Unification is not easy

A wave of market consolidation in the past two decades has created a template for a merger of stock exchanges in the UAE.

Mergers of stock exchanges can be challenging, say the experts, but with a wave of market consolidation having taken place in the past couple of decades, a template has emerged that could be applied to the UAE.

Still, such consolidations are not easy.

"Exchange mergers are fraught with difficulty where laws, market practices and politics all conspire to prevent progress," says John Gilchrist, a former head of communications for the Abu Dhabi Stock Exchange and the Dubai Financial Services Authority who is now a consultant on market structures.

"Recent history shows that to merge two or more exchanges, it is easier to create a new parent as a holding company and then tackle the challenges by adopting common rule books, trading technology and creating central securities depositories.

"These will deliver improved efficiencies and reduce costs. To remain competitive in the wake of the financial crisis, these are essential considerations.

"Geography and politics are often barriers. If you have two exchanges in different countries or emirates, no one wants to lose its capital market," he says. "A holding company parent with subsidiaries or branches allows each country or emirate to retain its presence, which makes for a political compromise and preserver of local investor loyalty.

"While the UAE has Federal laws, local law was used to establish exchanges in Abu Dhabi and Dubai, but the regulation of those exchanges rests with a Federal regulator, the Emirates Securities and Commodities Authority."

The Dubai International Financial Centre "has established its own laws and courts in a free zone and has its own integrated regulator, the Dubai Financial Services Authority," Mr Gilchrist says.

"Putting this together as an integrated whole is achievable but extremely complex, and would require a great deal of political will."