Slumping market turnover is forcing some equity brokerages in the United Arab Emirates to cut staff or suspend operations as firms struggle to cope with costs and low revenue.
Many brokers are likely to shut this year, analysts warn, with little expectation for a pick-up in trade as domestic indexes languish near 2010 lows.
Several brokers have asked for their UAE licences to be suspended this year or have ceased trading operations, including the UAE operations of Oman-based Gulf Baader Capital Markets and Makaseb Islamic Financial Services.
"By the end of the year, it might be only the bank brokerages and others with strong capital that survive," said Vyas Jayabhanu, head of investments, Al Dhafra Financial Broker.
"We don't foresee a pick-up in trading volumes, given the economic situation."
Ninety brokerages are licensed to trade the two domestic UAE bourses, Dubai Financial Market, and Abu Dhabi Securities Exchange according to regulator the Securities and Commodities Authority (SCA), but this number could fall by more than half, some analysts say.
The SCA was not available for comment.
"In the current environment, it's likely that only the top 20 brokers are making a profit, which means about 75 percent are making a loss," said Robert McKinnon, ASAS Capital chief investment officer. "If the market rebounds, then maybe 50 percent of brokers will be making a profit."
McKinnon predicts there will be only 40 to 50 UAE brokers within the next two to three years.
"Some will close, some will consolidate," he said.
Turnover and trading volumes on the DFM and ADX have slumped, extending a trend that started as the global financial crisis struck in 2008. ADX daily average turnover is 128 million dirhams ($34.85 million) this year, down from 280 million dirhams in 2009 and less than a seventh of 2008 levels.
The DFM this year is on track to fall far below even last year's turnover, which was a five-year low. Year-to-date turnover is 51.5 billion dirhams, versus 2009's full-year 173.5 billion.
Brokers complain that trading commissions are no longer enough to cover costs and many have slashed jobs as they try to stay afloat.
"Brokerages enjoyed a bubble along with the market and didn't take any defensive steps to guard against a downturn. They didn't see the crash coming," said a former trader at a UAE brokerage who spoke on condition of anonymity.
"Two to three years ago, people were leaving their jobs selling credit cards or at banks to join brokerage firms. Money was easy to make given the high volumes and high commissions," said the former trader, who was laid off along with most of his department in May.
"So many people have lost their jobs and if I was still at work, I would be dreading that phone call or email to say they were letting me go. Everybody is scared," he said.
"Volumes in the UAE are pretty poor and the outlook for Qatar, Saudi Arabia and other Gulf markets isn't much better."
The DFM index is down 17.2 percent this year and 76 percent below a January 2008 peak. Abu Dhabi's bourse is down 7.9 per cent year to date. (Reuters)