Corporate Governance

This section provides an overview of NASDAQ Dubai’s governance during the year 2012. It explains how the Company applies principles of sound corporate governance to ensure an environment of strategic direction, performance, accountability and control in the business.

Board of Directors

At the foundation of a well governed company is an effective Board that provides good leadership and oversight, within a framework of prudent and effective controls that enable risk to be assessed and managed.

Board of Directors

At the foundation of a well governed company is an effective Board that provides good leadership and oversight, within a framework of prudent and effective controls that  enable risk to be assessed and managed.

The NASDAQ Dubai Board is responsible and accountable to its shareholders, Dubai Financial Market and Borse Dubai, for directing the Company’s affairs, for its system of corporate governance, its strategic objectives and for the stewardship of the Company’s resources.  The Board adopts the view that corporate governance should promote good performance and integrity as well as conformance with legislation and that effective governance practices enhance the Company’s ability to achieve its strategy and long-term success.

The Board determines the policies and practices which govern the operation and management of NASDAQ Dubai and has the responsibility to ensure that the Company achieves its key objectives. It is the purpose of the executive and senior management to manage NASDAQ Dubai in accordance with the directions of the Board.   In accordance with good governance practice, there is a clear division of responsibilities between the Chairman and the Chief Executive.

The Board has a formal schedule of matters specifically reserved for its decision-making, which includes the annual budget, strategy and long term business objectives, major projects and contracts, and significant capital expenditure. Certain matters are delegated to the three Committees of the Board in accordance with their respective Charters.

During the financial year, the Board met on 7 occasions, and all except one of these meetings was held in person in Dubai.  The Board moved to electronic meetings at the end of 2011 through the use of iPad and NASDAQ OMX’s online board portal, Directors Desk. In addition to making the board process more efficient, this has had the benefit of considerable savings in resources, paper and printing.

The NASDAQ Dubai Board comprises 8 Non-Executive Directors including the Chairman, Mr Abdul Wahed Al Fahim. Biographical details of the Directors, the Committees on which they serve, and a reference to which Directors are considered by the Board to be independent, are set out below. The biographies demonstrate a wide range of experience and skills enabling the Board members to discharge their responsibilities and to bring independent judgement on matters of strategy, performance and standards of conduct which are important to the success of the exchange.

Board Charter

NASDAQ Dubai’s governance framework is set out in its Board Charter.  The Charter details the corporate governance framework, co-ordinates and aligns supporting policy documents and establishes an environment that enables the Board and officers of NASDAQ Dubai to meet their responsibilities under the prevailing law and to demonstrate good governance practices.

Non-Executive Directors / Independence

In accordance with the DFSA  Authorised Market Institution regulation and the Articles of Association, at least one half of the Board comprises Independent Non-Executive Directors.  The Non-Executive Directors, four of whom are Independent, bring wide and varied commercial experience to the deliberations of the Board and its Committees.

An assessment of Directors’ independence is carried out annually and at appointment for new Directors. The latest annual review was carried out in January 2013, by means of a questionnaire.  Each Director provided answers to questions based on criteria covering independence as set out in the DFSA’s Authorised Market Institution Rules. Responses were reviewed by Legal and Compliance which, in reference to the criteria, made an assessment as to whether a Director is independent. The assessment was reviewed by the Nomination and Remuneration Committee and its recommendations were made to the Board for its approval.

Non-Executive Directors are subject to annual re-election by the shareholders at the Annual General Meeting.  In relation to Board remuneration, they receive an annual retainer together with meeting attendance fees for Board and, where applicable, Committee meetings.

Board Evaluation

An evaluation of the Board and the three Committees for the year 2012 was undertaken by means of online questionnaires in January 2013.  This assessment, focusing on performance during 2012, was carried out by Board members, and was extended this year to include feedback from Senior Management.  The respective members of each Committee and relevant Management responded to questions assessing the performance in relation to that Committee, and the full Board and Management in relation to the Board’s performance. The feedback was collated anonymously and the results and recommendations presented at the January 2013 Board and Committees meetings.

Board Attendance

  Board Audit & Risk Management Market Oversight Nomination & Remuneration
No. of Meetings: 7 8 6 7
Abdul Wahed Al Fahim 6 of 7 5 of 8    
Majid Saif Al Ghurair 6 of 7   4 of 6 6 of 7
Rashid Al Shamsi 5 of 7     6 of 7
Abdulla Ghobash 5 of 7 6 of 8    
Essa Kazim 7 of 7      
Edward Knight 5 of 7   5 of 6  
Jamal Nasser Lootah 7 of 7 8 of 8   7 of 7
George Möller 6 of 7 8 of 8 6 of 6  

Board Committees

Board committees play an important role in the governance process and assist the Board in discharging its duties. 

The NASDAQ Dubai Board maintains three Committees which manage specific aspects of the Company’s affairs.  Each Committee has its own Charter, providing written terms of reference that define its authorities, duties and membership.  In line with good practice, membership of the Committees is entirely non-executive and the majority are independent Directors.

Audit and Risk Management Committee

The Audit and Risk Management Committee is chaired by Jamal Nasser Lootah. The other members are Abdul Wahed Al Fahim, Abdulla Ghobash and George Möller. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent and objective oversight of internal control and risk management, internal compliance, governance issues, financial reporting, external and internal auditors and financial controls.

During the year, the Committee met on 8 occasions.  The Committee reviewed the preliminary annual budget, regular finance reports and the annual financial statements, and recommended for Board approval the final budget and the annual financial statements. At the beginning of 2012, it met with the independent auditors, Deloitte, to consider the results of the annual audit and to review the annual financial statements.  The Committee undertook a self-assessment as part of the board performance evaluation for 2011 and reviewed its findings and recommendations.

The Committee received quarterly and interim risk management reports from the Head of Market Operations and Risk, reviewed and approved the Money Laundering Reporting Officer’s annual report and received a presentation on business continuity plans.

The Internal Audit function, which is provided by Dubai Financial Market, met regularly with the Committee which received progress reports on the Internal Audit Plan together with the internal audit reports following the completion of each audit. 

Market Oversight Committee

The Market Oversight Committee is chaired by George Möller. The other members are Majid Saif Al Ghurair and Edward Knight. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent oversight of Market Regulation which includes Issuer Surveillance, Member Compliance and Market Surveillance functions. It also supervises the regulatory functions carried out by other areas of NASDAQ Dubai, including the application of the exchange’s Rules, Members' conduct of business and the clearing and settlement function.

During the year, the Committee met on 6 occasions.  The Committee met on each occasion with Market Regulation and its functions and received updates on regulatory and compliance matters, including feedback on regular meetings with the DFSA.   The Committee also received ad hoc reports on any market incidents as part of its regulatory oversight function.

During the year, the Committee discussed and received updates on the proposed new Admission and Disclosure Standards and the introduction of the new Markets Law and Markets Rules.  The Committee reviewed the annual budget and resources for Market Regulation and discussed any changes to key regulatory individuals.  At the beginning of 2012, it undertook a self-assessment as part of the board performance evaluation for 2011 and reviewed the results and recommendations.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee is chaired by Majid Saif Al Ghurair. The other members are Jamal Nasser Lootah and Rashid Al Shamsi. The company secretary acts as secretary to the Committee. The Committee is responsible for new appointments to the Board, succession planning for the Board and executive management, and reviewing the independence of Directors. It is also responsible for recommending Non-Executive Directors remuneration for Board approval, approving performance measures and target setting for the Chief Executive, service agreements for Non-Executive Directors and broad policies and programs for employee benefits.

During the year, the Committee met on 7 occasions. It considered the findings and determinations of the annual Directors’ independence review and recommended these for Board approval.   It reviewed the Human Capital annual budget, set the targets and objectives for the Acting Chief Executive, and reviewed the findings and recommendations of the Board and Committees performance Evaluation for 2011.  The Committee received regular reports from Human Capital on key issues, reviewed the employee Performance Development Plan and changes to staff policies, and was also updated on the renewal of employee insurance policies.

Internal Control and Risk Management

Internal control aims to ensure that processes are in place to achieve a company’s business objectives. Internal audit provides assurances that these processes and controls are effective and being complied with. Through risk management, the company is able to identify, understand and manage risks to the business by reducing the probability that those corporate objectives are jeopardised by unforeseen events.

Internal control

The Board has overall responsibility for ensuring that Management maintains an effective system of internal control and for reviewing its effectiveness. Such a system is designed to support the identification and management of risks affecting NASDAQ Dubai and the business environment in which it operates. NASDAQ Dubai operates a system of internal control which provides reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the exchange. The Board, through the Audit and Risk Management Committee, regularly reviews these processes. The effectiveness of controls is periodically reviewed within the business areas. Regular reports are made to the Audit and Risk Management Committee by Management, Internal Audit, Head of Risk Management and the compliance and legal functions covering matters such as financial controls, compliance and operational controls. The Audit and Risk Management Committee monitors resolution of any identified control issues of significance through to a satisfactory conclusion.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. In accordance with International Financial Reporting Standards (IFRS), the internal control over financial reporting is a process designed under the supervision of the Chief Executive and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.

NASDAQ Dubai’s internal control over financial reporting includes policies and procedures to provide for the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of Management and the Board; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Management assesses the effectiveness of internal controls to satisfy itself that the processes followed are effective. The system of internal financial and operational controls is also subject to regulatory oversight by the DFSA.

Internal Audit

The purpose of the Internal Audit function is to assist the Board and Management in the effective discharge of their fiduciary and administrative responsibilities by providing independent, objective assurance and consulting services with respect to evaluating risk management, control, and governance process. To ensure independence and objectivity, Internal Audit reports directly to the Audit and Risk Management Committee. The Internal Audit function adopts standards issued by the Institute of Internal Audit (IIA). Internal Audit services are provided by Dubai Financial Market which follows a risk based audit approach. An annual risk based internal audit plan is prepared based on risk factors and input from Management and other stakeholders. The audit plan is both inclusive and exclusive meaning that all key areas subject to high risk are included in the plan while the non-priority and low risk areas are excluded. During the planning process key business areas and operational risks are identified, compiled, risk rated and ranked to draw a final risk assessed audit scope of work that factors in high and medium risk areas. The audit plan, submitted to Management and the Audit and Risk Management Committee for approval, provides information about the risk assessment, the current order of priority of audit projects and how they are to be carried out. The audit plan outlines the key departments, activities and processes to audit together with an estimate of resource requirements, and estimated start dates and completion timelines. The Internal Audit submits regular activity reports to the Audit and Risk Management Committee and Management summarizing the results of the audit work including significant risk exposures and control issues and follow up on the issues raised in the audit report. Internal Audit liaises regularly with internal stakeholders to maintain and uphold communication and relationship to a high level. The key internal stakeholders include legal and compliance, company secretariat and risk management functions.

Risk Management

Risk management is a systematic and continuous process which aims to identify, evaluate, manage, control and report significant risks to which NASDAQ Dubai may be exposed. NASDAQ Dubai has integrated the risk management in the business activities, and thus decentralized it to each unit and function. Management is responsible for establishing and maintaining pertinent risk management. The functions and systems for internal control and internal audit are part of the overall risk management process.

NASDAQ Dubai’s exchange, clearing and central securities depository operations require focus on business continuity and incident management. As an exchange and clearing house and, indirectly, central securities depository, NASDAQ Dubai is subject to specific regulation and supervision. Furthermore NASDAQ Dubai is, as a clearing house, exposed to specific risks related to the central counterparty clearing, whereby NASDAQ Dubai acts as counterparty for transactions between the buyer and the seller. One of the primary obligations of clearing members is to provide collateral to NASDAQ Dubai as required by the applicable rules as protection against the counterparty risk assumed. The Head of Risk Management is responsible for the policy setting of the management and mitigation of these clearing risks. The clearing risks are among other things mitigated by collateralization of obligations, pertinent clearing membership requirements, dedicated clearing capital, netting arrangements and a proactive risk management including, reports and the use of watch lists.

 

Corporate Responsibility

Corporate responsibility has become embedded in the mainstream of corporate governance thinking.  NASDAQ Dubai is committed to the highest ethical standards of professional conduct and integrity. In order to meet this objective, employees are required to comply with the spirit and letter of the company’s Code of Ethics and Conduct.  All employees receive annual training to support this objective.

Due to the nature of its business, NASDAQ Dubai does not have a high environmental impact. Its principal impact arises from energy, paper and water consumption. In an effort to responsibly manage this impact, we encourage a reduction in energy wastage and there is a focus on recycling. In 2012 we recycled 1,445kg of paper and over 30kg of plastic.

In order to take advantage of technology and the benefits of the internet, NASDAQ Dubai continues to publish its Annual Review online. This provides convenient access to information about the Company and reduces our consumption of paper in line with our corporate responsibilities.

© 2012 Nasdaq Dubai. All rights reserved.