Business | Markets

Esca's advisory board recommends merger of bourses

The markets would witness significant growth if merged into one

  • By Babu Das Augustine, Deputy Business Editor
  • Published: 15:54 December 21, 2010

Financial hub
  • Image Credit: Megan Hirons Mahon/Gulf News
  • The Gate, Dubai International Financial Centre. The UAE currently has three stock exchanges - the Abu Dhabi Securities Exchange, Dubai Financial Market and Nasdaq Dubai.

Dubai: Merging stock exchanges in the UAE is key to boosting liquidity in the country's market, the Advisory Board of Emirates Securities and Commodities Authority (Esca) said on Tuesday.

"The markets would witness significant growth if merged into one," the regulator's Advisory Board said. It also recommended the encouraging of family and private companies to list on the market.

Market intermediaries and analysts said yesterday that a merger of stock exchanges would improve the depth and sophistication of the UAE market and make it more attractive to foreign institutional investors.

"A larger market with a higher number of liquid stocks, clearer rules investments and risk management and exit options will attract more foreign investors," said P. Krishnamurthy, CEO of Dubai International Securities.

Analysts said with the local markets being strong contenders to join the global emerging markets, a larger market with more liquid stocks would be a clear advantage.

"A merger of local stock exchanges to create a large single market is a positive development as it would ensure unified regulations and reduced costs of doing business," said Tariq Qaqish, Director and Fund Manager at Al Mal Capital.

The UAE currently has three stock exchanges — the Abu Dhabi Securities Exchange (ADX), Dubai Financial Market (DFM) and Nasdaq Dubai.

There were reports early this year that negotiations were on between ADX and DFM for a potential merger. Merging the two exchanges would create the second-biggest bourse in the Arab world after Saudi Arabia's Tadawul All Share Index.

Right direction

"In the overall stock exchange consolidation around the world, it is a move in the right direction. Ideally all three bourses should be merged into one. It will create some critical minimum liquidity," said Mohammad Ali Yasin, Chief Investment Officer of CAPM Investment.

Officials from both ADX and DFM were not available for comment. Earlier this year both exchanges denied plans for an immediate merger, although officials from both exchanges agreed that there are advantages to having a single exchange.

In recent months there have been reports that Goldman Sachs is in the final stages of studying a possible merger between the UAE's stock markets.

Margin trading to improve volumes

The board of the Emirates Securities and Commodities Authority (ESCA) yesterday approved an amendment to the new Margin Trading Regulation.

"The amendment now allows margin trading without necessarily identifying the securities being traded," Esca said in a statement.

Many in the stock broking community welcomed the move and said margin trading in a regulated environment is going to boost the volumes on the markets. "The amendment to the regulations on margin trading is expected encourage day traders and speculators to come back to the market," said P. Krishnamurthy, CEO of Dubai International Securities.

Merger

Analysts said while margin trading can improve volumes on the market and it will be more effective when the exchanges are merged into a single entity. Margin trading regulations mandate separation of client accounts from that of brokers'. In an environment with multiple exchanges, to do margin trading brokers will be required to maintain multiple accounts for a single client.

Do you think this will add depth to the UAE stock market? Do you think it will help the UAE's equity investors?

Comments (2)

  1. Added 12:14 December 22, 2010

    Margin trading is one of the fundamental parts of regulation in a successful market place. In this case, ESCA made another progress in getting the three Exchanges closer from a regulatory point of view; however, the biggest achievement will be the ability to merge them into one UAE Stock Market. Hence, making it easier, and less costly to transact share trading.

    Ahmad Mouneimneh, Geneva , Switzerland

  2. Added 07:45 December 22, 2010

    Merging exchanges is essential to attract private individual traders. In addition, brokers must offer a modern on-line trading platform software and low commissions and spreads. As volumes increase, the unified exchange must offer other investment products such as options and CFDs. Many people, myself included, and institutions prefer investing via Exchange traded funds. The Gulf needs a handful of these too in order to make it easier and cheaper to invest in the Gulf economy.

    Ian McKay, Dubai, United Arab Emirates

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