Dubai Financial Market acquires Nasdaq Dubai

Posted on 22 December 2009 with no comments from readers

When the Dubai International Financial Centre first launched a new regional stock market former HSBC brokerage chief Peter Nankervis argued vigorously with the Dubai Financial Market that this was the wrong route to take.

He thought the DFM should have been broadened and expanded into a larger exchange, rather than creating yet another local trading platform. And even after today’s news that the DFM is to acquire Nasdaq Dubai, the Abu Dhabi bourse remains a second trading floor in the relatively small United Arab Emirates.

Details of the takeover have not yet been released, and it will almost certainly fall someway short of the single trading floor for Dubai that Mr. Nankervis proposed all those years ago.

Liquidity goal

Nasdaq Dubai CEO Jeff Singer said: ‘The new ownership structure will create a dynamic new force in the region’s capital markets, by combining the regional and international strengths of the DFM and Nasdaq Dubai. Collaboration between the two exchanges will increase, promoting higher liquidity and more listings on both of them.

‘This new structure will help Nasdaq Dubai and DFM attract more issuers from across the region and beyond, strengthening Dubai’s role as a centre of capital markets growth and innovation. Issuers can choose which exchange to list on according to their commercial and regulatory needs.’

The immediate objective is to merge back office functions, including custody and clearing. This will save money and should provide a better service to investors who currently need to register separately with each bourse.

But at the same time Nasdaq Dubai will continue to be regulated to international standards by the Dubai Financial Services Authority and retain its legal status as a limited company, together with its own board of directors and CEO.

Still separate

Mr. Singer said: ‘The two exchanges will move closer together in ways that benefit both, while retaining their separate strengths, such as regulation, where appropriate’.

‘Both the ownership and operational consolidation plans have been carefully prepared to benefit the current and potential market participants of Nasdaq Dubai and DFM, including investors, issuers and brokers. It is by putting their interests first that Dubai will achieve its goal of creating a powerful capital markets hub for the GCC and wider Middle East.’

It is probably too early to judge what this marriage of convenience means for investors, and of course an even greater level of integration might follow. But in the world of stock markets what has gone down always eventually goes up.

The DFM crashed in 1999 and then again in 2005, and on that reckoning the next crash ought to be in 2012. But before a crash you first need a boom, and that hardly seems in sight for 2010, perhaps 2011? Then a larger, integrated platform will be essential to handle the volume of trading, a remarkable thought in current circumstances.