DFM and Nasdaq Dubai merger to raise liquidity

The news that the merger of the Dubai Financial Market (DFM) and Nasdaq Dubai is pressing ahead has come as a breath of fresh air for companies, market players and investors at a time when trading has been lacklustre for some weeks.

The $121.3 million (Dh445.1m) merger is likely to cut the cost of trading and create more flexibility and wider options for investors, institutions and foreign investors, said market analysts.

As the merger process gathered steam Emirates Business spoke to leading figures from brokerage firms about the likely impact of the merger and the consolidation of trading operations.

"I think the consolidation of the back operations of both exchanges is the best and most important thing for investors," said Mohammed Ali Yasin, CEO of Shuaa Securities.

"Using existing numbers, investors and brokers can trade on both bourses. The liquidity levels will improve significantly in the coming days because of the merger."

The merger may result in lower transaction costs for investors. Brokers on Nasdaq Dubai can fix their own terms and conditions for charging clients, while on the DFM transactions cost 0.275 per cent plus Dh10, with a minimum brokerage fee of Dh70.

Manish Goel, Head of Operations at MAC Sharaf, said: "All the brokers charge the official brokerage rates as fixed by the DFM and the Abu Dhabi Securities Exchange. We charge 0.3 per cent for deals on Nasdaq Dubai and this is a very competitive fee. We are charging as little as possible, just meeting costs to execute deals on the bourse. There's no great volume on Nasdaq Dubai, with DP World accounting for most of the trading."

Taimur Saadat, Head of Technical Analysis at the Arab Capital Markets Resource Centre, said: "Commission is likely to be lowered because of a likely drop in expenses. Brokerage firms will get more exposure, which will be a healthy sign for investors. But I think consolidation may take a year."

Nasdaq Dubai, previously known as the Dubai International Financial Exchange, was set up in 2005 to bring a global trading platform to the local market and giving regional access to foreign investors. Of the 16 listings on Nasdaq Dubai, regular trading is seen in DP World while stocks such as Damas and Depa are often traded.

Nasdaq Dubai will gain a huge investor base following the merger. The total number of investors on the DFM rose to 535,563 in 2008 and is growing at more than 25 per cent annually.

Yasin said: "The availability of more than 500,000 investors at Nasdaq Dubai is something like a 20,000-fold increase for the exchange. Moreover, investors can trade in dirhams on Nasdaq Dubai. Institutional investors who have trading accounts with DFM will trade on Nasdaq Dubai and this will result in high volumes on the market. The consolidation of back operations will be completed by end of March."

DFM Executive Chairman Essa Kazim recently said the acquisition process would be completed by the third quarter of 2010 and the integration between the two markets will take place in 2011.

Nasdaq Dubai recently sent a circular to its trading members, clearing members and custodians.

The circular contained important information about how the consolidation of market operations with the DFM would function. It described the steps that members and custodians should take to ensure that they can continue to trade in Nasdaq Dubai equities.

Vyas Jayabhanu, Head of Al Dhafra Financial Broker, said: "The merger gives more tools to investors. It's good to have a common platform by integrating the both platforms. Volumes will increase as we have foreign interest on region bourses.

"As the exchanges are interconnected there will be direct impact from global factors in addition to high level of influence from local cues. We need a more user-friendly platform to cater to the different requirements and strategies of modern trading. The implementation of margin trading will also enhance volumes significantly."

Brokers believe the DFM and Nasdaq Dubai will repeat the success of the merger between the Chicago Mercantile Exchange (CME) and Electronic Chicago Board of Trade (ECBoT). The markets merged in 2007 to become the largest futures exchange.

Saadat said: "The Chicago merger became a major success in the global markets. The same thing will happen in Dubai and the winners will be the investors as they will get a single platform to trade with access to different trading styles."

Nasdaq Dubai said in its latest notice that there would be no change to the listing criteria and the rest of the regulatory frameworks of both the exchanges after the merger.

The DFM and Nasdaq Dubai would continue to operate as two distinct markets. This restructuring would enable the markets to work in harmony within their different regulatory frameworks.

DFM would continue to be regulated by the UAE's Securities and Commodities Authority (SCA) and Nasdaq Dubai wouldcontinue to be regulated by the Dubai Financial Services Authority (DFSA).

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