Nasdaq Dubai to relaunch derivatives market

Nasdaq Dubai to relaunch derivatives market

Nasdaq Dubai will relaunch its derivatives market, targeting regional institutions wanting to hedge their share portfolios, the exchange's chief executive told Reuters on Monday.

October 25, 2011 6:36 by Reuters

The bourse, owned by Dubai Financial Market , launched a derivatives exchange in November 2008 at the height of the global financial crisis and trading has been lacklustre.

“It didn’t matter how good the derivative was, it was a derivative and we suffered under the weight of a bad product category, but they’re starting to come back in favour,” Nasdaq Dubai chief executive Jeff Singer told the Reuters Middle East Investment Summit, held at Reuters’ offices in Dubai.

“The derivative (market) we will relaunch is going to be market-driven. We are going to ask what they want and then pull everything else.”

Current derivatives include the FTSE Nasdaq Dubai UAE 20 Index, based on 20 of the top companies listed on UAE bourses. The bourse also offers futures and options contracts on most of these names.

“If we need to make changes in the components (of the UAE 20 Index) we will, because to have a tradeable index out there that doesn’t trade is not good,” said Singer, declining to say when the new derivatives platform would launch.

“Major banks in the region all have huge inventories, stockpiles of shares that are unhedged, and if we simply offered an index that enabled them to hedge their portfolio, they could guard against enormous market risk.”

Influential index compiler MSCI will announce in December whether it will upgrade the UAE to emerging market status, having delayed its decision from June to allow it to get more feedback on bourses’ new delivery versus payment (DvP) settlement systems, the international standard.

Some traders hope an upgrade will boost local trading. Turnover on the UAE’s domestic bourses — DFM and Abu Dhabi Securities Exchange (.ADI) — slumped to seven-year lows in 2011, while Nasdaq Dubai trades less than $3 million daily.

Yet Singer warned this may have only a muted effect if stock borrowing and lending and short-selling remains banned on local bourses, with international institutions also concerned about remote market access and foreign ownership limits.

“If we received an upgrade and had all the boxes checked, we would see a movement of international shares coming into the market in a much more serious way, whereas if we only have one aspect, DvP, covered then I think international investors may still be hesitant,” said Singer.

There are eight bourses in the Gulf Co-operation Council and all have suffered from plunging trading volumes, with little collaboration between them to try and boost trading, but this could change.

“The model that the Nordics have rolled out I think is the perfect model for the region,” said Singer.

“And that is every firm retains their own trading platform and their own clearing and settlement (system). But what the region agrees to do is to trade off of one screen.

“Regulators would remain separate, like in Scandinavia, which has been able to create a single liquidity pool, he said.

Asked whether exchanges had discussed such a plan, Singer said “yes”.

“It has been ongoing for quite some time and they are trying to get agreement on what those changes should be,” he added. (Reporting by Matt Smith and Martina Fuchs)