Any move to consolidate stock exchanges in the UAE would have significant repercussions in Gulf markets and around the world, and possibly spark the next wave of merger fever among global bourses.
Goldman Sachs, the US investment bank, is advising the Abu Dhabi Government on how to rationalise the three stock markets currently operating in the UAE. Although the bank is not talking in detail about its proposals, insiders believe it is likely at the very least to involve a merger between the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM).
But, with a delicate web of relationships and cross-shareholdings between regional exchanges and the big global players in Europe and the US, Goldman Sachs is also likely to be thinking of the bigger strategic scene beyond the local set-up.
"If Goldman are involved, they'll be thinking big and global. It's in their nature," said one Dubai banker, who asked not to be identified. A London spokeswoman for Goldman Sachs declined to comment.
Speculation about unification of the UAE exchanges has been bubbling along for at least the past year, but it received a fresh boost last month with a report in the British press that Abu Dhabi was considering buying the 20 per cent stake in the London Stock Exchange (LSE) held by Dubai.
Ahmed Humaid al Tayer, the governor of the Dubai International Financial Centre (DIFC), emphatically denied there were any current plans to sell the stake - but that will not put an end to the speculation.
"I believe there will be consolidation at a local level, but Abu Dhabi may not need to own the shares in LSE," said John Gilchrist, the former head of communications for the ADX and the Dubai Financial Services Authority and now a freelance consultant on stock market matters. "[Abu Dhabi] has tactical and strategic wealth and it could invest in any number of exchanges, with London just one option."
The roots of the complex pattern of cross-shareholdings and alliances go back to the summer of 2007, when Dubai bought shares from NASDAQ, the New York exchange that had failed in an attempted takeover of the LSE. In those pre-crisis days, it seemed briefly that the emirate was about to become the hub of a new global market structure that would embrace London, New York and the Middle East.
The credit crisis appears to have put paid to those grand ideas. Dubai is now sitting on a significant loss on its LSE stake, which is worth about half the US$1.5 billion (Dh5.5bn) the emirate paid. From being a potential bidder for the LSE back in 2007, Dubai is now widely regarded as being a seller - at the right price and to the right buyer, of course.
One possible purchaser is Qatar. The ambitious Gulf state has a long-standing relationship with the LSE, and was prompted by Dubai's bold moves in 2007 to buy what it hoped would be a blocking stake, which currently stands at about 15 per cent. That suggests Qatar might be willing to add to its holding in LSE if the Dubai shares were for sale.
But would Dubai be prepared to sell to its great rival in the region? "Qatar and Dubai have been going head to head for years," says Mr Gilchrist. It is unlikely Dubai would want to advance Qatar's claims to be the premier financial marketplace in the Gulf by giving it a commanding stake in LSE.
Another scenario could result from a deal between Dubai and Abu Dhabi; Qatar is relatively happy as long as the 20 per cent holding is with Dubai, which has limited funds to build its stake, but it might be worried if it went to oil-rich Abu Dhabi - so worried, in fact, that it might mount a pre-emptive bid for the whole of the LSE.
How this would go down in London is unclear. The LSE has fought several battles to maintain its independence against German, US and Australian bidders, but that was under old management. Xavier Rolet, the current LSE chief executive, spoke recently of the "excellent relationship" the exchange has with its Middle East investors. Insiders say, however, the manner in which Dubai procured its shares in 2007 - from what was then a hostile bidder in the shape of NASDAQ - still rankles with London. It is debatable whether Abu Dhabi would be any more welcome than Dubai. The LSE still appears to prefer Qatar.
The manoeuvrings in the Gulf are part of a wider rationalisation of global exchanges, with the strings being pulled largely by New York. Central to Dubai's strategy is its relationship with NASDAQ OMX, headquartered in New York. Despite selling some of its NASDAQ OMX shares last month, Dubai still holds a 15 per cent stake in the exchange company.
The alliance with NASDAQ is the main plank of Dubai's ambitions to build an international marketplace in the region, via the NASDAQ Dubai exchange in the DIFC.
But, simultaneously, Abu Dhabi has a strategic partnership with NYSE Euronext, the great US rival to NASDAQ OMX, dating to 2008.
Some believe that Abu Dhabi's alliance, although still valid on paper, has been more or less moribund since the NYSE took a 20 per cent stake in the Qatar Exchange, formerly the Doha Securities Market, and announced a strategic partnership with Qatar later the same year.
It is entirely possible the historic rivalry between the two New York giants could be played out via their proxies in the Gulf, with the ultimate ownership of the LSE as the great prize - and Goldman Sachs in the very thick of it.
