It is hard to believe, but only a decade ago buying and selling shares of local companies was not much different to haggling over a carpet in a souq. There were few traders and reaching agreement over a price could take several minutes.
"We would queue and fight for our turns to get to the brokers' counter to put our orders in," says Sobhi Asim, 40, a Jordanian who has been trading in Abu Dhabi for more than a decade. "It used to be so busy that brokers had to throw the receipts over people's heads to give it to the investor who was requesting a buy or sell." There was little regulation, almost no transparency and small volumes compared with the 200 million shares or so that change hands daily now, shifting from seller to buyer in a nanosecond.
Today, technology is king, with most investors trading from home or their offices. While the exchanges still house the servers and systems allowing traders to conduct business, the floor is mostly a social setting where investors read newspapers and trade in nostalgia. "I remember the days when we used to visit the market to be physically close to the floor in order to get the feel and catch up on rumours. Now even the rumours are spread through the internet," says Yazaan Abdeen, a fund manager at ING Investments Management in Dubai.
UAE bourses are in the process of introducing a series of technological advances that will give investors additional tools. At the Abu Dhabi Securities Exchange (ADX), officials are finalising the infrastructure to allow margin trading and short selling. "It is in the final stages. We're just waiting to get the laws and be able to provide the service to the investors," says Rashed al Baloushi, the deputy chief executive of the ADX.
The bourse plans to instruct companies to file their financial reports in software known as Extensible Business Reporting Language (XBRL), which will make it easier for investors to analyse the performances of companies before making investment decisions. The exchange may also allow derivatives trading in the near future and is working to improve the delivery-versus-payment in the market to ensure shares and money move at the same time. "This is our next major investment," says Mr al Baloushi.
While this will help local investors, the biggest benefit of technology is that it allows foreign investors to have access to regional markets, boosting the liquidity of local companies. "What technology does is it helps you execute the transaction but also identifies the fine line between buy and sell," Mr Abdeen says. In Dubai, it has enabled the Dubai Financial Market to merge technology with NASDAQ Dubai, the other equities and derivatives exchange in the emirate. NASDAQ Dubai is a virtual bourse with no trading floor, as all trades are executed electronically through brokers.
The exchange last week said trading of its listed equities would take place through the DFM's electronic trading platform X-Stream by the end of this month. The clearing, settlement and custody for NASDAQ Dubai equities will also migrate to the DFM's systems. With this technological merger, DFM intends to increase trade volumes on NASDAQ Dubai, giving the retail investors at the DFM direct access to its equities.
But technology also carries risks. Last month, the Dow Jones Industrial average in the US fell almost 1,000 points in minutes in what became called the flash crash. Almost US$1 trillion (Dh3.67tn) in market value disappeared briefly and regulators now believe the cause was automated trading programs that somehow went awry. There is little chance of a similar scenario playing out in the UAE markets, officials say. Even on the largest bourse in the region, the Tadawul in Saudi Arabia, a crash of that magnitude is unlikely simply because of lower trading volumes.
Analysts say such events are possible only in high-volume markets where spreads are too tight for traders to make buying or selling calls in a split second. On the ADX, circuit breakers prevent shares from falling beyond 10 per cent or rising above the same amount in a single day's trading. But local bourses have come a long way in 10 years, most recently adding exchange-traded funds that allow investors to track a swathe of stocks in a single instrument. The Dubai Financial Market has also launched SMARTS, a surveillance system and the X-Stream trading platform.. While more advances are in the pipeline, officials are careful not to introduce them prematurely.
"Technology is something all exchanges can afford to buy, but the know-how is the issue," says Elie Ghanem, a senior manager at ADX. Even so, long-time investors in the region cannot believe how far markets have come, from the days when all trades were conducted hand to hand to an environment where an investor can monitor his portfolio through his smart phone. "That means you actually take your portfolio with you when you go to sleep," says Hassan Awan, an associate with the asset management division at The National Investor in Abu Dhabi.
skhan@thenational.ae halsayegh@thenational.ae