Nasdaq Dubai focuses on derivatives

Dubai: Jeff Singer came to Dubai in July 2008 as the Chief Executive of Dubai International Financial Exchange, which was re-branded as Nasdaq Dubai last November.

Singer - previously a senior vice-president, international listings of Nasdaq OMX Group - was responsible for global listings business development and managing international relationships with companies outside the Americas.

Armed with a Masters degree in Business Administration from Harvard Business School and a degree in international fin-ance from Brigham Young University, Singer aims to transform the relatively young Nasdaq Dubai into a vibrant international market for equities, derivatives, structured products, sukuk and conventional bonds.

Amid the global economic downturn, Singer and his team are quietly working towards their target of developing a market that will have a regional leadership in derivatives trading.

In a recent interview with Gulf News, Singer spoke about the bourse's derivatives strategy and the regional and international growth opportunities that lie ahead for Nasdaq Dubai.

Gulf News: Nasdaq Dubai is moving at a relatively slow pace compared to what one would have expected, especially in terms of attracting retail investors and listing of local and regional companies. How do you look at this?

JEFF SINGER: The market is certainly acquiring depth. We have a good mix of institutional and retail investors. Last year we had a major push to get retail and local investors more involved by adding members and switching to dirham trading.
This year about 75 per cent of our volumes come from institutional investors while the remaining comes from local retail investors.

Clearly we are majority supported by institutions, while local markets are 75 per cent supported by the retail segment. But compared to last year there has been a significant improvement in our local retail participation.

Last year, Nasdaq Dubai announced that companies listed on it can start trading their shares in dirhams. This move was aimed at improving the local retail participation. Are all listed companies allowed to do so? And, has there been any taker for this?

All companies listed on Nasdaq Dubai and intending to do so can trade their shares in dirhams. They have to get a shareholder resolution getting the approval of their shareholders and change trading from dollar to dirhams.

So far, no company has started this. Many of them have shown interest and we expect the new issues in the future will come up in dirhams. We expect the future listings from within the UAE to be in dirhams and from the region to be in dollars.

We are still in the middle of the global financial crisis. Yet, as a market operator, what kind of vibes do you get on new issues? Are there any local or regional companies planning IPOs in the near future?

We are preparing for the post-crisis scenario. We are visiting both local and regional companies to explain to them the key differences between Nasdaq Dubai and other regional and local markets.

As part of the crisis, there has been a slowdown in IPOs across the world. In the region we expect a few issues from Saudi this year because of their relatively low exposure to US monetary and fiscal policies.

In these times when there aren't many IPOs we are looking at listing innovative products. One such listing was the Dubai Gold Securities (DGS) that was listed on the exchange in March. DGS is a Shariah-compliant product that is designed to track the spot price of Gold.

The DGS listing was the first listing on any stock exchange in the GCC in 2009. We have seen substantial growth in the volumes of this product as it gives exposure to the market without having to deal with the hassles and costs associated with the handling of physical gold.

I expect this product to gain popularity because it is both Sharia-compliant and eliminates risks and costs associated with physical gold. We are marketing it to both institutional and retail investors.

What class of asset is DGS? Do you have plans to introduce Exchange Traded Funds on Nasdaq Dubai?

DGS is an exchange traded commodity backed by real gold. For all practical purposes it is a gold share. Listing of Exchange Traded Funds (ETFs) we will certainly look at as an option sometime in the future. But ETFs are not generally very liquid products.

With the introduction of dirham denominated trading the difference between Nasdaq Dubai and other regional exchanges has become very thin. What makes your exchange unique for investors and companies that are opting to list with you?

We are far different from most local exchanges and offer unique advantages to investors and companies listed with us. Take for example over-the-counter trading we allow. This offers trading opportunities through institutional channels and reporting to the exchange later.

This offers institutional investors to take huge positions in stocks without making an impact on the price. That is a huge value to institutional investors that can't be done on local markets.

Another big difference is that we allow covered short selling. If you are an institutional investor and you want to hedge your positions, you need to be able to do covered-short selling.

For companies looking to list on stock markets, we have one of the lowest listing thresholds of as little as 25 per cent as long as they have a market capitalisation of $50 million (Dh183.5 million). That means even small companies can seek listing on Nasdaq Dubai.

Is it true that tough listing requirements and cumbersome paperwork to get listed on Nasdaq Dubai has kept many regional companies away from it?

That is not true. In fact listing requirements and paperwork are pretty similar to all other regional markets. One key difference is that we demand transparency and stringent corporate governance standards which we believe are very important for the credibility of the market and the products traded on the market.

Thus it simply conveys to the investor community that if you qualify to be listed on Nasdaq Dubai, you are a very good company in terms of your governance standards.

Does listing on Nasdaq Dubai automatically qualify a company to cross-list on other Nasdaq OMX Group exchanges?

No. Nasdaq is creating a listing venue in London. It will probably be much easier for companies listed on Nasdaq Dubai to list in London than to list on Nasdaq in the US.

Is a cross-listing by a Nasdaq-listed company on Nasdaq Dubai an easy process? Are you expecting some companies from the US to cross-list on Nasdaq Dubai?

Last year a number of companies had shown interest in cross-listing their shares in Dubai. We still believe there is interest, but there has been a slowdown due to the financial crisis.

Do you expect the re-branding is going to help you in attracting more regional listings?

We believe the close association with Nasdaq OMX Group and the re-branding is certainly going to improve the credibility and profile of the bourse. The results will be visible once the economic conditions stabilise and confidence returns to the market.

At the launch of the exchange there were expectations that regional family businesses would opt to list their shares on it. Do you still see that happening?

There is still strong interest from the local and regional family businesses to get their shares listed on Nasdaq Dubai. We are in touch with some of the leading family businesses in Dubai, Abu Dhabi and across the Gulf region. I can confirm that they are still interested.

The exchange seems to be focusing on derivatives. Going forward, are derivatives going to drive a major portion of the volumes on Nasdaq Dubai?

We are working on a strategy that will give us a head start in regional derivatives trading. Nasdaq Dubai currently has 19 equity instruments, 132 derivative contracts and 19 sukuks listed on it. We have plans to offer more equity derivatives, both futures and options, in the coming months.

The exchange plans to expand its derivatives offerings by listing options on equity indices and individual equities. The options trading will give enormous hedging opportunities to investors.

The exchange will start options trading on a few listed equities and indices soon. We are working on a plan to create futures contracts on some of the most liquid stocks traded on some of the regional stock exchanges ...

Derivatives can provide investors with price insurance and create liquidity and stability in the underlying shares.