Greater transparency for UAE stock market

Trading floor UAE The UAE stock markets will start operating the delivery-versus-payment, or DvP, service from April 28, a move which is expected to bring back strong trading volumes of pre-economic crisis era. It will also help the UAE shares to get greater international prominence in the wake of possible MSCI upgrade in June.
“The UAE is first nation in the region to implement the DvP system,” the Emirates Securities and Commodities Authority, or SCA, said on Monday.
The authority said it has elevated the status of the equity markets on par with the New York Stock Exchange, the London Stock Exchange and the Hong Kong Stock Exchange.
“Both the ADX and DFM, in collaboration with the SCA, have completed all the necessary reparations for the successful implementation of the service,” the SCA said.
SCA Chief Executive Officer Abdullah Al Turifi dubbed it as “an effort to meet the requirements for the elevation of UAE markets to the emerging international markets status.
DFM Chief Executive Officer Essa Kazim termed it as an “important” development on the UAE markets.
“We hope the new development would contribute in uplifting our markets to the emerging market status, which will help attract more international mutual funds to our markets,” he added.
Delivery-versus-payment is a procedure in which payment for a security must be made when the security is delivered. Usually, the payment is made to a bank, which in turn pays for the security. The new system is being launched at a time when stock markets are showing little signs of recovery after crashing down to lowest levels in the last 30 months, as credit became scarce and global financial crisis hit markets. About 26 of the 102 share brokers in the country wound up their business operations due to plummeting share volumes, which now averages around 400 million shares a day.
ADX Deputy Chief Executive Officer and Director of Operations Rashid Al Bulooshi expected that the new mechanism will give a big push to the local market by enhancing greater transparency and giving greater depth to the market in the short, medium and long terms. Share traders have also welcomed the “timely” move, which will bring them new business.
Ameed Kanaan, General Manager of Abu Dhabi-based Al Jazeera Financial Services, said “his daily share trading volumes have gone down to three million shares a day on average against the breakeven requirement of 11-12 million shares… It is very difficult to survive in the competitive business.” The new system, he expected “will attract new business, depending on the regional geo-political and economic situation by at least June this year,” as the indices of the local bourses will be included in the MSCI which is tracked by trillions of US dollar of funds that will encourage fund managers to buy low-price shares.
In September last year, 21 UAE companies including Emmar Properties were added to London-based FTSE Index, which is tracked by the $3 trillion of funds. However, Kanaan said it didn’t impact much on trading volumes.
It is expected that DvP would help minimise the risks emanating from the delivery and receipt of securities as both the ownership transfer and payment of securities cost will be done simultaneously, the stock market watchdog said.
Index provider MSCI Inc last year said the UAE’s’ dual account structure is one of the reasons for its frontier market status and kept the country under review for reclassification.
Bloomberg adds: About 30 companies have expressed interest in an initial public offering in Dubai, Essa Kazim said. “There is a “relatively big backlog” building up for IPOs,” said Kazim, who is also chairman of Bourse Dubai.
He said the companies met with the DFM and Nasdaq Dubai and expressed interest in going public in the next three to five years.
Nasdaq Dubai’s Chief Executive Officer Jeffrey Singer said the initial public offerings pipeline at the bourse is “surprisingly robust.” Singer, speaking in Dubai, said the Dubai Financial Market is testing a delivery-versus-payments system.