As announced in December, NASDAQ Dubai is now consolidating its key market operations functions with those of Dubai Financial Market (DFM), subject to regulatory approval. A major reason for doing this is to improve access for retail investors to NASDAQ Dubai equities, facilitating liquidity.
Work is proceeding rapidly and we aim to implement the consolidation within the first few months of 2010. It will have a significant impact on the way in which NASDAQ Dubai equities are traded, cleared and settled. This document provides initial details.
We are committed to keeping all our stakeholders fully informed of developments and will update you further as soon as we can. In the meantime please contact us if you have any questions.
| February 1, 2010 | If this document is not displaying correctly, click here to read it online |
| Market Operations Consolidation - NASDAQ Dubai and DFM Improving retail investor access to NASDAQ Dubai equities |
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Overview The consolidation of market operations now underway between NASDAQ Dubai and Dubai Financial Market (DFM) was announced in December 2009. At the same time, DFM announced it will acquire NASDAQ Dubai. The consolidation is subject to regulatory approval.
A major purpose of the consolidation is to quickly improve access for regional retail investors to NASDAQ Dubai equities, thus facilitating liquidity on the exchange. The consolidation will be implemented within the first few months of 2010.
The consolidation has been designed to benefit the market participants of NASDAQ Dubai and DFM, including issuers, Members and investors. By putting their interests first, Dubai will achieve its goal of creating a powerful capital markets hub for the GCC and wider Middle East.
NASDAQ Dubai will maintain its identity as a distinct market, keeping its own Business and Listing Rules and its Official List of Securities. NASDAQ Dubai will amend its Business Rules to implement changes proposed as part of the consolidation. It will continue to be regulated to international standards by the Dubai Financial Services Authority (DFSA).
The consolidation details are outlined below. They apply to equities and exchange-traded commodities (ETCs) only. They do not apply to debt securities or to derivatives. (There will be a minor impact on derivatives trading, explained lower down).
Consolidation Details NASDAQ Dubai will outsource its trading, clearing, settlement and custody functions for equities and ETCs to DFM’s systems.
This will harmonise the way in which trading takes place on both exchanges, so that trading on either one will have the same ‘look and feel’ from a broker’s and investor’s point of view. Trading - NASDAQ Dubai equities and ETCs will be traded using DFM’s version of the X-Stream trading platform.
Trading hours will change from the current 10:00 to 17:00 (06:00 to 13:00 GMT) to 10:00 to 14:00 (06:00 to 10:00 GMT), which are the trading hours of DFM.
Only NASDAQ Dubai Members will have access to NASDAQ Dubai listed securities on the DFM X-Stream platform.
NASDAQ Dubai Members will not be entitled to directly trade DFM-listed securities (unless they are also DFM Members). Clearing and Settlement - The current NASDAQ Dubai clearing and settlement model for equities and ETCs will no longer be used. Instead, DFM’s clearing and settlement model will be adopted.
DFM’s Equator system will be used for settlement. Settlement will move to DFM’s T+2 schedule instead of NASDAQ Dubai’s T+3 schedule. Depository - Existing account holders of NASDAQ Dubai central securities depository (CSD) will be migrated to the DFM’s CSD and the existing account structures of DFM's CSD will apply. One fundamental change will be the adoption of Investor Numbers for investors in accordance with the requirements of DFM’s CSD. Dirham Listings - NASDAQ Dubai is encouraging all its equity and ETC issuers to switch their listing currency from US Dollars to UAE Dirhams. This is the currency of all DFM-listed equities.
Liquidity Rationale The above changes are designed to improve retail investor access to NASDAQ Dubai, by making trading on DFM and NASDAQ Dubai identical experiences.
Retail liquidity will be driven towards NASDAQ Dubai as it becomes much easier, in practical terms, for DFM’s 600,000 retail investors to access NASDAQ Dubai equities and ETCs. Retail investors account for most of DFM’s turnover.
Practical consolidation benefits for retail investors include:
For many brokers, NASDAQ Dubai and DFM equities will for the first time be visible on the same trading screen.
Regulation
The maintenance of international regulatory standards remains a key element of NASDAQ Dubai’s value proposition.
Regulatory approval will be required if the market operations consolidation outlined above is to take place. NASDAQ Dubai is working closely with the regulators in order to satisfy all requirements and address all questions that may arise.
Next Steps
NASDAQ Dubai has carefully considered every aspect, both practical and regulatory, of the outsourcing plan under which the changeover will take place.
It will work closely with its Members to ensure that they will be connected to DFM’s X-Stream platform and can use the new clearing, settlement and custody arrangements. This process will involve rigorous testing and as much support as Members require to ensure that functionality is robust.
The exchange will work closely with its issuers to ensure that they are fully aware of the changes underway, including a switch to a UAE Dirham listing if they desire this.
Debt and Derivatives
However, trading in DP World futures will halt at 14:00 (10:00 GMT) in line with the changed trading hours of the underlying stock. (Trading of all other NASDAQ Dubai futures already halts at this time.) DP World futures will also move to cash settlement.
If DP World changes its equity listing currency to UAE Dirhams, DP World futures will also move to UAE Dirhams.
International Focus
In addition, clearing, settlement and other functions may continue to evolve in future in the interests of all NASDAQ Dubai market participants, regional and international.
Synergy with DFM
DFM has established itself as a thriving UAE market since it was set up in 2000. It has 66 listed companies, all from the region, including several of the GCC’s largest companies. It was the second largest market by trading volume in 2008 in the GCC (after the Tadawul in Saudi Arabia). Most of its trading is carried out by regional retail investors and its 99 Members are regionally based brokers.
NASDAQ Dubai has built a unique international and regional infrastructure since it opened in 2005. Most of its trading is carried out by international institutional investors, though it also has a significant regional investor base, including retail. Its 30 Members include most of the world’s large investment banks as well as 16 regional brokers. It listed the UAE’s largest IPO in 2007 (DP World at $4.96 billion) and has 14 other international and regional equity listings. It has the UAE’s only equity derivatives market, which is growing rapidly. It is a global centre for listing Sukuk. It is regulated to international standards by the DFSA inside the DIFC.
The market operations consolidation outlined above is driven by the new ownership structure announced in December 2009. Under this structure, DFM will acquire NASDAQ Dubai from its current owners, Borse Dubai and NASDAQ OMX. NASDAQ OMX will become a minority shareholder of DFM. Both DFM and NASDAQ Dubai will continue to benefit from NASDAQ OMX’s international brand and expertise.
NASDAQ Dubai and its market participants share a common interest in the success of market operations consolidation, in order to build a larger and more liquid market. We look forward to working with you towards this goal.
Contacts:
Tel: +971 4 361 2343 Email: itsupport@nasdaqdubai.com
Tel: +971 4 361 2260 Email: businessdevelopment@nasdaqdubai.com
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