Business Review

A welcome upturn in UAE capital markets sentiment in 2012 contributed to a productive year for NASDAQ Dubai. As well as hosting two significant new Sukuk listings, the exchange engaged productively with a range of companies that are interested in carrying out an IPO or issuing fixed income. We are optimistic that many of these conversations will bear fruit in 2013 and 2014, especially if market conditions continue to improve. The 32% rise in 2012 of the bellwether FTSE UAE 20 index – which measures share prices across the nation’s three exchanges – shows that an appetite for equities has started to return. Equally the fall in yields on the HSBC/ NASDAQ Dubai SKIX Sukuk index over the year, from 6.49 to 3.92, demonstrated healthy investor appetite for fixed income.

Significant regulatory enhancements to the framework for listing and trading on the exchange were achieved in 2012. These include a decrease in the minimum market capitalisation for IPO issuers from 50 million dollars to 10 million, announced by the Dubai Financial Services Authority (DFSA). This opens the door to smaller companies, which supports the exchange’s plan to develop a substantial market for small and medium-sized enterprises. The exchange itself introduced new rules to support liquidity in the secondary equity market. At the national level, NASDAQ Dubai welcomes measures taken in 2012 by the Securities & Commodities Authority, the UAE financial services regulator, to further improve the environment for investors on UAE exchanges by introducing rules for market making, short selling and stock lending and borrowing.

On a personal note, it was a great pleasure for me to return to serve the exchange in July 2012. In the four years since I fulfilled my previous role here, as Executive Officer, a huge amount was achieved, in terms of listings, regulatory changes and the building of key relationships with market participants and official bodies. For this progress great credit is due to Jeff Singer, who as Chief Executive from 2008 until July 2012 led the exchange through a period of crucial development and growth. During 2012 we have strengthened a number of these important relationships, notably with various UAE authorities. NASDAQ Dubai is now well placed to expand further during 2013 and beyond.

Listings

The rapid growth of the Sukuk sector in 2012, both regionally and globally, was reflected in significant listings on NASDAQ Dubai by two of Dubai’s leading enterprises. In June JAFZ, operator of the Jebel Ali Free Zone which hosts more than 6,500 companies, brought a 650 million dollar Sukuk to the exchange. The order book of the transaction, the company’s first in the international debt capital markets since 2007, was 3.1 times subscribed. The following month Emaar Properties, the Dubai-based global property developer, listed a 500 million dollar Sukuk that was nearly 10 times oversubscribed. Mohamed Alabbar, Chairman of Emaar Properties, commented: "The process of listing (on NASDAQ Dubai) is investor and issuer-friendly, which will drive stronger regional and international investor response."

The two listings confirmed NASDAQ Dubai’s status as the Middle East’s largest exchange overall for all bonds (Sukuk plus conventional bonds), with a nominal value at the end of the year of 9.5 billion dollars. As the sector expanded during the year, the exchange held discussions with many other potential issuers seeking the visibility and high regulatory standards that the region’s international exchange provides. Over time NASDAQ Dubai intends to become the world’s largest exchange for listed Sukuk, in line with Dubai’s initiative to become the global capital of Islamic finance.

Trading

The equity markets faced another challenging year globally in 2012 and the Middle East was not immune. Equities traded value on the exchange totaled 508 million dollars, a fall of 25% from 675 million dollars in 2011. An upturn took hold in the fourth quarter however, with traded value rising to 150 million dollars, an increase of 12% from 133 million dollars in the same period of 2011.

The two most active Members by traded value in 2012 were Arqaam Securities (33% of all trading) and EFG Hermes Brokerage UAE (24%), with Deutsche Bank third at 19%. In July Al Ramz Securities was the winner of the exchange’s inaugural Retail Broker of the Month award, which recognizes the broker that handles the largest value of retail equities trades. The winners in subsequent months were Al Ramz Securities again and Emirates NBD Securities.

Regulatory Enhancements

Positive changes to the regulatory framework governing the exchange were introduced in 2012. Following the enactment in June of the Markets Law of the Dubai International Financial Centre (DIFC), the DFSA introduced Markets Rules that require an issuer to obtain DFSA approval for its prospectus, before it can be used to make an offer to the public. Changes to market misconduct and corporate governance also came into effect. These and other changes announced by the DFSA, as the listing authority in the DIFC, are designed to promote investor protection and further align the DIFC regulatory environment to international standards.

The Markets Rules also reduced the minimum market capitalisation for companies that go public on NASDAQ Dubai to 10 million dollars, down from 50 million dollars which had been the limit since the exchange opened in 2005. This change gives many small and medium-sized enterprises (SMEs) a new option for raising finance to fund their growth. In addition NASDAQ Dubai took steps to enhance liquidity on its market by introducing Admission and Disclosure Standards in July. These require a company carrying out an IPO to facilitate a reliable price formation process, either by having a sufficient number of shareholders, each with a holding of at least 2,000 dollars, or by appointing one or more market makers.

Business Development

NASDAQ Dubai increased the intensity of its business development activity in 2012, strengthening its teams in experience as well as numbers. As well as engaging with potential new issuers and Members in existing asset classes, inside and outside the Middle East, the exchange spent considerable time and resources in planning new markets and services, to be announced in due course.

Public activities included a bond and Sukuk listing seminar given jointly by NASDAQ Dubai and the DFSA in January, which explained regulatory and practical processes to lawyers and other market participants and took on board their feedback. In the same month the exchange became a member of the Gulf Bond and Sukuk Association. In May, NASDAQ Dubai underlined its commitment to financial education and high ethical standards by hosting, with DFM, a market-opening ceremony with the London-based CFA Institute. The occasion marked the 50th anniversary of the benchmark CFA Analyst programme. The following month, NASDAQ Dubai gave a seminar with DFM and the Dubai SME to explain capital raising options to small and medium-sized enterprises. Several companies expressed an interest in an IPO, in light of the drop in minimum market capitalisation to 10 million dollars that came into force in June. Later in the year Dubai SME and NASDAQ Dubai signed a Memorandum of Understanding to further support the growth and expansion of the SME sector. In November the exchange and DFM jointly held a roadshow for institutional and high net-worth investors, at which some of their most prominent listed companies gave presentations. Our thanks go to Deutsche Bank for hosting the event in the DIFC.

Other activities by the exchange during 2012 included enhancements to its CANDI regulatory disclosure service, used by issuers to keep the market informed of their activities. As a result the exchange became the first organisation to be approved by the DFSA as a Regulatory Announcement Service, under its Markets Rules.

The exchange will maintain its strategic direction in 2013 and expand its initiatives. Supported by increasing cooperation with market participants and UAE authorities, prospects for attracting new listings and developing new markets are bright.

Hamed Ali
Acting Chief Executive Officer, NASDAQ Dubai

© 2012 Nasdaq Dubai. All rights reserved.