x Abu Dhabi, UAETuesday 23 January 2018

Drop in volume forces brokerage to merge

Regulator orders IFA Securities to close before consolidation.

IFA Securities in Dubai has become the latest victim of a decline in trading on the country's stock markets. Emad Abbas, the operations manager at IFA, confirmed an earlier report that the brokerage was shutting down for a year and planned to reopen after a merger with another brokerage. Mr Abbas declined to say with which company it was merging, but said it would be one in Dubai.

Officials at the brokerage's parent company, International Financial Advisors in Kuwait, could not be reached for comment. IFA employs 13 people, according to Bloomberg. A source at the company said the number of employees used to be "much more" but had been reduced after declines in trading on local exchanges led to a drop-off in business. Average daily trading volumes on the Dubai Financial Market (DFM) hovered between 300 million and 400 million shares last year, but have recently dropped to about 50 million shares, squeezing brokers' commissions.

The DFM General Index has lost about 73 per cent of its value in the past two years. "Volumes are going down to levels now that are at historic lows in both Dubai and Abu Dhabi, and it's only natural that the brokerage companies will consolidate," said Saad al Chalabi, an institutional trader at AlRamz Securities in Abu Dhabi. "Some will shut down altogether and others will consolidate with whoever's willing to consolidate. It's a natural process."

The IFA source said the company was forced to cease doing business by the regulator, the Emirates Securities and Commodities Authority (SCA), because of its merger plans. In a report in May, the SCA said 11 brokerages in the UAE had closed this year, while three had ceased doing business last year. There were still 91 active brokerages in May, according to the SCA report, a number many executives and analysts say is too high under the current circumstances.

Brokers in the UAE usually make 1.5 per cent of the value of trades. The total value of trading on the Abu Dhabi Securities Exchange and the DFM has fluctuated between Dh20 million (US$5.4m) and Dh100m in recent weeks. @Email:afitch@thenational.ae