An anomaly would be set right when the running of the Bahrain Stock Exchange (BSE) moves from the hands of the Central Bank of Bahrain (CBB).

Currently, the CBB is breaching its own and the country's laws by running and supervising the stock exchange at the same time.

The proposal now is to create a new Bahrain Stock Exchange company and switch its authority from the CBB to the Industry and Commerce Ministry, which would register it as a shares company.

Also new specialised stock exchange companies would also be launched - with a new food stock exchange expected soon.

CBB governor Rasheed Al Maraj says that the conflict of interest between its duties as a supervisor and manager of stock was wrong and had to end.

"We had to come up with a new idea to move the Bahrain Stock Exchange from under our authority, considering that the CBB is there to monitor the stock exchange and not run it as is being done now," he says.

The proposed new stock exchange company, which will replace the current one, will be supervised by the CBB.

That would be the harbinger for the creation of many different stock exchange companies including a new food stock exchange, which is just awaiting the issuance of the stock companies law.

What would be the benefits of the new system?

Firstly, the new government proposal would create trust amongst everyone involved in the stock exchange.

Secondly, small and medium businesses that are hugely affected by the current stock exchange format will be taken into consideration, as they will be able to easily deal with stocks.

They will get more benefits and privileges, and studies have shown that the change will be for the better for everyone.

A new administration has been set up to regulate the new issuances market, while the role of the bourse will be restricted to stock trading.

Thus, the bourse will become a non-profit institution on the basis that it receives annual duties on listed corporate stocks and part of commissions paid to brokers for daily trading.

The bourse will also be able to make independent decisions to draw more stakes and securities, to borrow from banks or to enter into additional joint ventures.

A Malaysian company has conducted a feasibility study for the bourse privatisation. It will hold 20 per cent of the market's shares while 80 per cent will be put up for public subscription.

The bourse will be run by a Singaporean company, as per an already signed contract.

Bahrain's existing capital market is small by regional standards. The BSE had a market capitalisation of $16.6 billion (BD6.26 billion) at the end of August. After a five-year period of strong growth, it saw market capitalisation slashed by more than a third in 2008.

Besides the proposed privatisation of the BSE, the CBB is preparing an ambitious overhaul of its regulatory framework and is seeking an international partner to help develop the local capital market.

Bahrain would not be the first Gulf state to take steps to privatise the stock exchange. In June, Qatar launched the Qatar Exchange, in partnership with NYSE Euronext. The international exchanges operator took a 20 per cent stake in the new bourse.

The Qatar model follows a similar deal between Nasdaq and the Dubai government, which last year spawned NasdaqDubai. NasdaqDubai aims to extend its derivatives coverage, both in individual companies and indexes of those stocks, to regional markets including Kuwait and even Qatar.

Besides these, another financial exchange is taking shape in Bahrain. The Bahrain Financial Exchange (BFX) is to be launched in early 2010 with the aim of luring investors away from the likes of Qatar and Dubai by offering a broader range of products.

The BFX will initially provide commodities and currencies futures trading, and will later offer secondary trading in sukuk, or Islamic bonds, and other sharia-compliant products.

The BFX is wholly owned by India's Financial Technologies, which, in 2005, set up the Dubai Gold and Commodities Exchange, the Gulf's first derivatives exchange, and owns bourses in Singapore and Mauritius. It also has four exchanges in its home market of India, including the MCX India, the main commodities exchange.

Once it has secured regulatory approval from the CBB, Financial Technologies plans to solicit interest from international investors to take a minority stake in the exchange and help develop it as a business. In other markets, the company has entered partnerships with Citigroup and Merrill Lynch as co-investors.

Experts say BFX will enhance the diversification, productivity and competitiveness of the economy of Bahrain. The exchange would ensure increased transparency, sophistication and easier access to multiple asset markets.

The products offered on the exchange will enhance value addition and improve risk management in the sector, stimulating a virtuous cycle of investment and growth.

It will also provide a secondary market for Islamic bonds (sukuk), which does not have a strong secondary market and are usually held till maturity.