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Rating the exchange

Rating the exchange

The debut of the Bahrain Financial Exchange is another step in the tiny country’s efforts to diversify itself from its neighbors. But is there a demand?

May 7, 2010 10:02 by

Even the exchange makes its debut at a difficult time. The continued attempts to build up a membership base could mean the management wants more customers in order to begin operations. With the notable exception of Saudi Arabia, the region’s exchanges have long had difficulty producing enough liquidity.

Last month, international exchange titans NASDAQ and London Stock Exchange waited as Dubai and Abu Dhabi discussed a possible merger of their respective exchanges. Borse Dubai, the largest shareholder in the London Stock Exchange, also owns a large stake (28.6 percent) of Nasdaq OMX. Abu Dhabi’s potential acquisition of the exchanges could shift the balance between the London Stock Exchange, Nasdaq and NYSE Euronext, which sold its trading system to the Doha Securities Exchange after a 20 percent acquisition.

The real motivator for a merger would be to increase regional trading volumes. Foreign ownership rules and a reluctance on the part of family-owned companies to increase outside ownership means that the exchanges have all had trouble with liquidity. With two exchanges in the UAE and exchanges in every other market, the region is crowded.

Bahrain, then, has the first mover advantage. The multi-asset exchange will capitalize on its history of differentiating before its neighbors do, but if another country’s markets make a play for the same business, Bahrain could find itself needing to differentiate yet again.

- Trends magazine.

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