NASDAQ chief calls for unified exchanges

A merger of the Abu Dhabi and and Dubai stock exchanges to create a unified UAE bourse would attract international investors and the volumes needed for a healthy market.

July 28, 2010 / Abu Dhabi / (Rich-Joseph Facun / The National) Stock images from the Abu Dhabi Securities Exchange photographed Wednesday, July 28, 2010.
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A merger of the Abu Dhabi and Dubai stock exchanges to create a unified UAE bourse would attract international investors and the volumes needed for a healthy market, says Jeff Singer, the chief executive of NASDAQ Dubai.

"All these international investors see the UAE as one place - it's not Dubai and Abu Dhabi," he said yesterday. "Competing interests are at play and we are not big enough to have competing interests."

Three bourses operate in the UAE — Abu Dhabi Securities Exchange (ADX), Dubai Financial Market (DFM) and NASDAQ Dubai.

The two Dubai bourses have already consolidated many of their operations this year so that shares trade on a common platform, even though the two exchanges have different regulators.

Mr Singer said the different rules for each of the three bourses remained confusing to outsiders and a major obstacle to the UAE becoming classified as an emerging market by the index provider MSCI. He called the potential upgrade "very important" to reviving volumes on all local markets.

"We need to figure out a way to get institutional investors to come into the market, rather than sit it out and wait until the market improves," he said. "It makes it a lot easier for the exchanges if they harmonise."

A potential merger between DFM and ADX has been discussed since at least March and would create the second-biggest exchange in the Arab world after Saudi Arabia's Tadawul All-Share Index, with a combined market capitalisation of US$104 billion (Dh381.97bn), according to data from Bloomberg.

Officials with both of those exchanges have said the discussions are taking place at the governmental level.

Mr Singer said he was not advocating a complete merger as much as a consolidation that would allow outside investors to trade all UAE companies on the same platform and with mostly the same rules and regulations. This would reduce operating costs as well as boost liquidity, he said.

The exodus of many retail investors from local markets in the aftermath of last year's property crash has left UAE markets desperately lacking in volume.

"When you combine them, liquidity is strong, management is stronger and the will can be translated to action faster," said Fadi al Said, a fund manager for ING.

Many analysts have also said a merger of some sort would help to shake up the stagnant market.

"I think they should expedite [a merger] now," said Shehzad Janab, the head of asset management at Daman Investments. "Having one entry point for all investors is a lot easier. How can you justify traded values of shares at 200 million in the UAE [yesterday] as a whole, when Saudi Arabia is at 2.5 billion?"

Mr Singer declined to comment on how quickly a consolidation could happen but he said there were stumbling blocks that needed to be addressed first, including developing a consistent payment and delivery system for traders.

Although some have cited the location of a combined exchange as a potentially thorny issue, Mr Singer said this was not relevant to the merger.

Analysts see it as more of a political issue that should not get in the way of a merger. At present two regulators oversee three exchanges.

The Emirates Securities and Commodities Authority (SCA) regulates the DFM and ADX, while the Dubai Financial Securities Authority monitors NASDAQ Dubai, which operates more in line with western markets.

There was a move towards a unified market in December last year, when Borse Dubai, the majority owner of the DFM and NASDAQ, agreed to buy NASDAQ OMX's remaining stake in NASDAQ Dubai in a deal valued at Dh445.1 million.

The Abu Dhabi Government owns the ADX, while the DFM is 80 per cent controlled by Borse Dubai, which is also the holding company of NASDAQ Dubai.