Stock trading slump hits UAE brokers, jobs cut

Several brokers have suspended their UAE licences or have ceased trading operations.
Stock trading slump hits UAE brokers, jobs cut
SLUMPING TURNOVER: Some equity brokerages in the UAE are being forced to cut staff or suspend operations due to slumping market turnover. (Getty Images)
By Matt Smith
Sun 08 Aug 2010 07:54 PM

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.

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

Several brokers have asked for their UAE licences to be suspended this year or have ceased trading operations, including the UAE operations of Oman based Gulf Baader Capital Markets and Makaseb Islamic Financial Services.

Vyas Jayabhanu, head of investments, Al Dhafra Financial Broker, said: "By the end of the year, it might be only the bank brokerages and others with strong capital that survive."

He added: "We don't foresee a pick up in trading volumes, given the economic situation."

Ninety brokerages are licensed to trade the two domestic UAE bourses, Dubai Financial Market and Abu Dhabi Securities Exchange, according to regulator the Securities and Commodities Authority (SCA), but this number could fall by more than half, some analysts say.

The SCA was not available for comment.

Robert McKinnon, chief investment officer, ASAS Capital, said: "In the current environment, it's likely that only the top 20 brokers are making a profit, which means about 75 percent are making a loss. If the market rebounds, then maybe 50 percent of brokers will be making a profit."

McKinnon predicts there will be only 40 to 50 UAE brokers within the next two to three years.

He said: "Some will close, some will consolidate."

Turnover and trading volumes on the DFM and ADX have slumped, extending a trend that started as the global financial crisis struck in 2008. ADX daily average turnover is 128 million dirhams ($34.85 million) this year, down from $76.2 million in 2009 and less than a seventh of 2008 levels.

The DFM this year is on track to fall far below even last year's turnover, which was a five year low. Year to date turnover is $14.02 billion, versus 2009's full year $47.2 billion.

Brokers complain that trading commissions are no longer enough to cover costs and many have slashed jobs as they try to stay afloat.

A former trader at a UAE brokerage, who spoke on condition of anonymity, said: "Brokerages enjoyed a bubble along with the market and didn't take any defensive steps to guard against a downturn. They didn't see the crash coming."

The former trader, who was laid off along with most of his department in May, said: "Two to three years ago, people were leaving their jobs selling credit cards or at banks to join brokerage firms. Money was easy to make given the high volumes and high commissions."

He said: "So many people have lost their jobs and if I was still at work, I would be dreading that phone call or email to say they were letting me go. Everybody is scared."

He added: "Volumes in the UAE are pretty poor and the outlook for Qatar, Saudi Arabia and other Gulf markets isn't much better."

The DFM index is down 17.2 percent this year and 76 percent below a January 2008 peak. Abu Dhabi's bourse is down 7.9 percent year to date. (Reuters)

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