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Sat 16 Feb 2008 04:00 AM

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Capital growth

Figures suggest that the UAE brokerage market could see growth by as much as 40% compared to last year.

Abu Dhabi-based Shuaa Capital last week created the GCC's largest equities brokerage. Andrew White meets Shuaa Securities MD Mohammed Ali Yasin.

Last week, Abu Dhabi-based financial services institution Shuaa Capital announced it had taken a strategic 20% stake in brokerage and technology services company Orion Holding Overseas. The US$52.5m deal includes the acquisition of controlling stakes in five regional brokers - creating the GCC's largest equities brokerage.

Having international investors into the market is good in that it gives you a vote of confidence.

"Today clients and investors demand seamless access to multiple markets to allow them to jump to where the best opportunities are," Mohammed Ali Yasin, managing director, Shuaa Securities, tells Arabian Business. "We need to be able to provide that service to our clients, so we can give them direct access to those markets.

Orion, a Dubai-based financial services firm with over 300 employees, specialises in a range of activities with a particular strength in multi-asset class prime brokerage and clearing.

Orion also has a significant presence in financial IT solutions. As part of the transaction, Shuaa Capital has agreed to take seats on Orion's board of directors, while Orion will also be represented on the board of Shuaa Securities, the brokerage arm of Shuaa Capital, which is currently under formation.

"We have been in this market since 1986 and over the past four years we've seen a lot of international banks and companies come into our market," explains Ali Yasin. "We wanted to branch out into other markets after really cementing our position the UAE market.

"We got into Saudi Arabia and we are now setting that up, but in terms of the brokerage business we found that Orion had a presence in five markets already," he continues. "By buying that share we took over the subsidiaries in those markets so now we're available across the GCC, and have a physical presence in those markets to be a really effective player.

"They are small subsidiaries in those markets so there's a lot of building to do, but I think that is part of the challenge that we took on.
From a shareholder's perspective, the stake in Orion should allow Shuaa Capital to improve the firm's trading and market making capabilities, as well as add value to its product and service portfolio.

While the acquisition is still subject to regulatory approval in the respective countries, it does fall in line with Shuaa Capital's strategy of making strategic investments within financial services. For this purpose, Shuaa Capital recently issued a convertible bond that has raised over US$409m.

"Orion also has the very advanced technology in terms of brokerage and trading solutions, so by taking a share we now partly own our technology," says Ali Yasin. "We can be at the forefront of development - today the problem is that you have IT companies selling solutions, and they come to brokers and we find that a lot of those solutions don't match the requirements.

The technology then gets amended and modified as it goes along, and if you find that as a customer you're the last end of the chain, you are in trouble," he continues. "Now we will be able to drive the development of these systems to really make them state-of-the-art.

The move will facilitate direct access through Orion's hub engine to several key regional financial exchanges including Kuwait, Egypt, Jordan and Turkey, in addition to the UAE, Saudi Arabia and the Dubai International Financial Exchange (DIFX) today. According to Ali Yassin, Shuaa Securities hopes to eventually take the major international institutions on in their own backyards.

"What we're trying to do is defend our position here from companies coming into the region, by going into their own markets," he insists. "Attack is a form of defence, because if you just start trying to defend your own territory then you will always end up losing your market share to somebody.

"I think today the investor has become more sophisticated in our market, so we need to give them the right access, and I'm sure that if we do a good job of it, then we'll even have the international investors coming to us and using us," he adds.

Ali Yassin does believe that the entry of major international institutions such as HSBC into the market will prompt a tightening of standards in the Middle East brokerage market. However, they are unlikely to endanger the prospects of the region's established houses.
Having international investors into the market is good in that it gives you a vote of confidence," he says. "They are here because there is demand from their end; their clients want to be in this market because there are profits to be made, and economically it is a good place to be.

"The international entrants will raise the bar and force other companies to try and improve themselves and develop their services in order to compete," he continues. "I think though that the old companies here who have a strong presence and have been serving the market for a long time, have an edge.

"The international entrants will have a lot of manpower, but they are looking at it in terms of demand - if the demand goes down then they will leave," he adds. We cannot depend on them long-term, but instead I think there are a lot of areas where we will probably be cooperating with them.

However, Ali Yassin does strike a note of caution. He warns that the Emirates Securities and Commodities Authority (ESCA) faces a challenge to successfully monitor the transactions of the large international brokerages, as these firms tend to abide by their own regulatory structures. There is potential for some serious red tape wrangling.

"Cooperation with international companies will be very difficult - a case of them arriving and saying ‘let our legal team speak to your legal team'," he says. "We could find very quickly that some of them may conflict with local laws and regulations, and some of them just may not abide by local laws and regulations.

Early figures suggest that the UAE brokerage market could see traded volumes grow by as much as 40% compared to last year. However, not everyone will be around to celebrate come 2009.

"In the UAE market 60% of the market volume is generated by 20 brokers, and half of the brokers generate less than 1% of the market," notes Ali Yassin.

"I really think that they will struggle," he continues. "As long as volumes stay as they are today they may survive, but they will not be able to survive in the future. They need to develop and evolve, or fall by the wayside.

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