The opening of the Dubai International Financial Exchange in September 2005 created an international stock exchange strategically located geographically and in terms of time zone between the market
The opening of the Dubai International Financial Exchange in September 2005 created an international stock exchange strategically located geographically and in terms of time zone between the markets of Europe and East Asia, and offering issuers and investors the benefits of rulebooks and standards on a par with those of the world’s leading exchanges.
The DIFX has created the opportunity for regional and international investors including hedge funds to access the growing economic success of the Middle East through equities including some of the region’s most important listed companies, bonds, Sukuk – the exchange is the largest in the world for these Islamic financial instruments – and structured products.
The past year has seen a number of important steps in the development of the DIFX, including the listing of DP World, the Dubai-based operator of port facilities worldwide, which has given a significant boost to equity trading on the exchange. In addition, last August the DIFX launched its TraX platform for structured products in conjunction with the listing of 14 products from Deutsche Bank, Merrill Lynch and Morgan Stanley.
The move represents a significant advance for the development of listed investments in the Middle East, since the exchange is the only one in the region to offer structured products. With the introduction of DIFX TraX, the number of products on the platform has grown to 23 and is set to grow further as more banks prepare to list structured products on the DIFX.
The listed products currently include capital-protected notes and index tracker certificates, including both Shariah-compliant and conventional products based on indices relating to the Dubai Financial Market (DFM), the Abu Dhabi Stock Market and other Gulf Co-operation Council stock markets, US, European and East Asian share indices, or commodities such as oil, soy, corn, wheat, sugar and cotton.
There is potentially huge interest from international investors including hedge funds in products that offer exposure to the Middle East markets, which are relatively uncorrelated to European, North American and Asian equities. Some existing products track the performance of the DFM, the local Dubai stock market, where there are many active stocks and which enjoyed growth of nearly 50 per cent in 2007.
Having many international brokers such as Deutsche, Merrill and Morgan Stanley as members gives the exchange strong global links and makes it easy for investors to trade through international centres such as London and New York. But worldwide interest in the DIFX is set to expand further this year not only because of growth in its range of equities and structured products but because of its plans to become the first exchange in the region to create a substantial platform of equity derivatives.
The proposed launch of an official derivatives market in the second half of 2008 will fill a significant gap in the financial infrastructure of the Middle East. The surge in wealth in the region is creating an ever-larger appetite for new investment classes, and in some areas the industry has failed to keep up. At present the lack of an equity derivatives exchange is obliging some locally-based institutions to trade via the OTC market.
Subject to regulatory approval, the forthcoming DIFX derivatives market will offer derivatives based on stocks listed on the DIFX, such as DP World, and on equities and indices from other regional exchanges. Like the structured products platform, it will help meet the demand for new and more sophisticated financial instruments from both inside and outside the region.
Mark Fisher is head of corporate communications at the Dubai International Financial Exchange
