New platform to raise trading volume

Dubai: Nasdaq Dubai, the UAE's international stock exchange regulated by the Dubai Financial Services Authority Sunday started trading equities listed on it through the Dubai Financial Market trading platform.

The value of equities traded on Nasdaq Dubai rose by 65 per cent in the first five months of 2010 to $667 million from $404 million in the same period in 2009.

Equities volumes fell by seven per cent, to 1.46 billion shares from 1.57 billion.

Measured by percentage change, both the value and volume figures were the best performing of any UAE stock exchange in the five-month period, compared to the same period in 2009.

Traded equities value on Nasdaq Dubai in May fell by 21 per cent, reaching $93 million, compared to $118 million in May 2009.

Equities volumes in May this year were 198 million, 40 per cent lower than the total of 331 million in May 2009.

Despite the year-on-year fall in volumes, the bourse was the best performing of the UAE's stock exchanges, measured by percentage change from the year before.

Speaking to Gulf News on the potential of Nasdaq Dubai as an international exchange and the implications of the new outsourcing strategy, Nasdaq Dubai Chief Executive Officer Jeff Singer said the successful migration of its equities trading to the Dubai Financial Market platform would increase its reach to retail investors, and help the bourse improve volumes gradually.

Gulf News: Nasdaq Dubai and DFM listed shares are now traded on a common single platform. Does it really mean a merger between the two stock exchanges, as implied in some recent reports?

Jeff Singer: It is not a merger between two exchanges. The move is part of an outsourcing strategy to increase trading volumes on Nasdaq Dubai and strengthen Dubai's role as a centre of capital market activity.

At the same time, clearing, settlement and custody functions for Nasdaq Dubai equities will also migrate to Dubai Financial Market's systems.

In May, 2010, Dubai Financial Market became the majority owner of Nasdaq Dubai through an acquisition of shares from Borse Dubai and Nasdaq OMX, the international exchange group.

Nasdaq Dubai continues to remain a separate company regulated by the DFSA, the financial services regulator of the Dubai International Financial Centre. It retains its own legal framework, listing rules and members.

Under the outsourcing strategy, Nasdaq Dubai's equities will remain listed on Nasdaq Dubai and will not be listed on the Dubai Financial Market.

Trading of equity derivatives will continue to take place on Nasdaq Dubai's own trading platform and systems.

The move is aimed at attracting more retail investors to equities listed on Nasdaq Dubai. We initiated some reforms in 2008.

But in talking with brokers we realised that we needed to make a fundamental change in accordance with how they operated and how they interact with the exchange and investors.

The availability of Nasdaq shares to DFM brokers depends on their becoming members of Nasdaq. Have you simplified the norms of membership on Nasdaq Dubai? How many DFM brokers have taken membership on Nasdaq Dubai so far? Is there any move to expedite the process?

Common brokers to both the exchanges will be able to use the Dubai Financial Market trading platform to trade in equities listed on Nasdaq Dubai.

The Nasdaq Dubai-listed equities will be available on the system with Nasdaq Dubai prefix.

We compared our listing requirements to the Dubai Financial Market and the ESCA and found that Nasdaq Dubai does a lot of frontline regulations that the Dubai Financial Market allows Esca to do.

So, if you want to be a broker on the Dubai Financial Market it is a very short application process but one needs also to apply to Esca.

The Esca combined with the Dubai Financial Market application process is not the same as the Nasdaq Dubai requirements.

But to become a member on Nasdaq Dubai one does not have to apply with the DFSA. The regulator would review once we finished the process.

But as frontline regulator we take the responsibility to assure that the members are adhering to the rules.

Nasdaq Dubai shares are priced in dollars while DFM shares are priced in the dirham. Will this not become a problem for new members joining from DFM in terms of settlement and clearance?

It is not a problem, but it is going to be different. Obviously ours is a dollar-denominated market and the clearing and settlements have to be in dollars.

Eventually we will see if we can work with the central bank and the DFSA to denominate the clearing and settlements in dirham.

There has been a move by you to list shares in dirhams on Nadaq Dubai. Are you still going ahead with the move?

It has been cleared from our end. It has to be approved by the DFSA and the central bank. We are still working on that.

If that happens will it create a fungibility issue for Nasdaq Dubai when companies listed go for secondary listings on other international exchanges?

I don't think there should be any issue on that front. The dirham is an internationally recognised currency and moreover it is pegged to the dollar.

A number of Nasdaq Dubai secondary share listings have full fungibility with their listings on other international exchanges.

These arrangements will remain in place after the outsourcing arrangement is effected.

Recently there have been lots of talks about a merger between DFM and ADX, and potentially a three-way merger among all exchanges. What are your views?

I am not involved any of those conversations. But my view is that a unified exchange for the UAE would be good for the country and the region.

The latest reports from Nasdaq Dubai shows that trading values in absolute terms have improved this year, however the trading volumes have been in decline. What would you attribute this to?

The volumes in the UAE have been going down substantially. There is a host of reasons that affect the region.

There are specific capital market issues that affect this market as well. For example in the UAE you can make money only when the markets are going up. Between 2005 and the first half 2008 this was a great place to invest. When the markets started its free fall from July of 2008 investors pulled out.

What needs to be done to break such an impasse and make investors active on the market?

There has to be a way for institutional investors to make money in a bear market here. That is through short selling.

Investors should have the opportunity remain in the market through shorting, hedging or any alternate strategies. There are proposals to introduce it in the UAE and I think it is the right time to do so.

But regulators and governments across the world have been sceptical on short selling because they have been instrumental in driving down the asset prices in a bear market.

The share prices fell about 70 per cent from July 2008 to now, even in the absence of short selling here.

But if short selling was available to investors, that fall would happen faster, attracting more investors to enter cheaper.

The sharper pull-and-push factor would have kept the market a lot more active.

I am not advocating naked short selling (shorting without actually owning the underlying asset).

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