Abu Dhabi, Dubai exchanges explore possibility of stock futures

The Abu Dhabi Securities Exchange (ADX) is considering introducing with the Dubai Mercantile Exchange (DME) futures and options contracts for specific Abu Dhabi stocks as well as market index futures, a top DME official said.

The exchanges have established a joint committee which will examine the issue over the next few months, DME managing director Owain Johnson told Reuters.

“You have to go to the market and see what people are interested in and I expect in the next few months we will be talking to people around the UAE and elsewhere,” said Johnson, whose exchange focuses on commodities.

“Maybe it’s single futures, maybe it’s options, maybe it’s equity indexes. Our experience is in derivatives, not in equities, so we will be relying on each other.”

He added, “There’s so much interest in equities in this region, it’s going to be an easier sell than commodities…We have the same goal, which is to grow the liquidity on both our exchanges.”

The ADX did not respond to requests for comment.

The introduction of stock futures could be a major development for equity markets in the United Arab Emirates, where short-selling is banned and the lack of opportunities to hedge has been one complaint of foreign investors.

With the exception of Kuwait, Gulf Arab stock markets have been slow to introduce futures and options. The NASDAQ Dubai exchange launched an equity derivatives market in 2008 but it coincided with the global financial crisis and trading failed to gain critical mass; the last trading there was in 2011.

A decision on where Abu Dhabi stock futures would be listed has not been made. If they were listed on the ADX, the UAE’s Securities and Commodities Authority would need to create new rules to cover them, said a source familiar with the issue.

Instead the futures contracts might be listed on the DME; it is regulated by the Dubai Financial Services Authority (DFSA), which supervises the emirate’s financial free zone and the DME already trades oil futures under the auspices of the DFSA.

Galen Moore, head of regional equity market-making at National Bank of Abu Dhabi, currently the only licensed market-maker on the Abu Dhabi bourse, said the introduction of futures and options was just a matter of time.

“There will be a derivatives market in the UAE in the next 12 to 18 months,” he predicted.

In the meantime another industry executive said the lack of listed equity derivatives in the UAE was prompting investors to ask international investment banks to design over-the-counter options for individual stocks.

Trading in listed futures and options would be much more transparent, allowing the local bourse and UAE regulators to monitor derivatives activity affecting local stocks, he noted.