Economic Update

Published 27 Nov 2017

Efforts to expand the reach and product offering of Dubai’s capital markets accelerated in October, as Nasdaq Dubai inked several deals to launch index futures.

On October 22 Nasdaq Dubai and the Dubai Financial Market (DFM) signed a licensing agreement, paving the way for futures contracts linked with the DFM General Index (DFMGI) to be traded on Nasdaq Dubai’s futures market.

The agreement, the first of its kind in the region, will allow for a diversification of the product range and provide new investment opportunities through Dubai’s capital markets, according to Essa Kazim, the DFM’s chairman.

Nasdaq Dubai to trade DFMGI-indexed futures

In a statement issued to announce the new partnership, Nasdaq Dubai officials said trading of DFMGI-linked futures was expected to begin later this year, subject to regulatory approval.

The DFMGI tracks a basket of 36 leading UAE-based companies listed on the DFM. These companies cover the property, banking, insurance, telecoms and transport sectors, and include names such as Air Arabia, real estate developers Deyaar and Emaar, and Emirates NBD, among others.

Launched in September of last year, Nasdaq Dubai’s futures market has become a growing trading platform. There are currently 13 single-stock futures on offer, up from seven when the market opened.

This increase in instruments was mirrored by a rise in trading volume over the course of the market’s first year of operations: 874,000 contracts were traded in the first six months, a figure that almost doubled in the subsequent six months, with 1.6m trades conducted.

ADX to develop index futures

A day after closing its deal with the DFM, Nasdaq Dubai signed an agreement with Abu Dhabi Securities Exchange (ADX) to launch index futures.

As with the DFM, the deal foresees the development and launch of an index futures contract based on the Abu Dhabi General Index (ADI), which tracks the performance of 66 listed companies from a range of sectors and serves as a benchmark for wider ADX activity.

“Index futures is a universal choice with market participants in an evolving derivatives marketplace, and we believe this partnership will enable new opportunities for investors and lead to the development of UAE capital markets,” Hamed Ali, Nasdaq Dubai’s CEO, said in a press release in October.

Licence agreement with MSCI to develop regional index derivatives

In addition to the ADX and DFM deals, Nasdaq Dubai brokered a licence agreement in mid-October with MSCI, a US-based leader in the provision of market indices, to create futures contracts based on the MSCI UAE Index.

The MSCI UAE Index, already widely tracked by investors, covers 85% of the UAE equity landscape and lists 10 of the top UAE firms from all sectors of the economy. Rising by 13.6% last year, it outstripped the performance of both the MSCI Frontier Markets Index and the MSCI All Country World Index, which grew by 3.2% and 8.5%, respectively, over the same period.  

Market maker for Nasdaq Dubai index futures

These new index futures already have a market maker in place, with Shuaa Capital announcing on October 24 that its liquidity provision unit, Shuaa Capital International, would serve in this capacity when the new DFMGI, ADI and MSCI UAE Index futures are rolled out. Shuaa Capital is already the market maker for the existing single-stock futures market.

“The launch of index futures will add to the depth of instruments available to investors to meet their investment needs and hedging strategies,” Magdi Shannon, the head of trading at Shuaa, told local media in October.