Financial Market in Abu Dhabi - Essay Example

? Financial Market in Abu Dhabi of the of the Table of Contents Table of Contents 2 Introduction 3 Executive Summary 3 Abu Dhabi: Leading in the Middle East region in respect of the Investors Confidence 3 Abu Dhabi Financial Market 4 Mission of ADX 4 Values of Abu Dhabi Securities Exchange 4 Trading System of ADX 6 Broker 6 Abu Dhabi Securities Exchange: Operations 6 Past few Years Performance (2004 to 2008) 6 Price Appreciation and the Turnover of ADX 7 Past few Years Performance (2004 to 2008) 7 Conclusion 8 Introduction Developing the financial markets has been one of the primary objectives in most of the countries in the Gulf region from the past few years. The global environments where the strategies have been implemented to develop the financial markets have changed drastically because of the overall financial crisis. But the GCC (i.e. the Corporation Council of the Arab States in the Gulf Region) has a chance to succeed in developing the financial markets and consequently promoting their competitiveness. Economic condition in the GCC market is supported by the region’s wealth due to their high oil and gas supplies. The past few years of financial turmoil have also pointed out the challenges and the necessity to a bigger and more effective and mature financial markets. There are a large number of structural factors which will determine the development prospect related to the financial markets in the Gulf region in the next few years (Deutsche Bank AG, 2012). Executive Summary The study have been prepared for understanding the position of the financial markets in the gulf region and focus on the functioning of the Abu Dhabi Financial Market, through Abu Dhabi Securities Exchange, for the improvement in the economic condition of the financial market in UAE. The study will also reflect the nature of the financial market in Abu Dhabi and its potentiality in attracting the investors. The study will highlight the different modes of functioning of ADX, its trading system and the important equipments which are necessary for the purpose of trading in Abu Dhabi, and the important rules and regulations which should be followed by the brokers while trading. Finally the study will be concluding with an insight into the trend of performance of the financial market in Abu Dhabi from 2004 to 2008. Abu Dhabi: Leading in the Middle East region in respect of the Investors Confidence Abu Dhabi is viewed as an access point for most of the investors because of its location, the economic policies which are business friendly in nature and also the advances in different sectors. According to the investors, they are confident that the financial market of this country is one of the best options where they can make investments. United Arab Emirates is leading the Middle East region in terms of gaining the investor’s confidence. Abu Dhabi has become one of the top destinations for making investment. It will continue to expand because of its positive experience, excellent performances and the attraction of the new investors in investing in its financial market. Abu Dhabi Financial Market United Arab Emirates previously had an informal stock market from the year 1986 with more than ninety listed companies listed in this stock market and traded from here. But the trading was restricted to shares of only 32 to 36 companies because the shares of most of the companies were held by government or high net worth individuals. The informal market of United Arab Emirates existed before the establishment of the Abu Dhabi Stock Exchange (ADX) in Abu Dhabi and Dubai Financial Market (DFM) in Dubai in the year 2000. Abu Dhabi Securities Exchange was established on 15th November 2000 by the Local Law No. (3) 2000. It was established as one of the legal entities with autonomous status. Abu Dhabi Securities Exchange has the legal authority of establishing branches and centers outside the Emirates of Abu Dhabi. Currently, ADX has its operations in Ras al Khaimah, Sharjah and Zaayed City and Fujeirah. ADX has a total of sixty seven companies listed in it and more than 100 brokerage companies are operating in Abu Dhabi Securities Exchange (Gulfinvestmart, n.d). Mission of ADX The mission of the company is leading the entire capital market in Union Arab Emirates by means of a well regulated market place within a legal environment ensuring integrity, efficiency, transparency and disclosure (Abu Dhabi Securities Exchange, 2013a). Values of Abu Dhabi Securities Exchange Transparency ADX values in maintaining transparency in all their actions and decisions. Fairness ADX focuses on maintaining fairness in each and every aspect of their operations. Professionalism ADX maintains professionalism while dealing with its investor clients and also gives importance to their interests. Innovation ADX believes that the future is dependent on the innovation that has been empowered presently. Integrity ADX conducts its operations with integrity and ethics. Efficiency and Cost Effectiveness ADX aims in maintaining efficiency and cost effectiveness in its operations. Figure1: Organizational Chart of ADX (Source: Abu Dhabi Securities Exchange, 2013b) Trading System of ADX Trading in ADX should be carried out mainly by the brokers. All the trading transactions are confirmed at first by making entries in the ADX records either electronically or manually. The entries that are made in the ADX records will be deemed as the legal evidence of the ownership as well as the trading of the securities (Abu Dhabi Securities Exchange, 2013c). Broker The brokers may trade in the securities in the favor of its own customers after an agreement with them. The broker should always dispose of the securities and funds of any of its customers in accordance to the provisions and legislations of the agreement which has been signed with them (Abu Dhabi Securities Exchange, 2013d). In the agreement which will be signed between the broker and its customers, the inclusion of the following information is very important: It should contain the name and the address of the broker and its customer. It should contain details about the services that will be provided by the broker to its customer. It should display the commission and the mode of payment by the customers to the broker. It should also reveal the type of authorization based on which the broker will be executing the orders of the customers. The agreement should clearly declare the risks that are associated with the trading of the securities according to the format which is approved by the ADX. Abu Dhabi Securities Exchange: Operations Past few Years Performance (2004 to 2008) Abu Dhabi securities exchange has witnessed a significant growth in the total number of listed companies as well as the total market capitalization in the past few years. The number of listed companies increased from thirty five in the year 2004 to sixty four in the year 2007. The market capitalization also increased from US $ 55.49 billion to almost $ 121.11 billion during the same time period. In the year 2008, there were three more companies included along with the other listed companies in ADX. But the market capitalization declined to US $ 93.56 billion in the year October 2008. The overall operations including the number of listed companies and the market capitalization of ADX has been shown below: Figure 2: Abu Dhabi Securities Exchange (Listed Companies and Market Capitalization) (Source: Gulfinvestmart, n.d.) Price Appreciation and the Turnover of ADX Past few Years Performance (2004 to 2008) ADX has witnessed a significant improvement in its valuation level. The market index had an appreciation by 74.8 percent in the year 2004 and by 51.3 percent in the year 2005 and the turnover also increased from an amount of US $ 4.45 billion to $ 26.45 billion. When the market index had a sharp appreciation of 51.7 percent, the turnover of ADX also increased to an amount of US $ 66.96 billion in the year 2007. In the year 2008 the market index of ADX declined by almost 26.9 percent. The turnover remained at the level of US $ 60.77 billion during the same period. Figure 3: Abu Dhabi Securities Exchange (based on Turnover and Market Index) (Source: Gulfinvestmart, n.d.) Conclusion Abu Dhabi Securities Exchange (ADX) along with the Dubai Financial Market (DFM) has become the second largest stock market in the entire Gulf Region with the market capitalization of US $ 90.6 billion (combined market capitalization) in the year 2004. Taking into account the desire of UAE to become the leading financial and trade centre of the entire Middle East and the Northern African region, it can be concluded that the future prospect of the financial market in Abu Dhabi is very positive. References Abu Dhabi Securities Exchange. (2013a). Mission & Vision. Retrieved from https://www.adx.ae/English/AboutADX/Pages/MissionVision.aspx Abu Dhabi Securities Exchange. (2013b). Organization Chart. Retrieved from https://www.adx.ae/English/AboutADX/Pages/OrganizationChart.aspx Abu Dhabi Securities Exchange. (2013c). Trading Rules. Retrieved from https://www.adx.ae/English/EducationCenter/Pages/RulesRegulations.aspx Abu Dhabi Securities Exchange. (2013d). Standard Operating Procedures for Broker Operations. Retrieved from https://www.adx.ae/English/EducationCenter/Pages/RulesRegulations.aspx Deutsche Bank AG. (2012). GCC financial markets. Retrieved from https://www.deutschebank.nl/nl/docs/DB_Research_-_GCC_financial_markets.pdf Gulfinvestmart. (n.d.) THE UNITED ARAB EMIRATES STOCK MARKETS. Retrieved from http://www.gulfinvestmart.com/StMarket/UaeStLink1.aspx Read More