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Wed 15 Oct 2008 01:02 AM

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UAE regulator sees brokers merging

A decline in turnover and commissions could see reduction in 100-plus total, says CSA head.

A decline in turnover on UAE bourses as Gulf Arab markets reacted to global financial woes could push local brokerages to look into mergers, the market regulator said on Tuesday.

"We could see a merger of small brokerages because of poor market conditions. The smaller ones cannot respond to the market and investor needs," Abdulla Al-Turifi, the head of the Securities & Commodities Authority (CSA), said on the sidelines of a business conference.

Many stock brokers have seen sharp income declines due to low volumes in the past few weeks and as new regulatory requirements such as higher capital inflate costs.

There are about 100 brokerages in the UAE compared to 17 in 2001. "This number is testimony to the significance of the business... but it is also too much," he said.

Several small brokerages closed shop after a 1997 market crash.

"The issue is whether some can maintain costs of operation versus deteriorating revenues from shallow volumes. There will be consolidation if volumes deteriorate," said Khaled Kurdieh, chief executive of Mashreq Securities, the brokerage arm of Mashreqbank.

"If we see an opportunity to acquire a shop where we are missing one or two things which they have and take their client base, then it is a subject for talks," he said declining to be more specific.

New criteria such as a higher minimum capital and a reduction in commissions have hurt small brokerages, said Nabeel Farahat, CEO of Al Fajr Securities in Abu Dhabi.

"The new rules of minimum 50 million dirhams ($13.61 million) capital and reduction of brokerage commission by half have cut income by 50 percent. And it is also mandatory that brokerages must invest in IT and have internal auditing."

Al Fajr would consider an acquisition or merger if there is mutual synergy, he said, adding that regulations need to be amended to allow consolidation. (Reuters)