Dubai Financial Market - Essay Example

?Dubai Financial Market Table of Contents Table of Contents 2 Introduction: Dubai Financial Market 3 Executive Summary 4 Mission and Objectives of DFM 5 Registrar of Listed Public Shareholding Company 6 Brokers 6 Automated Trading System 7 Trading Floor 7 Types of Securities in Dubai 7 Types of Securities Markets in Dubai 8 Primary Market 8 Secondary Market 8 Regulated (Bourse) Market 8 Unregulated Market 9 References 10 Introduction: Dubai Financial Market Dubai Financial Market (DFM) is one of the few stock exchanges of UAE which was established as a public institution on March 26, 2000 (Dubai Financial Market, 2013a). It has its own independent body which was formed as a result of a resolution passed by the Ministry of Economy (MOE) number 14 2000 (Dubai Financial Market, 2013a). It operates as secondary market responsible for trading of securities, bonds, units of investment fund, any other financial instrument which is issued by the public joint stock companies, Federal government or any other local government & public institutions of the country. DFM was established as a joint stock company with a paid up capital 8 billion Dirham with a par value of 1.6 per share. The first IPO by DFM had resulted in more than 8 billion Dirham. The main objective of DFM is to make it a world class market place and provide the stakeholders with innovative facilities in trading, settlement, depositary of securities and clearing in an efficient method. Some of the important market values of DFM are efficiency, transparency, innovation, confidentiality and integrity. The existence of a strong investment market in UAE has attracted several potential investors and is considered as one of the most potential investment hubs of the world. As per a survey conducted by the Economic Department of Dubai 28 percent of the surveyed respondents had claimed Dubai to the most lucrative investment destinations of the world (DED, 2012). Figure 1: Preferable Investment Destinations of UAE (Source: DED, 2012) Executive Summary The study is prepared with the sole intent of understanding the functioning of the Dubai Financial market (DFM); one of the leading stock exchanges of UAE. The study will also lay emphasis on the nature of the investment market in Dubai and its potentiality. The study highlights the methods of functioning, importance of DFM and its relative importance to the domestic, foreign and institutional investors. The study will focus on the equipments required for trading purposes in Dubai and the rules and regulations required while trading. Finally, the study will conclude with an insight into the equity, debt and commodity markets of Dubai. Mission and Objectives of DFM The mission and the objective of DFM are to create a fair, transparent and efficient liquid market for smooth trading purposes. It helps in provident various investment opportunities through optimum utilization of resources. The management of DFM provides opportunities for investment purposes in securities markets which would serve for the best interest of the Dubai economy. It also helps in facilitating liquidation of funds invested in securities markets which ensures the smooth interaction between demand and supply by developing principles of fair dealing. One of the main objectives is to arrange for transfer of ownership of securities through deposit, transfer and clearing center within an integrated system which enables fast and correct transfer of ownership of shares. Operations of DFM DFM was initially operated by the government of UAE however, in the year 2006 DFM had turned into a public joint stock company through an Initial Public Offering (IPO) which led to sale of 20 percent of the shares to the public and the remaining 80 percent were subscribed by Bourse Dubai. Figure 2: Organizational Hierarchy of DFM (Source: Dubai Financial Market, 2013c) Registrar of Listed Public Shareholding Company The registrar of the issuer company are an essential element of the securities market and the first necessary step for the investor is to submit the securities certificate to the registrar or the company for the confirmation of his /her ownership (Government of Dubai, 2011). After submission the investors are required to proceed with his trading operations (Dubai Financial Market, 2013d). Brokers The brokers are also required to comply with the rules, regulations and code of conduct for facilitating relevant trading operations. The management also scrutinizes the licenses of the brokers at regular intervals and ensures the integrity of the activities of the broker (BtFlive, 2012). The broker not only takes the buy and sell orders but also undertakes the settlements of funds between the sellers and buyers through “Deposit, Clearing &Settlement Division” of the market (Dubai Financial Market, 2013d). Automated Trading System The operation of the DFM occurs through an automated trading screen which enables the facilitation of trade. The automated screen based trading system allows the trading system to be clear and transparent. The main function of the automated trading system would be to display information regarding the stock prices of various companies (Dubai Financial Market, 2013b). It helps in buying and selling of single and bulk order; the screen displays historical, present data as well as the volume traded. The main task of the DFM management is to safeguard the interest and information of the investors by conducting regular monitoring of the trading activities (Dubai Financial Market, 2013d). Trading Floor The trading floor allows the meeting between the investors and brokers to carry out trading activities. A part of the trading floor is dedicated to the public investors which includes the automated trading screen. The trading floor is available during the operating hours which are between 10:00 am to 2:00 pm. There is also a provision of computer terminals for investor which allows the investors to view the details related to the outstanding buy and sell order. The trading made through the telephonic conversation is recorded for the safety and protection of investor’s data. Types of Securities in Dubai The financial market in Dubai is divided into two types of securities. Traded securities like shares can be bought to buy a partial ownership in the business or the company. Traded securities such as debt or Islamic Sukuk which means the lending of funds to the government or business sector and they would repay the loans with interest. Islamic Sukuk is to issue negotiable securities base on investment project that generates funds. The purpose of this security is to convert the assets and the utilities into securities on which trading can be facilitated in the secondary market (Dubai Financial Market, 2013d). Types of Securities Markets in Dubai Primary Market When a company offers its company shares for the first time for sale it is known as Initial Public Offering (IPO). This process is called shares for subscription and is normally carried out by a company known as Underwriters. Until the completion of the sale of the securities the company collects funds and proceeds with application (Dubai Financial Market, 2013d). Secondary Market The Secondary market or Bourse surfaces when the investors buy share from the primary market whose main aim is to earn share in the profit of the company or sell the share at a higher price. The secondary market constitutes of companies who are trading the company securities among each other. The issuer company does not earn income from any of these transactions. This market is ideal for bringing together the investors who wish to sell securities to those investors who are ready to buy the securities. Secondary market can be further categorized into regulated (Bourse) and unregulated market (Dubai Financial Market, 2013d). Regulated (Bourse) Market The regulated market is a place where trade dealing is occurred through the meeting of brokers and sellers. Trading in this market is limited to the securities listed in the market. Unregulated Market The place where the trade dealing carried outside the regulated market is known as unregulated market. An unregulated market is allocation where the trade dealings occur and not transactions (Soglin, 2009).Unlike the regulated market the supply and demand are matched through negotiation and not through a communication network. The unregulated market may exist with the bourse market because they trade in securities which are not listed with the bourse market (Dubai Financial Market, 2013d). References BtFlive. (2012). The regulation as to brokers. Retrieved from http://www.btflive.net/reg/regulation.php?op=mainreg&marketid=2 DED. (2012). FDI Dubai. Retrieved from http://ahk.de/fileadmin/ahk_vae/FAQ/Business_Support/Foreign_Direct_Investment_-_Dubai.pdf Dubai Financial Market. (2013a). About DFM. Retrieved from http://www.dfm.ae/pages/default.aspx?c=801 Dubai Financial Market. (2013b). Overview. Retrieved from http://www.dfm.ae/pages/default.aspx?c=1052 Dubai Financial Market. (2013c). Organization. Retrieved from http://www.dfm.ae/pages/default.aspx?c=802 Dubai Financial Market. (2013d). Securities markets. Retrieved from http://www2.dfm.ae/documents/Publications/24ba6d05-5d38-40c4-b2dc-5c92bf7c485f.pdf Government of Dubai. (2011). General information about business registration. Retrieved from http://www.dubaided.gov.ae/English/reglcening/prabus/default.aspx Soglin, P. (2009). Dubai: Free markets, unrestrained, unregulated capitalism. Retrieved from http://www.waxingamerica.com/2009/11/dubai-free-markets-unrestrained-unregulated-capitalism-phooey.html Read More