New regulations being considered by the country's Securities and Commodities Authority are expected to spark a wave of mergers among small players in the brokerage industry.
Potential shake-up threatens jobs in the brokerage sector
Jobs are under threat from new regulations being considered to rate the major players in the brokerage industry as the UAE seeks to emulate international standards.
The number of brokerages has already declined in the Emirates to 64 companies from 105 last year as volumes traded on the local bourses have slumped since their peak in 2008.
The Securities and Commodities Authority (SCA), the country's stock exchange regulator, said the three-tier system for brokerages being considered, which is much the same as the star system used by hotels, would encourage mergers among the smaller players of the industry.
"Under the three-tier system, brokerages will be classified by function, either as pure executors of local shares, regular brokers, or sophisticated brokerages that provide research, facilities such as margin trading and asset management," said Maryam Al Suwaidi, the deputy chief executive at the SCA in Abu Dhabi.
"Small brokerages who are purely executioners will be encouraged to merge with one another, their overheads will also decline as their investment requirements will become more lenient when compared to the larger brokerages," she added.
The study is still in its early stages and the watchdog is in talks with local bourses, brokerages and market participants to ensure its feasibility.
On the Dubai Financial Market (DFM), average daily turnover is at US$45.8 million (Dh168.2m) this year, down from $75.2m last year. On the Abu Dhabi Securities Exchange (ADX), turnover is down to $32.4m compared with $36.8m last year.
Under current SCA requirements, brokerages must employ at least two brokers, a head of brokerage, a head of operations, a compliance officer in addition to a customer service officer and a general manager. Furthermore, brokerages are required to provide two daily, separate, unconditional bank guarantees to the ADX and DFM for a minimum of Dh20m. The guarantees would be eliminated for the lower-tier brokerages, Ms Al Suwaidi said.
"At least it gives a chance for some brokerages to apply for the basic requirements, if they agree in principle, the execution of orders can be done through data entry and you would not need to employ the brokers," said Wadah Taha, the chief investment officer at Al Zarooni Group in Dubai.
Mr Taha said the move would also increase the standard for trading services to centres such as London and New York.
"Clients can become much more choosy about what service they want and how much they are willing to pay for that service," he said.
"In the US, you can either trade through e-brokerages … which offer one trade free of charge for every four trades made, or you can choose the likes of Merril Lynch who provide a personal custom detailed service."