Rashed Al Balooshi, CEO, Abu Dhabi Securities Exchange (ADX): Interview

Rashed Al Balooshi, CEO, Abu Dhabi Securities Exchange (ADX)

Interview: Rashed Al Balooshi

With 35-40% of daily trading values coming from institutional investors, are any further measures being considered to increase this?

RASHED AL BALOOSHI: The past year has seen a large swathe of new investors come into the market, a significant majority of which were non-Emiratis. In fact, 60% of the investor numbers issued were to non-UAE nationals, including 709 foreign institutional investors, with net foreign investment reaching Dh5.8bn ($1.6bn) in 2015, an increase of 65% to 2014. In addition, institutional investment recorded a net trading value of Dh7.2bn ($2bn) in 2015, representing an increase of around 243% on 2014 levels. As such, institutional investment represented 47.7% of the overall trading value in the exchange compared to 52.3% for individuals in 2015. The biggest key to long-term, robust success in any market is balance. If a market has too many individual investors, you may end up with high volatility, with the majority of investors basing their assessment on general trends rather than on solid studies or detailed analyses. Ideally, the market needs the right mix of short- and long-term investors, coupled with speculators and institutional investors. ADX plays a fundamental role in the 2030 Economic Vision, as we not only reflect the economic performance of Abu Dhabi, but we are a catalyst in the process of its development through channelling savings and foreign investments to the financial markets, which in turn help companies to grow.

How might the introduction of additional financial instruments, such as derivatives, help liquidity?

AL BALOOSHI: One tool that can help address issues of liquidity is the market maker, setting prices and creating more depth and maturity in the market through a combination of more liquidity and trading. In 2015 ADX launched market-making activity in the exchange, where the National Bank of Abu Dhabi operates as the UAE’s first market maker. Furthermore, we are focussing more on adding new products. For the exchange to mature we must offer a variety of financial products, like derivatives and debt instruments. This would help Abu Dhabi integrate more closely into the wider international marketplace.

How is the issue of transparency being addressed in regard to non-financial information?

AL BALOOSHI: Transparency is an issue that needs to be addressed in any market. We ask companies to submit regular information that strictly follows International Financial Reporting Standards. When a company posts volatile results, the exchange suspends that company from trading. We then ask the company to send us a full explanation in writing. Before we resume trading, we put that information to the brokers, investors and all parties. Only after the stakeholders have had a chance to absorb the information will the company be permitted to resume trading.

We have robust procedures in place. We were the first in the region to implement an automatic monitoring system (SMART), which can automatically monitor and record transactions and other trading activities on the exchange. Additionally, we have a circuit breaker system, which suspends stocks that fall by 5% for five minutes. As Abu Dhabi is becoming an increasingly attractive market to investors, they are keen to know more about the companies trading here and use eXtensible Business Reporting Language (XBRL). XBRL provides a language in which reporting terms can be authoritatively defined. In 2005, ADX was the first exchange in the GCC to support the initiative of establishing a provisional XBRL jurisdiction for the UAE, which was the first step toward formal adoption of the global XBRL standard. Those terms can then be used to uniquely represent the contents of financial statements or other kinds of compliance, performance and business reports. The ultimate aim of this is to improve transparency for stakeholders.

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Rashed Al Balooshi

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The Report: Abu Dhabi 2016

Capital Markets chapter from The Report: Abu Dhabi 2016

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