The two main stock exchanges in the UAE are trying to attract market makers but some industry professionals say Abu Dhabi is offering more generous financial terms and more liberal rules than Dubai, suggesting it may have more success.
Market makers stand ready to buy and sell stocks at all times, improving liquidity on an exchange – something which may be increasingly important as Abu Dhabi and Dubai compete for funds with the Saudi Arabian bourse, which will open to direct foreign investment on June 15, Reuters reported.
The relatively small Nasdaq Dubai, regulated by the Dubai Financial Services Authority, allows listed companies to appoint market makers for their stocks; for example, Shuaa Capital makes a market in three stocks: DP World, Emirates REIT and Orascom Construction.
But the Abu Dhabi Securities Exchange (ADX) has only one market maker, National Bank of Abu Dhabi, which in February began offering the service in four stocks: Waha Capital, First Gulf Bank, Abu Dhabi Commercial Bank and Aldar Properties.
The Dubai Financial Market (DFM), which like the ADX is regulated by the United Arab Emirates Securities and Commodities Authority (SCA), currently has no market makers.
Trading Fee Rebates
Both the big exchanges say they are in talks to attract market makers. The ADX is holding discussions with four companies, Abdulla Alnuaimi, head of market operations and surveillance at the exchange, told Reuters.
The ADX says it will allow markets to be made in all stocks and is offering trading fee rebates to market makers as long as they maintain an agreed bid-ask spread and volume of shares at least 80 per cent of the time.
The DFM said in a statement that it was "in discussions with a number of companies and banks; three entities have expressed their interest to provide market-making on DFM" so far.
But the DFM is not offering rebates on trading fees. Also, some of its rules may cause market-making to be unattractive commercially, analysts said.
One DFM rule says a market maker can only provide liquidity in a stock if "the number of trading days on the security is less than 50 per cent of the total number of trading days" over six months.
Another requirement is that "the number of transactions executed on the security (over six months) are less than 150 transactions", while the number of shares traded in that period should be less than 500,000 shares.
The DFM has prepared a list of 17 illiquid stocks in which it would permit market-making. The list will be reviewed twice a year.
