Annual Review 2010 Print

Corporate Governance

 

Corporate Governance essentially is the system by which companies are directed and controlled by the management in the best interests of the stakeholders and others. Corporate Governance ensures fairness, transparency and integrity of this management.

NASDAQ Dubai is committed to maintaining high standards of conduct and corporate governance. It believes that sound governance practices enhance the Company's ability to achieve its strategy in accordance with the interests of its shareholders. In developing and implementing its governance practices, it has referred to best practice corporate governance principles, the DIFC laws and the Dubai Financial Services Authority (DFSA) Rulebook.

Board of Directors

A new Board was appointed in June 2010, following Dubai Financial Market's acquisition of two-thirds of the shares in NASDAQ Dubai in May 2010. Borse Dubai retains a one-third ownership. The current Board comprises 8 Non-Executive Directors. Abdul Wahed Al Fahim was appointed Chairman and a member of the Board in June 2010, together with five new Board appointments comprising Majid Saif Al Ghurair, Jamal Nasser Lootah, Rashid Al Shamsi, Abdulla Ghobash and Edward Knight. Essa Kazim and George Möller remained Board members. Biographical details of the Directors, the Committees on which they serve and a reference to which Directors are considered by the Board to be independent are set out in Board of Directors section. The biographies demonstrate a wide range of experience and skills to discharge the Board's responsibilities and to bring independent judgement on matters of strategy, performance and standards of conduct which are important to the success of the exchange.

The Board is responsible to its shareholders for NASDAQ Dubai's system of corporate governance, its strategic objectives and the stewardship of the Company's resources.

It determines the policies and practices which govern the operation and management of NASDAQ Dubai and has the responsibility to ensure that the Company carries out its objectives. It is the purpose of the executive and senior management to manage NASDAQ Dubai in accordance with the directions of the Board. There is a clear division of responsibilities between the Chairman and the Chief Executive.

The Board has a formal schedule of matters specifically reserved for its decision-making, which includes the annual budget, strategy and long term business objectives, major projects and contracts, and significant capital expenditure. In accordance with the charters, certain matters are delegated to Committees of the Board.

During the financial year, the Board met 5 times, all of which were held in person in Dubai.


Board Charter

The Board adopts the view that corporate governance should promote performance and integrity as well as conformance with the legislation. NASDAQ Dubai's governance framework is set out in its Board Charter which describes this framework, co-ordinates and aligns supporting policy documents and establishes an environment that enables the Board and officers of NASDAQ Dubai to meet their responsibilities under the prevailing law and to demonstrate good governance practices.

Non-Executive Directors / Independence

In accordance with the DFSA Authorised Market Institution regulation and the Articles of Association, at least one half of the Board shall be Independent Non-Executive Directors. The Non-Executive Directors, four of whom are Independent, bring wide and varied commercial experience to Board and Committee deliberations.

A review of Directors' independence is carried out at appointment for new Directors, and annually. The latest reviews were carried out at the time of their appointment in June 2010 and in January 2011 for the annual review, by means of a questionnaire. Each Director provided answers to questions based on criteria covering independence as set out in the DFSA's Authorised Market Institution Rules. Responses were reviewed by Legal and Compliance which, in reference to the criteria, made a determination as to whether a Director is independent. The determinations were reviewed by the Nomination and Remuneration Committee and its recommendations made to the Board for its approval.

It is standard practice for each Non-Executive Director to have a service agreement detailing their duties, terms and obligations. The term of the agreement is one year which is renewable by mutual agreement and is subject to the annual re-election by the shareholder at the AGM. With a change to board remuneration, all Non-Executive Directors are paid an annual retainer together with meeting attendance fees for Board and, where applicable, Committee meetings.

Board Attendance

The following table details the Directors' attendance at Board and Board Committees meetings during 2010.

  Board ARMC MOC NRC
5 8 7 5
Abdul Wahed Al Fahim1 4 of 4 4 of 4    
Abdulla Ghobash2 4 of 4 4 of 4    
Edward Knight2 4 of 4   4 of 4  
Essa Kazim 5 of 5      
George Möller 5 of 5 8 of 8 7 of 7  
Jamal Nasser Lootah2 4 of 4 4 of 4   4 of 4
Majid Saif Al Ghurair2 4 of 4   4 of 4 4 of 4
Rashid Al Shamsi2 4 of 4     4 of 4
         
Adena Friedman 3 1 of 1   2 of 3  
Robert Greifeld 3 1 of 1     1 of 1
Gerald Lawless 3 1 of 1     1 of 1
Jeffrey Singer 3 1 of 1 4 of 4 3 of 3 1 of 1
Maha Al Ghunaim 3 0 of 1     1 of 1
Mohamed Binbrek 3 1 of 1 4 of 4 3 of 3  
Nassef Sawiris 3 0 of 1      
Shadi Sanbar 3 1 of 1 4 of 4   1 of 1


Key

ARMC - Audit and Risk Management Committee
MOC - Market Oversight Committee
NRC- Nomination and Remuneration Committee

Notes

  1. Appointed as Chairman and Board member on 13 June 2010.
  2. Appointed a Board member on 13 June 2010.
  3. Stepped down as a Board member on 13 June 2010. Jeffrey Singer continues in his role as Chief Executive.
Board Committees

The following three Committees of the Board deal with specific aspects of the Company's affairs. Each Committee has written terms of reference that define their authorities, duties and membership.

Audit and Risk Management Committee

The Audit and Risk Management Committee is chaired by Jamal Nasser Lootah. The other members are Abdul Wahed Al Fahim, Abdulla Ghobash and George Möller. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent and objective oversight of internal control and risk management, internal compliance, governance issues, financial reporting, external and internal auditors and financial controls.

During the year, the Committee met on 8 occasions.  It reviewed annual budgets, management accounts and annual financial statements, and recommended for Board approval the budget and annual financial statements as well as amendments to its Committee Charter and the signing authority matrix.  The Committee received quarterly risk management reports from the Head of Risk Management, reviewed and recommended changes to the Personal Trading Policy and approved the Money Laundering Reporting Officer annual report. 

The Committee held two joint meetings with the Market Oversight Committee to review progress and to jointly discuss risks and regulatory issues in relation to the outsourcing of NASDAQ Dubai's trading, clearing, settlement and custody functions to Dubai Financial Market.

The Internal Audit function has direct access to the Chairman of the Audit and Risk Management Committee.  The Committee received regular progress reports on the Internal Audit Plan together with internal audit reports following the completion of each audit.

At the beginning of 2010, the Committee met with the independent auditors, PricewaterhouseCoopers (PwC) to review the annual financial statements and consider the results of the annual audit.  Following a period of 5 years with PwC as independent auditors, it was agreed to undertake a review of audit firms and the Board and Shareholders appointed Deloitte as its independent auditors.

Market Oversight Committee

The Market Oversight Committee is chaired by George Möller. The other members are Majid Saif Al Ghurair and Edward Knight. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent oversight of Market Regulation which includes the Listing Authority, Market Surveillance and Member Compliance functions. It also supervises the regulatory functions carried out by other areas of NASDAQ Dubai, including the application of the exchange's Rules, Members' conduct of business and the clearing and settlement function.

During the year, the Committee met on 7 occasions. It met on each occasion with, and received a report from, Market Regulation and its functions including feedback on regular meetings between Market Regulation and the DFSA. The Committee also received ad hoc reports on any market incidents as part of its oversight function.

During the year, it reviewed the revised Business Rules and consultation paper and received regular presentations on the proposed new Listing Rules 2.0. The Committee discussed and received updates on regulatory issues relating to the outsourcing of its trading, clearing, settlement and custody functions to Dubai Financial Market. It also discussed any changes to key regulatory individuals and reviewed its Charter to satisfy itself that the current content was adequate to carry out its responsibilities.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee is chaired by Majid Saif Al Ghurair. The other members are Jamal Nasser Lootah and Rashid Al Shamsi. The company secretary acts as secretary to the Committee. The Committee is responsible for new appointments to the Board, succession planning for the Board and executive management, and reviewing the independence of Directors. It is also responsible for recommending Non-Executive Directors remuneration for Board approval, approving performance measures and target setting for the Chief Executive, service agreements for Non-Executive Directors and broad policies and programs for employee benefits.

During the year, the Committee met on 5 occasions. It considered the composition of the Board and its Committees and amendments to the Director and Chief Executive service agreements. The Committee considered the findings and determinations of the Directors' independence review and recommended these for Board approval. It considered the year end performance for the Chief Executive and set the targets and objectives for the following year, and also reviewed the Employee Performance Development Plan for the year and considered measures for succession planning and key staff retention. The Committee also reviewed its Charter to ensure its continued adequacy and received regular reports from Human Capital on key issues.

Internal Control & Risk Management

Internal control

The Board has overall responsibility for ensuring that Management maintains an effective system of internal control and for reviewing its effectiveness. Such a system is designed to support the identification and management of risks affecting NASDAQ Dubai and the business environment in which it operates. Throughout the year and to date, NASDAQ Dubai has operated a system of internal control which provides reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the exchange. The Board, through the Audit and Risk Management Committee, regularly reviews these processes. The effectiveness of controls is periodically reviewed within the business areas. Regular reports are made to the Audit and Risk Management Committee by Management, Internal Audit, Head of Risk Management and the compliance and legal functions covering matters such as financial controls, compliance and operational controls. The Audit and Risk Management Committee monitors resolution of any identified control issues of significance through to a satisfactory conclusion.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. In accordance with International Financial Reporting Standards (IFRS), the internal control over financial reporting is a process designed under the supervision of the Chief Executive and the principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.

NASDAQ Dubai's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of Management and the Board; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements.

Management has assessed the effectiveness of internal controls and is satisfied that the processes followed for the financial year and to date are effective. The system of internal financial and operational controls is also subject to regulatory oversight by the DFSA.

Risk Management

Risk management is a systematic and continuous process which aims to identify, evaluate, manage, control and report significant risks to which NASDAQ Dubai may be exposed. NASDAQ Dubai has integrated the risk management in the business activities, and thus decentralized it to each unit and function. Management is responsible for establishing and maintaining pertinent risk management. The functions and systems for internal control and internal audit are part of the overall risk management process.

NASDAQ Dubai's exchange, clearing and central securities depository operations require focus on business continuity and incident management. As an exchange and clearing house and, indirectly, central securities depository, NASDAQ Dubai is subject to specific regulation and supervision. Furthermore NASDAQ Dubai is as a clearing house exposed to specific risks related to the central counterparty clearing, whereby NASDAQ Dubai acts as counterparty for transactions between the buyer and the seller. One of the primary obligations of clearing members is to provide collateral to NASDAQ Dubai as required by the applicable rules as protection against the counterparty risk assumed. The Head of Risk Management is responsible for the policy setting of the management and mitigation of these clearing risks. The clearing risks are among other things mitigated by collateralization of obligations, pertinent clearing membership requirements, dedicated clearing capital, netting arrangements and a proactive risk management including, reports and the use of watch lists.

Risk Management is supported by Internal Risk Committee with regards to setting of clearing risk policies and procedures.

Internal Audit

The purpose of the Internal Audit function is to assist the Board and Management in the effective discharge of their fiduciary and administrative responsibilities by providing independent, objective assurance and consulting services with respect to evaluating risk management, control, and governance process. To ensure independence and objectivity, Internal Audit reports directly to the Audit and Risk Management Committee.

NASDAQ Dubai's Internal Audit follows a risk based audit approach. An annual risk based internal audit plan is prepared based on inputs from multiple stakeholders. The plan is both inclusive and exclusive meaning that all key areas subject to high risk are included in the plan while the non-priority and low risk areas are excluded. During the planning process key business areas and operational risks are identified, compiled, risk rated and ranked to draw a final risk assessed audit scope of work that factors in high and medium risk areas. The audit plan executive summary, submitted to Management and the Audit and Risk Management Committee for approval, provides information about the risk assessment, the current order of priority of audit projects and how they are to be carried out. The audit plan outlines the key departments, activities, processes and sub-processes subject to audit together with an estimate of resource requirements, budgeted hours and estimated start dates and completion timelines. This becomes the benchmark key performance indicator together with quality feedback from the auditee to assess the Internal Auditor's performance.

The Internal Audit submits regular activity reports to the Audit and Risk Management Committee and Executive Management summarizing the results of the audit work including significant risk exposures and control issues. Quality assurance is provided by independent feedback obtained through a quality survey completed by the business unit head of the audited activity. Furthermore, it ensures that adequate checks and balances are maintained and adhered to in order to ensure professional and qualitative service delivery. Internal Audit liaises regularly with internal and external stakeholders to maintain and uphold communication and relationship to a high level. The key internal stakeholders include legal and compliance, company secretariat and risk management functions, and the external stakeholders include the shareholders, regulator and external auditors.


Corporate Responsibility

NASDAQ Dubai believes financial education is a key factor in the development of a successful, world-class capital market. Through its Academy, it offers courses and seminars to the general public and market participants covering a range of capital markets topics.

NASDAQ Dubai is committed to the highest ethical standards of professional conduct and integrity. In order to meet this objective, employees are required to comply with the spirit and letter of the company's Code of Ethics and Conduct.

Due to the nature of its business, NASDAQ Dubai does not have a high environmental impact. Its principal impact arises from energy, paper and water consumption. In an effort to responsibly manage this impact, it encourages a reduction in energy wastage; it recycles paper, plastic water bottles, aluminium cans and toner cartridges. In order to take advantage of technology and the benefits of the internet, NASDAQ Dubai has for a third year created this interactive online site for its Annual Review. This has the added benefit of enhancing the way we provide information about the Company to our stakeholders and community and by replacing printed copies it helps reduce our consumption of paper in line with our corporate responsibilities.




Corporate Responsibility

NASDAQ Dubai believes financial education is a key factor in the development of a successful, world-class capital market. Through its Academy, it offers courses and seminars to the general public and market participants covering a range of capital markets topics.