National Bank of Abu Dhabi's role as the sole market maker for the Abu Dhabi Securities Exchange (ADX) has been thrown into confusion, amid conflicting reports as to whether it has ceased offering services after less than a year.
The bank, which began offering market-making services for four Abu Dhabi-listed stocks from February 2015, was reported by Reuters to have ceased offering the services in late 2015, according to sources with knowledge of the matter.
But the ADX's chief executive, Rashed Al Baloushi, insisted on Tuesday that the relationship with NBAD as exclusive market maker for the exchange was still in place.
"We haven't received any official notification from NBAD regarding this news," Mr Al Baloushi told The National on Tuesday morning, referring to the Reuters story.
“As far as we’re concerned, it’s business as usual, they have not stopped offering market making services.”
Speaking at the 10th GCC regulators forum in Abu Dhabi on Monday, NBAD’s chief executive, Alex Thursby, declined to comment on the market-making business, but appeared to downplay the importance of the bank’s equities division.
“We’re focusing on debt capital markets more than equities, because we don’t think it’s a natural place to play for us,” Mr Thursby said.
“We’re less of an equity house and more of a debt house. We can’t be all things to all men.”
Reuters reported that NBAD had scrapped the programme, which had not been profitable, after the departure of its head of equity market-making, Galen Moore, in November.
An NBAD spokeswoman said on Tuesday evening: “In regard to the activity of market making in particular, NBAD is currently re-assessing its role in this regard to reflect on its clients’ feedback, while addressing the regulatory framework which it is required to operate under.”
The bank was licensed by the ADX to offer market-making services in April 2014, but only started offering the services in February last year. It was hoped that the licensing of market-making institutions would increase liquidity and would facilitate greater participation of foreign financial institutions in the market, following the UAE’s inclusion in the MSCI Emerging Markets Index in May 2014.
Aldar Properties, Waha Capital, FGB and ADCB were the first stocks included in the programme, with Etisalat added in October 2015.
However, the increase in liquidity failed to materialise, as a fall in oil prices sapped investor appetite for stocks across the Middle East and other emerging markets.
Traded share volumes on the ADX and Dubai Financial Market dropped by 55 per cent and 43.5 per cent, respectively, in 2015 compared with the previous year, putting severe pressure on local brokerages.
Of the four market-maker stocks in Abu Dhabi, FGB fared best, with volumes declining by 10.4 per cent in 2015. Aldar Properties, meanwhile, had its volumes plummet 64.7 per cent in comparison with 2014. “You can understand NBAD’s decision to stop market-making, if that is what they’ve done,” said Muhammad Shabbir, the head of equities at Rasmala Investment Bank in Dubai.
“It’s a difficult workflow if you’re taking a position as a market maker when the direction of the market is only one way and the market is very illiquid.”
Mr Al Baloushi said in October that the impact of market-making services was “not as positive as we were expecting”, and that the exchange was in discussions with two other institutions for the services.
He confirmed on Tuesday that talks were continuing with institutions, again declining to name them.
jeverington@thenational.ae
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UK's plans to cut net migration
Under the UK government’s proposals, migrants will have to spend 10 years in the UK before being able to apply for citizenship.
Skilled worker visas will require a university degree, and there will be tighter restrictions on recruitment for jobs with skills shortages.
But what are described as "high-contributing" individuals such as doctors and nurses could be fast-tracked through the system.
Language requirements will be increased for all immigration routes to ensure a higher level of English.
Rules will also be laid out for adult dependants, meaning they will have to demonstrate a basic understanding of the language.
The plans also call for stricter tests for colleges and universities offering places to foreign students and a reduction in the time graduates can remain in the UK after their studies from two years to 18 months.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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