Small brokerage firms face bankruptcies or mergers

Abu Dhabi: Last week's market crash is forcing small brokerage firms in the UAE into a corner and will drive some either to bankruptcy or mergers, officials and brokers said on Tuesday.

The scale of the crisis required brokers to execute massive selling at losses, a development that only the fittest could have survived.

"The market meltdown have demonstrated clearly the need to focus on the condition of the brokerage firms, its commitment to transparency and professionalism, and more importantly, the need for more efficiency in the services through mergers and acquisitions in the brokerage community," Abdullah Al Torreifi, the Chief Executive Officer of the Securities and Commodities Authority (SCA), said on Tuesday.

"There is a pressing need to set a framework for the profession's ethics, and a thorough revision for the regulatory framework," he added.

SCA has already introduced regulations requiring increase in capital and professionalism among staff of brokerages, in addition to the segregation of accounts.

"The crash was so strong to affect smaller brokerages in the country, and I will not be surprised to hear that some will be stepping out or merging soon," a senior executive at a major broker told Gulf News.

"The reason is that clients have had urgent needs and needed backing through margin trading, and strong positions, and this is where small brokerages can fail them, and accordingly lose them as well as hefty amounts of money," he added.

Al Torreifi recalled, "In this context, the authority has already extended the invitation for brokerages to organise themselves in a professional body, enabling them to have a representative in our board of directors, as well as any forum or conference."

"We will soon be witnessing the fruit of that invitation," he indicated.

Meanwhile, major brokers revealed optimism towards the ongoing developments, anticipating a strong market rebound.

"There are several elements causing the optimism including the excellent valuations where many shares are trading below the book value and the ongoing economic development in the region," commented Khalid Kordia, managing director of Mashreq Securities.