x Abu Dhabi, UAE Thursday 20 July 2017

Brokers fear price of ADX move to Sowwah Square

The capital's struggling brokerages are warning that the Abu Dhabi Securities Exchange's long-awaited move to Sowwah Square will force new costs upon the industry at a time when it can scarcely afford them.

The Abu Dhabi Securities Exchange complex on Sowwah Square. Delores Johnson / The National
The Abu Dhabi Securities Exchange complex on Sowwah Square. Delores Johnson / The National

Stockbrokers warn the long-awaited move of the Abu Dhabi stock exchange to Sowwah Square will force thousands of dirhams of costs on to the emirate's struggling brokerage industry.

As the Abu Dhabi Securities Exchange (ADX) shifts from Hamdan Street to Al Maryah, formerly known as Sowwah Island, it is taking the opportunity to overhaul its market systems.

"When we go to the new building, we'd like to see a better quality of services for local and foreign investors," said Rashed Al Baloushi, the exchange's chief executive.

Part of that will involve convincing brokerages to upgrade their IT systems to match the cutting-edge architecture and systems of the new facility. "We realise at the end of the day the market cannot move alone," said Mr Al Baloushi. "For the market, the success of the brokerages has to be part of this story."

The ADX is providing technical assistance but is unable to offer financial support. That will pass the costs of the upgrade on to smaller independent brokerages, said Fathi Ben Grira, the chief executive of Menacorp.

"I'm concerned for all the smaller brokerage firms that don't make proper investments," he said.

"If brokerage companies cannot upgrade when the authorities believe it's needed, they shouldn't stay in the business."

But many brokerages are already on their knees as a result of the UAE's chronic liquidity issues. The average daily value of stocks traded on the ADX last year was Dh99 million (US$26.9m) compared with a peak of Dh936m in 2008, reducing the amount of commission generated by brokerages.

Businesses moving to Sowwah Square could face costs of as much as Dh190,000 each, one brokerage has estimated. Leasing a small office on the new ADX trading floor is expected to cost about Dh130,000 per year, coupled with initial set-up costs of approximately Dh60,000, the majority of which is for IT.

The brokerage arms of local banks, which dominate ADX trading activity, have funds to upgrade. But many smaller brokerages have already opted to close their doors in light of the liquidity drought.

Only 49 brokerages are listed as "active" by the Securities and Commodities Authority (SCA), the market regulator. In January last year, 103 brokerages were active.

Some brokerages are covered by contracts that ensure their IT providers will update their systems.

For others, the shift of location will add another cost just when brokers can least afford it, said Ayman Jubeh, the general manager at Index Securities.

"The problem will be the connectivity costs," he said. Connecting a brokerage to telecommunications networks costs about Dh30,000 per line and monthly costs range from Dh13,000 to Dh15,000 each, said Mr Jubeh.

Typically, a brokerage has a main line and a backup. It may be a relatively small cost but it could concentrate the minds of firms making losses, he said.

No timetable has been set for the ADX move to Sowwah Square. The exchange is expected to upgrade its trading platform to Nasdaq OMX X-treme, Mr Al Baloushi said.