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Dubai: Country and Foreign Investment

Dubai International Financial Exchange (DIFX)

The Dubai International Financial Exchange (DIFX) opened for trading for the first time on September 26, 2005. It has since been rebranded as Nasdaq Dubai after Nasdaq OMX acquired a one-third stake in the exchange in 2008.

The launch of the first truly international stock exchange located between Western Europe and East Asia took place at a ceremony at the Dubai International Financial Centre (DIFC), where the DIFX is located.

The stated aim of the DIFX is to become the leading exchange in its region for equities, bonds, funds, Islamic products and other securities, and a gateway for international and regional investment.

It is the first exchange in the region that has been created to list securities from many different countries. UAE companies are able to list shares on the DIFX by setting up a holding company in the DIFC. Companies seeking listings on the exchange must have a minimum market capitalisation of US$50 million.

The exchange is additionally regulated in such a way as to allow companies which list on it to determine the portion of shares that they want to offer to the investing public. This flexibility is designed to encourage family-owned businesses and government entities discouraged by the current UAE lower listing limit of 25% to list on the bourse.

The DIFX market opened with the listing of five Deutsche Bank securities. These are index tracking certificates, which cover the US S&P 500, the German DAX 30, the Japanese Nikkei 225, the EuroStoxx 50 and the Stoxx 50.

The DIFX opened with four member banks – CSFB ( Europe) Ltd, Deutsche Bank AG, HSBC Bank plc and UBS AG. In 2007, it had 19 member brokers, including leading international and regional banks.

In August 2007, the Dubai Government announced the consolidation of its holdings in the Dubai Financial Market (DFM) and Dubai International Financial Exchange (DIFX) into a new holding company, Borse Dubai.

The government stated at the time that the move was in line with the Dubai Strategic Plan 2015, and demonstrated its commitment to position Dubai as the leading capital market in the region.

DIFX and DFM continue to be regulated by the Dubai Financial Services Authority (DFSA) and the Emirates Securities and Commodities Authority (ESCA) respectively.

Explaining the role of Borse Dubai within the new structure, DFM Chairman Essa Kazim, who was appointed as the Chairman of Borse Dubai, said that the company is intended to be a facilitator, allowing DIFX and DFM to explore joint opportunities for the development of capital markets in the region and in the broader context of global exchanges.

He commented at the time of the announcement that: "Both exchanges will share best practices, maintaining operational efficiency at international standards. Borse Dubai will boost confidence among issuers, investors, and intermediaries who will benefit from a presence in both exchanges, as well as a broader and more varied range of services."

The DIFX has ambitions to become the exchange of choice for the listing of Islamic finance instruments, and took major steps towards this goal with the listing of over 100 Sukuks, or Islamic bonds, in 2007. In fact, as 2007 drew to a close, the DIFX was already the largest exchange in the world for Sukuk by listed value, at US$13.78 billion.

In October 2007, the DIFX announced that it was preparing to list a range of Islamic structured products that will offer investors new Shariah-compliant opportunities on a new platform known as TraX. Created by the DIFX in August 2007, TraX is the only structured products platform in the region, and major banking institutions including Citigroup, Deutsche Bank, Merrill Lynch and Morgan Stanley plan to list conventional and Islamic products on the platform.

Per E. Larsson, then Chief Executive of the DIFX, stated at the time that: “The structured products market is growing rapidly around the world and the DIFX is at the forefront of expansion in its region.

In December 2007, Dubai's Jebel Ali Free Zone listed a AED7.5 billion (US$2.04 billion) Islamic bond, or Sukuk, on the DIFX, confirming the exchange’s status as the largest in the world for Islamic bonds.

The DIFX is also a significant draw for the listing of conventional bonds, and in February 2007 Dubai Holding Commercial Operations Group (DHCOG) listed bonds worth US$2.46 billion on the exchange, in the largest corporate bond issue in the Middle East under a European Medium Term Notes (EMTN) programme.

Commenting on the listing, Mohammed Al Gergawi, Executive Chairman of Dubai Holding, stated that: “The DIFX is a gateway for both regional and international investors. Following its rapid growth, the DIFX is the ideal platform for Dubai Holding to list this important issue of bonds, the first it has ever made. As an exchange that operates to high international regulatory standards, the DIFX provides expanding opportunities for the business and financial community.”

In March 2008, the DIFX announced the composition of its new Board of Directors following the closure of a deal between the DIFX, Borse Dubai Ltd and the Nasdaq Stock Market, Inc., which resulted in the Nasdaq OMX Group, Inc. acquiring a 33.3% stake in the DIFX. The two new DIFX Board members were Robert Greifeld, Chief Executive Officer of Nasdaq OMX Group and Adena T. Friedman, Executive Vice President, Corporate Strategy of Nasdaq OMX Group. The rest of the DIFX Board membership remained unchanged and comprised: Soud Ba’alawy (Chairman), Per E. Larsson (Chief Executive Officer), Maha Al-Ghunaim, Bisher Barazi, Mohamed Binbrek, Essa Kazim, Gerald Lawless, George Möller and Shadi Sanbar. Larsson has since vacated his post to be replaced by former Nasdaq executive Jeffrey Singer.

The year 2008 also saw the first dual listing take place on the DIFX, that of Netsol Technologies Inc., a California-based IT company with extensive interests in the Middle East, which is also listed on the US Nasdaq exchange. Furthermore, 2008 also saw the first Chinese company, (China Security and Surveillance Technology, Inc.) list its shares on the DIFX.

In November 2008, The DIFX rebranded its market as Nasdaq Dubai, reflecting the growing links between the DIFX and the Nasdaq OMX group.

Nasdaq OMX acquired a one-third stake in Nasdaq Dubai in February 2008. The other two-thirds is owned by Borse Dubai.

Bob Greifeld, Chief Executive of Nasdaq OMX Group and Vice Chairman of Nasdaq Dubai, said, "Nasdaq Dubai provides a first-class venue through which Nasdaq OMX listed companies can reach new investors in the Gulf and the Middle East. We've attracted 29 companies to our first Middle East investor conference here in Dubai and there is clear and tangible interest in this market. At the same time, we can provide local investors with opportunities to invest in innovative, growth-oriented companies." Greifeld added, "To facilitate dual listings on Nasdaq Dubai, we have created a streamlined listing process for companies looking to have a secondary listing here."

On November 4, 2009, the International Finance Corporation, an affiliate of the World Bank, listed an Islamic bond, or Sukuk, on Nasdaq-Dubai. The IFC Hilal Sukuk is a dollar-denominated US$100m issue, AAA rated, with a five-year maturity.

While this is a symbolic amount compared to some of the mega-Sukuk, the Hilal Sukuk offered by the IFC set a milestone for Islamic Finance and for financial markets in the Gulf Cooperation Council (GCC). It was the first time that a non-Islamic financial institution has issued a Sharia-compliant security for term funding.

It was also the first time that a sizeable Sukuk was listed exclusively in the Gulf, ie. on Nasdaq Dubai and the Bahrain Stock Exchange, which represents an acknowledgment of the progress made by the emerging financial sector in the region, in terms of liquidity, but more importantly in terms of the trading, clearing and settlement, and the legal and regulatory environment.

Nasdaq Dubai launched its equity derivatives market in November 2008. Equity futures are listed on 21 individual UAE companies and on the FTSE Nasdaq Dubai UAE 20 share index, which was designed as a hedging and investment mechanism for Gulf Cooperation Council and international investors. The index rose by 48% in 2009 to 1,851.

A total of 8,761 Dubai Gold Securities (DGS) traded in the third quarter of 2011, reflecting an increase of 1280% from the first two quarters. The total value of DGS traded on NASDAQ Dubai reached US$1.58 million in the first nine months of 2011, up 65% from US$958,000 in the same period of 2010.

Each DGS security is valued at approximately 1/10th of the spot price of gold. DGS are an initiative of the Dubai Multi Commodities Centre and the World Gold Council and have been declared Shariah-compliant. In December, 2009, the exchange announced that it had accepted a US$121m takeover offer from the DFM. Commenting at the time, Essa Kazim, Executive Chairman of the DFM, said: “With this transaction, DFM will gain a wider array of product offerings for investors and a clearer path to integrate certain back office and technology functions with Nasdaq Dubai. Unifying the ownership structure of the two exchanges will further strengthen Dubai's leading role as a center of capital markets and innovation that places the interest of investors, issuers and brokers first."

Jeff Singer, Chief Executive of Nasdaq Dubai, added: "The combined strengths of the two exchanges will help attract new issuers, from across the region and internationally, who will be able to choose which of the two exchanges is appropriate for them according to their commercial and regulatory preferences. Through the ownership structure and closer operational links between the two exchanges, Dubai will achieve its goal of creating a powerful capital markets hub for the GCC and the wider Middle East."

The completion of the transaction was expected to take place six weeks after the December 22, 2009 announcement. However, it was in June 2010 that the move was completed and DFM became majority shareholder of Nasdaq Dubai.

Responsibility for Official List and listing authority functions in the DIFC was transferred from NASDAQ Dubai to the DIFC’s regulator, the Dubai Financial Services Authority (the “DFSA”) in October, 2011. Interim Issuers and Securities Rules were published at the same time and these are due to be replaced by the NASDAQ Dubai Admission and Disclosure Standards in 2012.

 

 

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