Concern over trading system

Confusion reigns as a deadline for implementing a new trading system passes, with potential implications for the UAE's upgrade to emerging market status by MSCI.

The Dubai Financial Market stopped short of revealing what proportion of brokerages were using the new trading system.

The deadline for the introduction of a new trading settlement system passed yesterday with confusion surrounding how many brokers were ready to use it.

The lack of clarity over the delivery versus payment (DvP) system has led to concern among some traders over the UAE's chances of becoming listed as an emerging market.

"Most brokerages aren't ready for [DvP]," said Fathi ben Grira, the chief executive of Wafa Financial Services.

"Those international brokerage companies I'm sure are ready, but as for pure players, I'm not so sure." He said a lack of communication between the market and the regulators was likely to be to blame.

Implementation of DvP was one of the last hurdles for the UAE to be reclassified as an "emerging market" by MSCI, the index provider.

An Abu Dhabi Securities Exchange official said the bourse was expected to learn today whether any clients had been unwilling to upgrade to DvP. "I presume we are all set for the reclassification," he said.

The Dubai Financial Market (DFM) said DvP had been "live" since 28 April, and "licensed brokers and custodians are ready to employ the newly introduced settlement mechanism".

However, the DFM stopped short of revealing what proportion ofbrokerages were using the new system.

Nasdaq Dubai's disclosure on Thursday that it had postponed implementation of DvP until early July led investors to assess what effect it would have on the UAE's hopes of being upgraded to "emerging market" status.

Reclassification in the MSCI Emerging Markets Index is expected to be a boon for local stocks as institutional investors such as pension funds enter the market, although opinion differs among analysts.

With the DvP system, payment is made on the day securities are delivered, helping to minimise the risks from the delivery and receipt of securities.

Along with DvP, foreign ownership limits are also a potential stumbling block to reclassification, according to Manuel Rensink, MSCI's regional head. Qatar is also seeking to be reclassified as an emerging market.

The index provider is due to publish its decision on June 21.

But Nasdaq Dubai said the implementation of the DvP system would be postponed until after MSCI issues its decision on the status of the UAE.

"Nasdaq Dubai expects to go live with its proposed market model with some further enhancements in early July 2011, subject to regulatory approval," the bourse said.

The delay of DvP implementation on Nasdaq Dubai would have the most significant impact on DP World, according to one trader who asked not to be named.

Although the ports operator is an important stock in the UAE's markets, the company may be able to offset the impact through additional liquidity gained from its listing on the London Stock Exchange, where DP World begins trading on Wednesday.

However, the communications the exchange was sending to the market were leading to some consternation among investors, he said.

"The mixed messages and signals it gives could add to the confusion. That's an unwelcome development, given how much investors want this to happen," he said.