The Nasdaq Dubai exchange will open an equity futures market next month to trade single-stock futures on the shares of some of the UAE’s biggest companies, the bourse’s chief executive said on Monday.
The introduction of stock futures – agreements to buy or sell shares at an agreed price on a future date – could be a major development for equity markets in the country, where short selling is restricted and a lack of opportunities to hedge has been a concern for foreign investors.
“The futures market will provide opportunities to hedge or leverage on the underlying market. We saw a gap in the market and think there is good demand,” Hamed Ahmed Ali said.
With the exception of Kuwait, the Arabian Gulf stock markets have been slow to introduce futures and options. Nasdaq Dubai originally launched equity derivatives in 2008, but this coincided with the global financial crisis and trading failed to gain critical mass. Activity petered out after 2011.
Since then, however, the UAE bourses have attracted more foreign money. International index compilers upgraded the UAE to emerging market status from frontier market in May 2014.
The lack of listed equity derivatives in the UAE has prompted investors to ask international investment banks to design over-the-counter options for individual stocks, industry sources said.
Standardised futures listed on Nasdaq Dubai would be cheaper to trade and more transparent, giving investors a clearer idea of price direction, letting the local bourse and UAE regulators monitor derivatives activity affecting local stocks.
From September 1, Nasdaq Dubai will initially trade futures in 10 UAE stocks, which accounted for about 55 per cent of the traded value of all listed equities in the country.
These stocks are Aldar Properties, Arabtec, Damac Properties, DP World, Dubai Islamic Bank, Dubai Parks and Resorts, Emaar Properties, Etisalat, First Gulf Bank and Union Properties.
Futures contracts will have maturities of one, two or three months and be settled in cash. Each contract will provide exposure to 100 underlying shares, with Shuaa Capital providing market-making services.
Mr Ahmed Ali said Nasdaq Dubai aimed eventually to develop futures based on UAE stock indexes as well as single-stock futures on shares of other countries in the region.
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