Dubai Financial Market - Essay Example

? Dubai Financial Market of the American in the Emirates Table of Contents INTRODUCTION 3 EXECUTIVE SUMMARY 5 OPERATIONS 6 Bourse 6 Strategic Objectives and Organizational Structure 6 Members of DFM 7 Types of Securities 9 References 10 INTRODUCTION Dubai Financial Market (DFM) was founded as a sovereign corporate body, by the Ministry of Economy. It operated like a secondary market that traded securities issued by different public companies, units of diverse investment funds, bonds that were issued by local, and Federal government, and also public institutions. DFM started its operations since March 2000. As it was stated by Executive Council, DFM was set as a Public Joint Stock Company, in United Arab Emirates (UAE). The paid up capital for DFM was ascertained to be AED 8 billion, that was used to allocate around 8 billion shares, which signifies AED 1.6 per share. It was also decided that around 20 percent of shares would be offered for the public subscription. Trading on DFM started in March 2007. DFM was created with the vision of creating a world class marketplace in the Gulf region. The five years stock chart of DFM in Figure 1 indicates that the stock prices sharply declined in 2009, which continued to be low till 2010, which revealed a minor increase. However, the stock prices again started diminishing throughout 2011 and in 2012 it came to the lowest point as it was in 2009 (DFM, 2011). Presently the stock prices are low and stagnant, and the DFM could not even reach the price hike of 2010. The mission was to provide the shareholders innovative services through trading, settlement, clearing, and depository of securities through transparent, liquid, and efficient environment. The organization was built on five key principles, namely, transparency, integrity, confidentiality, innovation and efficiency (Dubai Financial Market, 2013a). Figure 1: Stock Price Chart Source: (Bloomberg, 2013) This study would be focusing towards a precise discussion on DFM, which will involve an analysis of the performance of DFM, its operations, securities that are traded in the market, and its financial performance. EXECUTIVE SUMMARY This study aims at discussing the operations and functions of Dubai Financial Market (DFM), and it performance. The study has been initiated with a brief introduction on DFM and its establishment. This will assist the readers to know about certain interesting facts of DFM in relation to its establishment, and the stock performance on DFM in the last five years. The second part of the study is dedicated to its operations, which includes the strategies objective and organizational structure of the organization, the elements which play significant role in DFM, and types of securities that are traded in DFM. DFM aims to offer its investors a world-class financial market for securities and other financial asset trading. DFM is a fully automated secondary market or Bourse, which offers trading of shares, bonds, and sukuk, through only accredited brokers. The business framework is well connected through 3000 peripherals, which makes trading easier, safe, and effective. OPERATIONS Bourse Bourse is a place where these securities are purchased and sold. Traditionally the name Bourse was given after the name of a Belgian town which was known as Brouge. Bourse was the name of the owner of the hotel where the merchants met. Soon this name was inscribed on top of the financial markets where trading of securities was done. Bourse is the secondary market where securities are re-traded. DFM is also a Bourse, where securities are re-traded (sold or purchase through accredited brokers). Strategic Objectives and Organizational Structure The aim of DFM is to focus on the strategies to branch out their revenue streams and also develop ways to supply various innovative products or services. This would increase the activity of the members, markets and participants, that will assist in increasing the shareholders value and will lead to strategic growth and development, as Figure 2 indicates. Figure 2: DFM Strategy Source: (DFM, 2011) DFM has a simple, yet strategically organized governance structure, which can be seen in Figure 3. The DFM holding board is the regulatory body of DFM, for internal control. The managing director and CEO monitor risk management aspects and manage the offices. They have different departments ranging from business development, financial services, market operations, information technology, clearing, settlement, and human resource under their jurisdiction. Figure 3: Organizational Chart OF DFM Source: (Dubai Financial Market, 2013b) Members of DFM DFM is operated through the enormous electronic system that has been integrated through computer technologies. The members who operate these systems are known as operators. There are various types of operators or trading participants in DFM, such as market staff, accredited brokers. In order to understand the operational process of DFM, the five elements of the market need to be understood. Registrars of Listed Public Shareholding Companies: In order to trade in DFM, the investor has to first submit to the registrar, the securities certificate, in order to verify his possession and also receive the investor number. Then only the investor can proceed towards other processes like clearing, deposits, or settlement. Automated Trading System: The DFM is a totally automated market, in which the peripherals are linked to the systems. These are used by the brokers for trading operations. The peripherals screens always show the information and data required by the brokers for entering their orders. The trading system is attached to 3000 peripherals. Brokers: Trading is carried out with the help of accredited brokers, as they are the ones who are allowed to buy or sell, on customers’ orders. In order to ensure appropriate control over the market, only accredited brokers are allowed to trade, and they are fully responsible for market management and investor’s operations. Brokers receive accreditation from DFM under strict rules, code of conduct and regulations (DFM, 2013). Clearing and Settlement: Clearing is considered to be the last phase on trading process that the broker executes with the order from customers. The communities are the securities and securities are delivered in the form of transfer of ownership. There is the link between two systems which assist in accurate and prompt execution of trading activities and collection. Trading Floor: In the trading floor, meetings between the brokers and investors are carried out with regards to trading of securities. A part of the trading floor is also allocated to the public. In this part, there are screens which displays securities being traded, belonging to listed companies. These securities are shown in form of symbols, which is known as ticker (DFM, 2013). Types of Securities The products in DFM are segregated into two types; traded securities also known as shares, and debt securities, namely Islamic Sukuk and Bonds. Shares: Shares are considered to be the simplest way to trade and gain ownership of the company. A deed of ownership is prepared which the investors receive on buying the shares of a particular listed company. This entitles them to receive dividend, as per the nature of the share and the terms and conditions (Oxford Business Group, 2008). Bonds: These are the debt instruments through which the investor or customer receives semi-annual or annual interest. The issuer of the bond acknowledges the person or agency to which it owes the bond amount. The maturity date and interest rates are pre-defined and determined, and the shareholder in this case does not enjoy ownership rights. Islamic Sukuk: Ijarat Sukuk is based on the concept of securitization. This means that in order to generate income, investment should be done on negotiable securities. The aim of Ijarat Sukuk is to convert liabilities and assets into securities (sukuk), which can be traded in the secondary market. These are also called bonds which have equal value, and they represent the common shares in the income engendering utilities or assets (Oxford Business Group, 2008). References Bloomberg. (2013). Dubai financial market. Retrieved from http://www.bloomberg.com/quote/DFM:UH/chart. DFM. (2011). Annual report 2011. Retrieved from http://www.dfm.ae/Documents/Publications/e64c3964-e26f-4050-ad5e-8eb2973d7635.pdf. DFM. (2013). Investor guide. Retrieved from http://www2.dfm.ae/documents/Publications/24ba6d05-5d38-40c4-b2dc-5c92bf7c485f.pdf. Dubai Financial Market. (2013a). Overview. Retrieved from http://www.dfm.ae/pages/default.aspx?c=1052 . Dubai Financial Market. (2013b). Organization. Retrieved from http://www.dfm.ae/pages/default.aspx?c=802. Oxford Business Group. (2008). The report: Dubai. Oxford: Oxford Business Group. Read More