Middle East
18 February 2014
The Middle East wants a slice of the capital pie. Dubai has its eye on a large helping
Image: Shutterstock
Dubai is promoting itself a financial and business hub that connects the Middle East, Africa and South Asia鈥檚 markets with the developed markets of Europe, Asia and the Americas, but it is not there yet. First, it has to attract service providers and create the infrastructure that will facilitate its transformation into a financial bridge that connects east and west.
The United Arab Emirates (UAE) state welcomed 55 active financial services and 103 non-financial services firms in 2013, bringing its total to 327 and 565 at the end of the year. It is now home to 22 of the world鈥檚 top 30 banks, 11 of the world鈥檚 top 20 money managers, six of the top 10 insurance companies, and seven of the top 10 legal firms.
Speaking at the beginning of February, Jeffrey Singer, CEO of Dubai International Financial Centre Authority, commented: 鈥淭he growth that DIFC has experienced in 2013 has been the highest achieved since the beginning of the Great Financial Crisis.鈥�
Dubai has also implemented 鈥榮oft infrastructure鈥� in line with international standards, to ensure that it achieves its mission of connecting regions separated by thousands of miles.
鈥淭here were several 鈥榮oft infrastructure鈥� developments in 2013鈥攕uch as the introduction of framework for institutions to develop shariah-compliant products and services, thus ensuring Dubai will become an Islamic finance hub, in line with the Dubai government鈥檚 vision,鈥� explained Singer.
鈥淚n 2014, we will concentrate on the development of new markets such as Islamic finance, capital markets, family businesses and growth markets such as Africa, providing additional business opportunities to firms based both within DIFC and the wider region.鈥�
Dubai Financial Market, the UAE emirate鈥檚 stock exchange, issued securities lending and borrowing rules in January, as part of its own efforts to enhance market infrastructure according to international best practices.
The operational implementation of the rules is expected to happen by the end of Q1 2014, but it is contingent on the readiness of market participants. Under Dubai Financial Market鈥檚 securities lending and borrowing model, foreign securities lenders and borrowers may arrange loans based on international practices, but will have to instruct local approved lending and borrowing agents to move loaned securities.
Local lending and borrowing business will be undertaken by approved agents, which can either be local brokers, custodians or any entities as approved by the 网爆吃瓜 and Commodities Authority. In the initial phase, securities lending and borrowing activities will be limited for market making activities and for settlement of failed securities delivery for delivery-versus-payment trades.
Maryam Fekri, executive vice president and COO of Dubai Financial Market, commented: 鈥淥ver the past years, DFM has taken numerous initiatives and implemented various market enhancements. Certainly, these developments were highly recognised by local and international investors alike and played a pivotal role in the UAE market classification as 鈥楨merging Markets鈥� status by MSCI as well as S&P Dow Jones amongst other international index companies, which reflect international investors鈥� confidence in our markets and their satisfaction with what we have accomplished.鈥�
鈥淭he implementation of securities lending and borrowing (SLB) is an important development for the market because SLB is a key market infrastructure for the development of other market products like ETFs, thereby diversifying the range of products to be offered and increasing the UAE鈥檚 attractiveness for investments.鈥�
Euroclear and Clearstream have taken steps to link up with Dubai, adding the emirate to its collateral management platforms to promote cross-border trading.
The Dubai Commodities Clearing Corporation (DCCC) became the first central counterparty (CCP) in the Middle East to join Euroclear鈥檚 global Collateral Highway. Their agreement was announced in September 2013.
The exclusive agreement with Euroclear will enable clients of DCCC and the Dubai Gold & Commodities Exchange (DGCX), which uses DCCC as its CCP, to use eligible securities held in Euroclear Bank鈥攁nd in all other entities connected to the Collateral Highway鈥攁s collateral to fulfill initial and variation margin requirements.
Speaking in September 2013, Tim Howell, CEO of Euroclear, said: 鈥淓xtending our global Collateral Highway to the Middle East is another milestone in our plans to improve cross-border collateral mobility.鈥�
鈥淚t also underscores our commitment to clients and market infrastructures in the MENA region to ease cross-border flows and contribute to its appeal as one of the world鈥檚 high-growth regions.鈥�
Clearstream, meanwhile, created its first Middle East CCP link in October 2013.
DCCC has agreed to cooperate on collateral management for CCP margining. By the end of Q1 2014, Dubai鈥檚 exchange customers will be able to use the collateral pools of Clearstream and its partners to meet margin requirements at DCCC through the Global Liquidity Hub.
Gary Anderson, CEO of DGCX, said: 鈥淧artnerships like these are key building blocks in our efforts to transform the Middle East鈥檚 derivatives marketplace and become a key hub in the global liquidity infrastructure map. Demand for collateral is expected to grow significantly, driven by both market forces and regulatory reform, and DGCX is keen to support its members in deploying collateral optimally without fragmentation.鈥�
Dubai鈥檚 plan to become the mid-way point between established international markets is far from complete, but the Middle East as a region appears to making significant strides. Northern Trust, which has been supporting Middle Eastern clients since 1987, established a representative office in Abu Dhabi, UAE, in March 2008 and one in Riyadh, Saudi Arabia, in September 2013.
Sunil Daswani, head of international client relations for securities lending at Northern Trust, says: 鈥淥ur client facing teams have over 100 years of Middle East experience between them and we have local language support for clients in the local time zone. We work with some of the largest, most sophisticated, influential funds in the world, covering the spectrum of asset servicing including securities lending, asset management and wealth management services for sovereign wealth funds, key public pension institutions, insurance funds, corporations, central banks and other financial institutions.鈥�
鈥淥ne of the key characteristics of the Middle East is that business is very much relationship and face-to-face driven. Assets under custody for our Middle East clients have more than doubled over the five years ending 31 December 2013; [and] assets under management for Middle East clients have increased by nearly 150 percent over the same period.鈥�
The United Arab Emirates (UAE) state welcomed 55 active financial services and 103 non-financial services firms in 2013, bringing its total to 327 and 565 at the end of the year. It is now home to 22 of the world鈥檚 top 30 banks, 11 of the world鈥檚 top 20 money managers, six of the top 10 insurance companies, and seven of the top 10 legal firms.
Speaking at the beginning of February, Jeffrey Singer, CEO of Dubai International Financial Centre Authority, commented: 鈥淭he growth that DIFC has experienced in 2013 has been the highest achieved since the beginning of the Great Financial Crisis.鈥�
Dubai has also implemented 鈥榮oft infrastructure鈥� in line with international standards, to ensure that it achieves its mission of connecting regions separated by thousands of miles.
鈥淭here were several 鈥榮oft infrastructure鈥� developments in 2013鈥攕uch as the introduction of framework for institutions to develop shariah-compliant products and services, thus ensuring Dubai will become an Islamic finance hub, in line with the Dubai government鈥檚 vision,鈥� explained Singer.
鈥淚n 2014, we will concentrate on the development of new markets such as Islamic finance, capital markets, family businesses and growth markets such as Africa, providing additional business opportunities to firms based both within DIFC and the wider region.鈥�
Dubai Financial Market, the UAE emirate鈥檚 stock exchange, issued securities lending and borrowing rules in January, as part of its own efforts to enhance market infrastructure according to international best practices.
The operational implementation of the rules is expected to happen by the end of Q1 2014, but it is contingent on the readiness of market participants. Under Dubai Financial Market鈥檚 securities lending and borrowing model, foreign securities lenders and borrowers may arrange loans based on international practices, but will have to instruct local approved lending and borrowing agents to move loaned securities.
Local lending and borrowing business will be undertaken by approved agents, which can either be local brokers, custodians or any entities as approved by the 网爆吃瓜 and Commodities Authority. In the initial phase, securities lending and borrowing activities will be limited for market making activities and for settlement of failed securities delivery for delivery-versus-payment trades.
Maryam Fekri, executive vice president and COO of Dubai Financial Market, commented: 鈥淥ver the past years, DFM has taken numerous initiatives and implemented various market enhancements. Certainly, these developments were highly recognised by local and international investors alike and played a pivotal role in the UAE market classification as 鈥楨merging Markets鈥� status by MSCI as well as S&P Dow Jones amongst other international index companies, which reflect international investors鈥� confidence in our markets and their satisfaction with what we have accomplished.鈥�
鈥淭he implementation of securities lending and borrowing (SLB) is an important development for the market because SLB is a key market infrastructure for the development of other market products like ETFs, thereby diversifying the range of products to be offered and increasing the UAE鈥檚 attractiveness for investments.鈥�
Euroclear and Clearstream have taken steps to link up with Dubai, adding the emirate to its collateral management platforms to promote cross-border trading.
The Dubai Commodities Clearing Corporation (DCCC) became the first central counterparty (CCP) in the Middle East to join Euroclear鈥檚 global Collateral Highway. Their agreement was announced in September 2013.
The exclusive agreement with Euroclear will enable clients of DCCC and the Dubai Gold & Commodities Exchange (DGCX), which uses DCCC as its CCP, to use eligible securities held in Euroclear Bank鈥攁nd in all other entities connected to the Collateral Highway鈥攁s collateral to fulfill initial and variation margin requirements.
Speaking in September 2013, Tim Howell, CEO of Euroclear, said: 鈥淓xtending our global Collateral Highway to the Middle East is another milestone in our plans to improve cross-border collateral mobility.鈥�
鈥淚t also underscores our commitment to clients and market infrastructures in the MENA region to ease cross-border flows and contribute to its appeal as one of the world鈥檚 high-growth regions.鈥�
Clearstream, meanwhile, created its first Middle East CCP link in October 2013.
DCCC has agreed to cooperate on collateral management for CCP margining. By the end of Q1 2014, Dubai鈥檚 exchange customers will be able to use the collateral pools of Clearstream and its partners to meet margin requirements at DCCC through the Global Liquidity Hub.
Gary Anderson, CEO of DGCX, said: 鈥淧artnerships like these are key building blocks in our efforts to transform the Middle East鈥檚 derivatives marketplace and become a key hub in the global liquidity infrastructure map. Demand for collateral is expected to grow significantly, driven by both market forces and regulatory reform, and DGCX is keen to support its members in deploying collateral optimally without fragmentation.鈥�
Dubai鈥檚 plan to become the mid-way point between established international markets is far from complete, but the Middle East as a region appears to making significant strides. Northern Trust, which has been supporting Middle Eastern clients since 1987, established a representative office in Abu Dhabi, UAE, in March 2008 and one in Riyadh, Saudi Arabia, in September 2013.
Sunil Daswani, head of international client relations for securities lending at Northern Trust, says: 鈥淥ur client facing teams have over 100 years of Middle East experience between them and we have local language support for clients in the local time zone. We work with some of the largest, most sophisticated, influential funds in the world, covering the spectrum of asset servicing including securities lending, asset management and wealth management services for sovereign wealth funds, key public pension institutions, insurance funds, corporations, central banks and other financial institutions.鈥�
鈥淥ne of the key characteristics of the Middle East is that business is very much relationship and face-to-face driven. Assets under custody for our Middle East clients have more than doubled over the five years ending 31 December 2013; [and] assets under management for Middle East clients have increased by nearly 150 percent over the same period.鈥�
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