Jobs are under threat from new regulations being considered to rate the major players in the brokerage industry as the UAE seeks to emulate international standards.
The number of brokerages has already declined in the Emirates to 64 companies from 105 last year as volumes traded on the local bourses have slumped since their peak in 2008.
The Securities and Commodities Authority (SCA), the country's stock exchange regulator, said the three-tier system for brokerages being considered, which is much the same as the star system used by hotels, would encourage mergers among the smaller players of the industry.
"Under the three-tier system, brokerages will be classified by function, either as pure executors of local shares, regular brokers, or sophisticated brokerages that provide research, facilities such as margin trading and asset management," said Maryam Al Suwaidi, the deputy chief executive at the SCA in Abu Dhabi.
"Small brokerages who are purely executioners will be encouraged to merge with one another, their overheads will also decline as their investment requirements will become more lenient when compared to the larger brokerages," she added.
The study is still in its early stages and the watchdog is in talks with local bourses, brokerages and market participants to ensure its feasibility.
On the Dubai Financial Market (DFM), average daily turnover is at US$45.8 million (Dh168.2m) this year, down from $75.2m last year. On the Abu Dhabi Securities Exchange (ADX), turnover is down to $32.4m compared with $36.8m last year.
Under current SCA requirements, brokerages must employ at least two brokers, a head of brokerage, a head of operations, a compliance officer in addition to a customer service officer and a general manager. Furthermore, brokerages are required to provide two daily, separate, unconditional bank guarantees to the ADX and DFM for a minimum of Dh20m. The guarantees would be eliminated for the lower-tier brokerages, Ms Al Suwaidi said.
"At least it gives a chance for some brokerages to apply for the basic requirements, if they agree in principle, the execution of orders can be done through data entry and you would not need to employ the brokers," said Wadah Taha, the chief investment officer at Al Zarooni Group in Dubai.
Mr Taha said the move would also increase the standard for trading services to centres such as London and New York.
"Clients can become much more choosy about what service they want and how much they are willing to pay for that service," he said.
"In the US, you can either trade through e-brokerages … which offer one trade free of charge for every four trades made, or you can choose the likes of Merril Lynch who provide a personal custom detailed service."
halsayegh@thenational.ae
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
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Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
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Killing of Qassem Suleimani
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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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The specs
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