On Agenda: Blurred lines between DIFC and local market

There exists a great deal of confusion over the roles of the Dubai Financial Market and the proposed Dubai International Financial Exchange.

This has been the case ever since the Dubai International Financial Centre announced the move for a regional or international exchange to be part of DIFC. But certain subsequent developments have only added to the confusion rather than help clarify things.

One would have liked to think that the lack of clarity may be merely an issue of perception by the banking and financial circles, but an observation the other day by Shaikha Lubna Al Qasimi, Minister for Economy and Planning, that the state of affairs requires greater clarity shows that the confusion is causing botheration at higher levels as well.

While talking about transparency and rules governing foreign direct investment at a meeting of bankers, the minister reportedly said that there was need for greater clarity on the line dividing the local market and the DIFC and it cannot remain blurred.

One of the most obvious discrepancies about the DFM and the international exchange concerns the status of local and regional companies, some of which are now listed on the DFM, but have the profile and clout to be part of a bigger entity like the DIFC exchange.

Dubai's Emaar Properties, for instance, has its primary listing on the DFM, but the share accounts for one of the largest weights in the Arabian Titan 50 index that the DIFC has launched along with Shuaa Capital and Dow Jones Index.

Regulations

Even assuming that there is no bar on the same stock being listed on two different exchanges, it has, however, regulatory and compliance implications.

The DIFX is supposed to have the best of class regulations, whenever it is ready for operation, but it remains to be seen how its regulatory regime can reconcile to the lower transparency levels and the inadequate regulatory systems that characterise most of the regional markets.

Is there a conflict of interest between the DFM and the DIFX? And if the roles are complementary, as has been explained so far, what is the guidance for regional companies seeking to list on multiple exchanges?

The DFM is already listing regional stocks, with shares like Arig being traded on its floor. The Arabian Titan 50 being a regional index, one would naturally assume that the DIFC considers its exchange as the most appropriate forum for such regional companies.

Doesn't it mean that there is a conflict of interest with other local exchanges?

Nature of business

Another major area lacking clarity is the nature of business that entities registered with DIFC are eligible to undertake in the local market.

As a matter of rule, the broad restriction is understood to be that the DIFC entities are debarred from transactions in dirhams, which generally fall in the purview of banks.

Does the restriction apply to asset management companies, which form a core activity of the DIFC? If it does, these companies won't be able to accept deposits locally, and that surely is not a good thing for the companies operating at the centre.

How truthfully this restriction can be implemented is a moot point, particularly in the context of a free currency regime where there is no restriction on conversion, flow or repatriation of capital.

The first step towards solving a problem is the acknowledgement of its existence, and not wishing it away. In this context, Shaikha Lubna's call for clarification on the line dividing the local market and the DIFC is indeed very positive.

It is when things remain blurred that there is cause for concern. Let us hope that will no longer be the case.

The writer is a UAE-based journalist