Global Market Structure
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Oil Wealth Fuels Another Kind of Liquidity
Middle East strives to strengthen its presence in global finance
November 3, 2008
Building on oil revenues, equities and commodities markets and a convenient location at the crossroads of Asia, Europe and North Africa, the Middle East--and the United Arab Emirates in particular--is making a strong bid to be a powerhouse. It also hasn't hurt that the region's pro-development leaders are not hemmed in by democratic decisionmaking, environmental impact statements, planning restrictions and lawsuits blocking new highways and ports.
Dubai's ruler, Sheikh Mohammed Bin Rashid Al Maktoum, VP and prime minister of the UAE, was instrumental in the opening in 2004 of the Dubai International Financial Center (DIFC), a 110-acre financial free zone designed to attract foreign banks and brokerages. The center doesn't tax profits, permits firms that are entirely foreign owned and has no restriction on the movement of capital. It is also home to the Dubai International Financial Exchange (DIFX), whose 23 members include Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank and HSBC.
Two-thirds of DIFX is owned by holding company Borse Dubai--also majority owner of the eight-year-old Dubai Financial Market--while Nasdaq OMX Group has held the remainder since February. In July, former Nasdaq executive Jeffrey Singer became CEO of the exchange. While Nasdaq says its ownership role allows companies to list their stock across markets in the U.S., Europe and Middle East, only one--NetSol Technologies--has cross-listed in New York and Dubai. On Nov. 20, Nasdaq is hosting a conference that will bring Western companies to Dubai to promote the advantages of listing there.
How important is DIFX in international finance? Experts say it has potential but for now mostly functions as a way for firms to stake out their presence in the region. A three-year-old venue with a limited number of members may not yet have a large presence, said one market participant, but it does provide a way for companies that want to be active in the Middle East to build credibility.
Najeeb Ghauri, chairman and CEO of NetSol, said listing on DIFX is a way for the Calabasas, Calif.-based IT provider to expand its brand visibility and investor base into a new area. "NetSol seeks to become a market leader in the region's lease- and asset-based financial software," he said in June.
It's too early to tell how successful DIFX and Nasdaq will be in drawing listings to Dubai, said Gerhard Hametner, director of business development at St. Lucia-based MAC Capital Advisors, a corporate finance house focused on the Middle East. "Foreign listed stocks in the Middle East is a new concept, and it hasn't taken off yet," he said. Twelve companies from outside of the region are listed on DIFX. "A lot of people believe it might not work, but they have the sources and expertise here. ... It takes time."
In March, NYSE Euronext announced a cooperation agreement with the Abu Dhabi Securities Exchange (ADX). Under the deal, NYSE said it would provide the exchange with market infrastructure systems and trading technology by year-end. NYSE also said it would advise ADX on the creation of a derivatives market. "Receiving support and advice from NYSE Euronext will significantly enhance our systems operations, broaden our product offering and assist our development of new businesses," said chief executive Tom Healy. ADX, which hasn't targeted international listings, may be playing catch-up, but Abu Dhabi has a significant advantage in oil wealth.
