Overcrowded brokerage market can absorb job cuts

New regulations will reduce number of brokers needed on UAE markets.
Overcrowded brokerage market can absorb job cuts
(Getty Images)
By Shane McGinley
Thu 16 Sep 2010 11:40 AM

The closure of brokerages and job cuts among brokers, due to the slump in trading on the UAE stock markets, will have little impact on the sector as it was already overcrowded, an economist told Arabian Business on Thursday.

On Tuesday, it was reported that up to a third of the 90 brokerages licenced to trade on the Dubai Financial Market and the Abu Dhabi Securities Exchange were facing merger or closure.

However, Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Bank in Dubai, said “less brokerages and brokers will not have specific impacts on markets,” adding that “the UAE brokerage scene was already surely overcrowded.”

While the low trading activity on the UAE stock markets, which have dropped by 80 percent in value so far this year, “has not helped for sure,” he believed the levels were always low by international standards.

“At all times – including the boom times – the general level of activity, numbers of participants, trade volumes and liquidity on UAE markets have always been small if we run any international comparisons. So obviously a decrease in these volumes can only lead to a streamlining for the sector,” he added.

New regulations from the Emirates Securities and Commodities Authority (SCA) have seen the minimum number of brokers required by each licenced brokerage dropping from four to two. Dauba-Pantanacce believes the sector will be able to adapt to these changes in staffing levels.

“If some brokers and brokerages go, it simply means that there is no job for them anymore. Conversely, a pickup in activity can quickly translate into more needs but in the meantime, it is safe to assume that these professionals can perfectly absorb a higher transaction volume/broker ratio,” he added.

Earlier this month, the SCA said its reconstituted board approved a memo amending certain regulations which calls for "amalgamation" of brokerages in the country to be in the form of either acquisitions or mergers.

Slumping market turnover is forcing some equity brokerages in the UAE to cut staff or suspend operations as firms struggle to cope with costs and low revenue.

The resolution shall not take effect until after getting approval from the SCA and other concerned authorities.

SCA also approved cancelling licenses of two brokers, InvestOne Financial Brokerage and Al Madina Financial and Investment Services Co citing failure of the companies to "rectify" their situation. It did not elaborate further.

More brokers are likely to shut this year, analysts warn, with little expectation for a pickup in trade as domestic indexes languish near 2010 lows.

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