needed. When each country has this type of trading momentum, it can expand beyond its border and it becomes easier for different countries and regions to trade with each other.
Having unilateral trading documents further supports this momentum and helps to create deep and liquid markets that are sustainable in the long run.
How can a viable repo market impact the trading of sukuk, and what are the potential advantages?
The primary issuance of a bond, such as sukuk, would greatly benefit from a follow-up, tradable market, where those bonds are embedded into the instruments traders use. Establishing a repo market is the beginning of opening up dynamics that encourage the secondary trading of sukuks and that can feed-back into larger, more frequent primary issuances of sukuks.
What potential benefits does a platform like Absolute Collateral offer in terms of standardisation and pricing information for sukuk trading?
In this respect, standardisation can take the form of pooling repo trading liquidity in the most active bonds to create benchmark rates from trading data, which can then be utilised by traders and issuers.
Do you have plans to bring Absolute Collateral to other markets?
We are currently working with a number of GCC countries, specifically the United Arab Emirates (UAE) and Qatar. We aim to include all of the GCC countries and the wider Middle East and North Africa (MENA) region while simultaneously working with clients outside of the region that would be interested in trading within this market.
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