UAE stock market regulators are enacting laws to introduce exchange trade funds (ETFs) and the listing of such tools could start in Abu Dhabi Securities Exchange before the end of this year, ADX's CEO said yesterday.
Tom Healy said the move is part of an ongoing strategy by the Abu Dhabi Government to develop the local bourse to attract individual and institutional investors from the UAE and other countries. In a statement sent to Emirates Business to announce a planned conference on ETFs in October, Healy said the Securities and Commodities Authority (SCA), the UAE's stock market decision-making body, is working on the new law.
"The SCA is working on the regulations to list ETFs in the UAE, and ADX hopes to list its first ETFs by the end of 2008. It is central to our strategy and that of the Abu Dhabi Government that our capital market continues to evolve to meet the ever-growing needs of retail and institutional investors, both national and international."
Healy said ADX, one of the largest bourses in the Middle East, has been encouraging the establishment of more collective investment schemes in the UAE and described ETFs as an excellent model for this market.
"They offer investors a portfolio of securities that imitates the performance of a particular market or index. With just one trade, investors could have exposure to a wide variety of securities," Healy said.
According to the statement, the October 19-20 conference in Abu Dhabi would attract local and international experts to discuss ETF investments. The conference will examine case studies of successful ETF listings, discuss how investors can use them to spread risk and diversify their portfolios, and look at ETFs in the context of Islamic principles, the statement said.
"Because there is very limited experience of ETFs in the local market, it is important for us to hear and learn from international experts. We can examine how others have done it, and agree on the appropriate mechanisms and regulatory infrastructure for ADX," Healy said.
Since Healy took over as CEO, ADX has been locked in a drive to develop the bourse by enacting more legislations to upgrade efficiency, introducing new investment instruments and signing pacts with global exchanges.
In an interview with Emirates Business last month, Healy said ADX is also planning to introduce derivatives and the plan could materialize next year. "Our objective is to become the stock market of choice in the Gulf region. We will do this by attracting both local and international investors and diversifying investment opportunities including listing Exchange Traded Funds (ETFs) and creating a derivatives market," he said.
"We will also continue to work closely with the SCA to ensure we have a well-regulated marketplace, focusing on integrity and transparency. As for derivatives, there is no organised derivatives market in the Gulf, we are trying to introduce this type of investment. I think there will be a derivatives market here some time next year."
ADX has 65 listed firms with a market capitalisation of around Dh422 billion on August 25. In 2007, the daily trading volume jumped by more than 400 per cent, with a substantial increase in foreign net investments.
What is an ETF?
A security that tracks an index, a commodity or a basket of assets such as an index fund, but trades like a stock on an exchange.
ETFs experience price changes throughout the day as they are bought and sold. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share.