Stockbrokers face more pain despite a market rebound, with just 10 out of 50 companies now controlling nearly half of the shares traded on the country's bourses.
The equities sector has in the past three years been hit by lower asset prices, trading commissions and vicious competition for market share. That time has been a period of consolidation for the brokerages.
Dubai's stock market has rallied 17 per cent this year, nearing the 20 per cent threshold some investors consider as the beginning of a bull market.
But many of the smaller firms are yet to benefit from rebounding trading volumes and are merely fighting for survival, analysts say.
"The problem isn't over," said Khaldoun Jaradat, who trades for Brokerage House Securities, which ranked 45 by traded value last month. It turned over trades worth Dh33 million (US$8.9m) last month.
"It was only a few months ago where we had some dark days where we traded hundreds of thousands for our clients, forget millions. We will probably see some more shutdowns in our sector by the second half of this year."
While international hedge funds and institutional investors ignited the rally, there are signals that the recent surge in interest for Dubai equities is beginning to taper off.
Average daily traded value has cooled to Dh200m, compared with Dh500m last month.
Dubai's bourse takes a standard fee of 15 basis points per trade. Brokerages are also supposed to take a flat commission of 15 basis points but because of competition for business they frequently charge much less.
"The rally has given some breathing space for many of the stand-alone brokerages," said Salim Sebbata, the general manager at Mubasher Financial Services, whose Dubai subsidiary Direct Broker for Financial Services is ranked 7th by traded value.
"If volumes return to the lows we have experienced over the summer in the last few years, I would imagine that we could see the number of companies in operation reduced to 20 over the next 24 months."
Many brokerages have closed their doors in recent years after trading volumes collapsed following the Dubai stock-market crash in 2009. Despite the recent run on stocks, the Dubai Financial Market General Index is still 68 per cent below its February 2008 peak of 5,960.16 points. There are 50 brokerages in operation today; in 2008 there were 103.
Many of these companies were set up by family offices in the boom years of 2005 to 2008, with investors preferring to preserve the trading commissions on their investments rather than pay them to another company.
As foreign investors flooded the markets, these shops expanded their services, took out loans to offer leverage to clients to benefit from the popularity of trading in property stocks.
The Abu Dhabi Securities Exchange and Dubai Financial Market collectively traded Dh530 billion worth of shares in 2008, compared with almost Dh70 billion last year.
Between January 2 and February 7, foreign investors were net buyers of shares worth Dh580.5m, while Middle East investors- the UAE, GCC and Arabs were net sellers, according to trading reports released by the bourses in the Emirates.
"The trading activity we are seeing today is hot money," said Adel Merheb, the co-founder of Trade Your Market, a stock research and analysis company. "It's not sustainable."
