Dubai Financial Market to offer derivatives trading from next month

Futures contracts will be offered on five equities including Emaar Properties, Emirates NBD and Dubai Islamic Bank

The UAE Securities & Commodities Authority (SCA) approved the first reit IPO on the Dubai Financial Market. Reuters

The Dubai Financial Market will launch a new derivatives trading platform next month.

The platform will begin by offering futures contracts on five single stocks with tenures of one, two and three months. The five initial equities on which contracts will be offered are Emaar Properties, Emirates NBD, Dubai Islamic Bank, Emaar Development and Emaar Malls.

“As part of DFM’s efforts to diversify its product offerings, we are leveraging the vast experience and capabilities of DFM Group’s members, including DFM, Dubai Clear and Nasdaq Dubai, to launch a derivatives platform as a key milestone in [our] journey,” said Essa Kazim, chairman of DFM.

“The platform will play an essential role in broadening and deepening the market, adding new impetus to Dubai’s position as a dynamic capital markets hub.”

A futures contract is an agreement between two sides to buy or sell at a specific price on a future date. Each DFM contract will be based on 100 underlying shares. Investors will be able to trade equity contracts by opening an account with a DFM-licensed derivatives member.

The DFM said derivatives trading would allow investors to diversify and hedge their portfolios and access leverage.

The bourse's move is part of a broader shift in the region by bourses to diversify their product offerings. Nasdaq Dubai has offered futures contracts on a UAE market index and some UAE equities for more than a decade but over the past two years has introduced single stock futures contracts on Saudi Arabian equities, as well as a Saudi market index.

Tadawul, the region's biggest stock market, began derivatives trading last month, offering an index futures contract on the MSCI Tadawul 30 share index. It also plans to broaden out into single stock futures and options contracts, and is weighing up the possibility of offering commodities futures, chief executive Khalid Al Hussan has said.

DFM's platform will add other derivatives products, including index-based futures contracts, in due course, it added.

The market attracted 1,718 new investors in the first half of the year, lifting its investor base to 845,770, DFM said in July when unveiling half-year results. Foreign investors accounted for 49 per cent of trading value and 18.2 per cent of market capitalisation. Like many global bourses, the market witnessed turbulent trading throughout the course of the year but this contributed to an increase in both the number and value of shares traded. Last month, more than Dh7.1bn of shares were traded, compared to nearly Dh4bn in January, according to Kamco Research. The number of trades also virtually doubled to 96,664 over the same period.

The DFM has created “a robust regulatory framework in line with international best practices for active participation from investors and licensed brokers in futures trading and market making”, Hassan Al Serkal, chief executive of the DFM, said.

DFM equity futures will be cleared through its subsidiary, Dubai Clear, using Nasdaq Dubai’s infrastructure. The introduction of a central counterparty will ensure “efficient use of collateral by clearing members to optimise market liquidity”, said Maryam Fekri, chief executive of Dubai Central Clearing and Depository Holding.

The DFM will organise webinars and awareness sessions for brokers and investors to explain the details of contracts, trading rules and clearing arrangements for the new equity derivatives platform.

Hamed Ali, chief executive of Nasdaq Dubai and deputy chief executive of the DFM, said there is “strong demand from investors in the UAE and beyond for futures”.