News that Abu Dhabi Global Market is in talks with Abu Dhabi Securities Exchange about the possibility of having a stock exchange within ADGM's free zone jurisdiction on Al Maryah Island is so intriguing it deserves a bit more analysis.
What follows is largely conjecture, because the talks are at an early stage. But, based on conversations with some of the leading players in the collaboration, it looks as though Abu Dhabi has decided that its new financial free zone needs a real, functioning market at its core.
That is sound thinking. All the world’s most successful financial hubs, from New York and London through to Frankfurt and Tokyo, are based on a thriving securities trading business. New York’s Wall Street, London’s Square Mile, Frankfurt’s “Mainhattan” and Tokyo’s Marunouchi inner circle all have at their centre a vibrant stock exchange based on an equities trading culture (although they have all expanded to also trade bonds, forex and other instruments.)
In the three years or so since ADGM was established, its strategic direction has refined to focus, at least in its initial stages, on wealth and asset management, and private banking. These were the sectors identified as having most potential, as the eastward drift of money management continued, dragging business to China, Singapore and Hong Kong.
But ADGM has always retained the capacity to be a full-spectrum financial hub. Its original specifications stated the full panoply of financial services, from asset management to investment banking and equity trading.
Its rules and regulations, under the ADGM Financial Services Regulatory Authority, allow for all forms of securities functions, from equity listings and initial public offerings to derivatives trading. So a move towards an equities function on Al Maryah should surprise nobody.
Exactly what form that will take is the subject of the discussions launched by this week’s MoU between ADGM and ADX.
ADX, for its part, performs an essential function in the UAE markets by providing a dirham-based market for, mainly, Abu Dhabi companies to raise capital in the local “onshore” market, and will guard this role jealously.
But ADGM leadership has identified the need for a different kind of market in its jurisdiction, one which will attract big regional listings by global players. If, for example, Saudi Aramco is looking for a home for its much-discussed IPO, surely a regional centre such as ADGM would be an attractive option?
There are hurdles to overcome before ADGM could perform this kind of function. The challenges are clearly highlighted in the experience of the Nasdaq Dubai market, which began life as the Dubai International Financial Exchange before rebranding in 2008. As an international equity exchange, it had some success, but decided its real interests lay elsewhere and is now mainly a thriving market for sukuk and other debt trading.
That leaves the field open for ADGM to have another tilt at the original project, with the collaboration of ADX and possibly an experienced international market operator. It’s a big ambition, but ADGM is in this game for the long term and the high value.
fkane@thenational.ae
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