Liquidity and product offering set to increase as ADX launches derivatives market

The emirate’s bourse plans to introduce index futures in the first quarter of 2022

The Abu Dhabi Securities Exchange introduced a derivatives market on Thursday as the exchange rolls out initiatives to develop Abu Dhabi’s capital markets and bring its products and services in line with global peers. Photo: ADX
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Abu Dhabi Securities Exchange launched a derivatives market on Thursday that will allow trading in single stock futures as part of the bourse's strategy to develop the emirate's capital markets and bring its products and services in line with global peers.

Trading in the single equity futures of Etisalat, First Abu Dhabi Bank, the UAE’s largest lender by assets, International Holding Company, Adnoc Distribution and Aldar Properties started on Thursday, with more securities to be added later this year and in 2022, according to a statement from Abu Dhabi Media Office.

"With the launch of single equity futures, the new market will give investors and traders the opportunity to benefit from increased leverage, two-way market exposure and hedging capabilities," the ADX said in a statement on Thursday.

The emirate’s bourse plans to introduce index futures in the first quarter of 2022, ahead of the expansion into a wider range of derivative products that will boost market liquidity. The ADX has rallied about 58 per cent year-to-date on the back of initial public offerings, rising foreign investment and higher oil prices that have boosted investor confidence leading to the market value soaring to nearly Dh1.5 trillion ($403 billion).

In October, Fertiglobe, the world’s largest seaborne exporter of urea and ammonia combined, raised about $795 million from its listing on the ADX. That offering followed Adnoc Drilling which reaped $1.1bn from its listing in the same month. In July, Al Yah Satellite Communications, better known as Yahsat, a unit of Mubadala Investment Company, raised about $730 million through its listing.

“The introduction of stock and index futures will support our ‘ADX One’ strategy, which aims to provide diversification avenues and enhance liquidity to create a dynamic capital market,” Mohammed Al Shorafa, chairman of ADX, said.

“At the same time, the exchange’s efforts to provide innovative products and services will aid the Emirate’s sustainable economic growth trajectory, providing further opportunities for investors to share in the unique growth opportunities afforded by Abu Dhabi companies.”

Three market makers including ADQ’s Q Market Makers, BHM Capital and Al Ramz Capital are joining the ADX derivatives market to provide liquidity on the new platform and facilitate an efficient and orderly market, according to the statement. The derivatives market is using marketplace technology delivered by Nasdaq.

“The launch of a derivatives market on the ADX is another sign of deepening capital markets in the region … deep and active derivatives markets will provide us with more instruments to express our trading views and hedge certain risks," said Mohamed El Jamal, chief investment officer of Waha Capital’s public markets business and lead portfolio manager of the Waha MENA Equity Fund.

"The active presence of market makers should be positive in supporting underlying liquidity of these instruments”.

The ADX is expanding investable asset classes and developing new offerings for regional and international investors, as the region’s second-biggest bourse continues to outperform its peers in the GCC.

In September, the ADX waived the minimum commission fee on the trading of all listed securities to boost trading by smaller investors.

The new move comes as Abu Dhabi announced plans to launch a Dh5bn ($1.3bn) IPO fund to help encourage and support private companies to list on the local stock market.

The fund will be overseen by the Supreme Council for Financial and Economic Affairs and managed by the Abu Dhabi Department of Economic Development (Added), the Abu Dhabi Government Media Office said last month.

The IPO fund will invest in five to 10 private companies a year, with a special focus on small and medium enterprises, and will aim to have a ticket size of between 10 and 40 per cent of the float.

The bourse also launched central counterparty clearing to promote clearing efficiency, stability and confidence in the market along with a derivatives market on Thursday.

"The continued development of ADX will encourage companies to raise capital to fund their needs while diversifying their investor base," Saeed Al Dhaheri, chief executive of ADX, said. "We will continue to attract investors worldwide by enhancing our technology and providing a greater choice of products and services.”

Updated: November 04, 2021, 9:27 AM