Interview: Mahmood Ebraheem Al Mahmood
Given that the Abu Dhabi Global Market (ADGM) will have free zone status, in what ways will it be able to enhance the domestic economy?
MAHMOOD EBRAHEEM AL MAHMOOD: The ADGM is an important part of the Abu Dhabi Economic Vision 2030 and the overall diversification and development of the economy. The financial services sector is already expanding very quickly, and the additional benefits that the new free zone will offer will support this growth. The ADGM aims to complete the global financial highway by covering the trading gap that exists between 3.00am and 7.00am GMT (7.00am to 11.00am in Abu Dhabi). At present, liquidity in this time zone is weak, and spreads widen and risk increases. The ADGM will allow market makers to set up and operate from Abu Dhabi. They will set a price and maintain a tradable market through this time period, managing flows from the East ( Singapore) through to Europe (London). As the market develops, a range of services will be supported from the free zone and will assist all areas of the economy.
How can the establishment of the ADGM result in an increase in demand for “sales side” services?
AL MAHMOOD: The UAE already has a well-developed asset management sector, but at the moment if you want to trade commodities or a range of derivative products, you cannot do this from the Middle East. To get the price and the options most investors are looking for, you either need to go Singapore and trade before the market starts to close and soften, or you have to wait for Europe to open and for prices to stabilise. There needs to be market making and price creation from within the region. The ADGM provides the legal environment and Abu Dhabi can offer the political impetus to make it work, but in the end it will need market makers, custodians and settlement companies to recognise the opportunity and move operations to the Al Maryah free zone. We are very confident that this will happen and the required capabilities will develop very quickly.
How has the ADGM worked to encourage greater institutional investor involvement in the market?
AL MAHMOOD: The creation of the ADGM has removed any impediments that were stopping institutional investors from setting up in the emirates. Before the ADGM was announced there may have been some concerns as to whether the UAE offered all the laws and the support normally associated with a global financial market hub. The approach of the ADGM is based on the most effective laws used in the world’s main financial centres: Tokyo, Hong Kong, Singapore, London and New York. A legal and business environment has been created that supports international transactions and will help develop a range of trading options which are currently not available in the region. In addition to this, the UAE has been upgraded to emerging market status on the MSCI Index. This is a further vote of confidence for us.
To what extent has foreign exchange (forex) trading in the region evolved?
AL MAHMOOD: The recent Bank of International Settlements’ “Triennial Central Bank Survey” showed that worldwide trading of forex has now reached $5.3trn a day. Forex is an important asset class globally, and this is reflected in the trading taking place in the region. The dirham is pegged to the US dollar, but most financial institutions now recognise that forex is a liquid market that can be traded in its own right. Some desks are still set up to hedge currency flows, but we are seeing an increased focus on investments in major currencies and developing market currencies. The UAE has a diversified base of business partners across Asia, Africa and Europe so needs to have well-established forex management systems in place. With several local firms able to access Tier 1 bank, non-bank and unique regional liquidity, they can offer some of the best prices anywhere in the world. This means Middle Eastern firms can access the trading support they need from within the region.
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