By improving their infrastructure, exchanges in the Middle East are moving fast to become international players. One of the reasons is to diversify their economies. And in a few years, the Gulf Cooperation Countries will have a common currency which will stimulate cross border trading within the region.
Today, just about every country in the Middle East has an exchange on which investors can trade equities and bonds. While these markets are still developing, they are making a concerted effort to become global players by improving their infrastructure, meeting international standards and attracting foreign investment.
"...our IT investment are planned for the anticipated growth." Essa Kazim, Director General at Dubai Financial Market
| This trend is driven by a couple of factors. One is the recognition that oil – the mainstay of the Middle East – is going to run out eventually, and most countries are keen to find alternative ways to grow their economies in the future. Second, oil revenues, once invested in hard assets such as foreign property, are increasingly being repatriated in the Middle East by investors willing to assume more risk for a higher return in an emerging market.
“With more funds being repatriated, a significant amount of money is flowing through these economies,” says James Martin, Senior Sales Executive at OMX. “The Gulf States in particular are diversifying away from the oil and gas industry to tourism and financial services.”
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To this end, a number of reforms are underway to bolster the financial services industry in the region. Restrictions on foreign ownership of securities are slowly being lifted. Independent regulatory bodies have been established similar to the Securities and Exchange Commission in the US and the Financial Services Authority in the UK. There are moves to diversify into other asset classes including derivatives, which, to date, have been prohibited by Islamic law. There is even talk of changing the normal work week from Saturday-Wednesday to Sunday-Thursday to better align it with the rest of the world.
The Middle East will become even more attractive once a common currency is introduced in the Gulf Cooperation Countries (GCC), which is scheduled to happen by 2010. “A common currency will stimulate cross border trading within the GCC region,” says Ulf Axman, Senior Sales Executive - Middle East and North Africa at OMX. “That will pave the way for more regional cooperation and possibly consolidation in the longer term.”
Meanwhile, Saudi Arabia, the largest market in the Middle East, is building out its infrastructure and odernizing
its marketplace to support steadily rising volumes. It recently announced plans to privatize its stock exchange and open a three million square meter financial center. Foreign ownership restrictions also have been relaxed,
allowing expatriates with a residency permit to invest in securities. Similarly, the Dubai financial markets are expanding rapidly. Several new markets have been founded including the Dubai Financial Market (DFM), a gold exchange, the Dubai International Financial Exchange (DIFX), and the Dubai Mercantile Exchange, a petroleum exchange which will go live soon. The Dubai International Financial Centre (DIFC) has been set up with an autonomous regulator, and this model has been so successful that Saudi Arabia, Bahrain and Qatar are copying it.
 Clearly, technology is an enabler for continued growth in the Middle East markets. “Foreign banks and brokers will only come in if they know the systems are advanced and stable enough that they can handle their trading patterns and trading models,” says Martin. “They also must be proven in mature markets around the world, reliable, continuously available, scalable and designed to meet international standards and regulations.”
Exchanges such AS DIFX and DFM have taken this on board and are migrating to a fully integrated trading platform.
DIFX’s growth strategy hinges on building its remote membership base and enhancing its current equity and
bond offerings by adding new products including derivatives. “We have members beside the region disbursed throughout Europe and the US, and we plan to have members in Asia soon,” says Steffen Schubert, CEO of DIFX. “Technology will enable us to connect all of these people to our market in a fast, reliable manner.”
Essa Kazim, Director General at DFM echoes this sentiment. “DFM expects trade volumes to grow xponentially
in the near future, and our IT investments are planned for the anticipated growth,” he says. “The new fully integrated trading platform will enable DFM to take the next big leap in modernizing the stock market and
improving its performance.” OMX to power Middle East marketplaces
OMX recently reached agreement with two major marketplaces in the Middle East regarding market technology and infrastructure. In the United Arab Emirates, OMX will deliver, implement and support a new trading system to the Dubai Financial Market.
OMX will also deliver technology and infrastructure and act as the primary system integrator for the Saudi Stock Market Tadawul, the largest stock market in the Middle East region.
Abdul Rahman Al-Tuwaijeri, Chairman and CEO of the Capital Market Authority said this agreement is part of the strategy to upgrade the technical infrastructure of the Saudi capital markets to meet growing market expectations and utilizing best available technologies.
OMX’s customers in the Middle East and North Africa:
- Abu Dhabi Securities Market
- Bahrain Stock Exchange
- Cairo & Alexandria Stock Exchanges
- Doha Securities Market
- Dubai Financial Market
- Palestine Securities Exchange
- Tadawul Saudi Stock Market
By Sherree Decovny Photo Getty Images MarketView 2006:2
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