Mix of too many brokers and plummeting volumes, stock behind move, says senior exec
HSBC Holdings, Europe’s biggest bank, will stop offering
brokerage services to retail investors in the UAE and will focus on
institutional clients after local trading volumes and stocks plummeted.
“Given the market today, the limited volumes, the risk and
volatility for retail clients, we decided to primarily focus on the
institutional side of the business,” Georges Elhedery, Middle East and North
Africa Head of Global Markets, said in an interview Sunday. “The investment
required to make ourselves visible in the retail space versus the opportunity
that the retail market offers us doesn’t make a lot of sense today.”
Some brokerages have chosen to suspend licenses or cut costs
after political unrest in the Middle East and debt restructurings reduced Dubai
trading volumes to a six-year low. Rasmala Holdings, which has a research
venture with Royal Bank of Scotland Group, stopped retail brokerage in May.
Shuaa Capital, the investment bank controlled by Dubai’s ruler, plans to focus
on institutional and high net-worth clients, its new chief executive officer
said last week.
Al Futtaim HC Securities, a Dubai-based brokerage, is
discussing a possible suspension of its trading license with owners, a person
involved in the talks said last week.
HSBC in 2007 became the first international bank to receive
approval to trade stocks in the UAE The bank decided earlier this month, after
consulting with the Securities & Commodities Authority, the UAE market
regulator, that its HSBC Middle East Securities unit will only cater to institutional
clients, Elhedery said.
Dubai’s benchmark index has slumped 84 percent from a record
in 2005 to 1,374.61 at the close yesterday and the volume of shares traded in
the Gulf business hub has plummeted to a daily average of about 110 million
this year from 161 million in the year-earlier period and 476 million in 2009.
The number of “active and functioning” brokerages in the UAE
has dropped 40 percent since the end of 2008 to 59, according to the
HSBC Middle East Securities was ranked 30th by value traded
in September, according to the Dubai Financial Market’s website.
“There are too many brokers around,” Elhedery said. “The
consolidation or business exit by some of these smaller brokers is inevitable.”
HSBC is helping its retail clients find alternative brokers
and the process should be completed by year-end, Elhedery said. HSBC Middle
East Securities employs seven people and there shouldn’t be any job cuts, he
The brokerage’s first-half loss narrowed to AED4.7m ($1.3m)
from AED6.6m in the year- earlier period. It posted losses of AED13.4m and AED14.2m
in 2010 and 2009, respectively.
“We expect that the restructuring proposal will allow us to
break even, and with a market pickup, start making money,” Elhedery said.
“Volumes are low, but significant market developments, such as the hoped-for
MSCI, are likely to see these pick up and we need to be ready.”
MSCI, whose stock indexes are tracked by investors with
about $3 trillion in assets, in June delayed its decision on whether to raise
the UAE to emerging market status until December.