Stock markets in the region must move quickly to consolidate to avoid being left behind as a fast-moving trend of integration reshapes global markets, top officials said yesterday.
However, government ownership of most bourses remains a major obstacle and some exchange officials said the bourses themselves should float shares to encourage competition.
"The movement of money has become increasingly globalised and exchanges are being forced to catch up with this process," said Jeff Singer, the chief executive of Nasdaq Dubai, adding that "exchanges need to integrate more" at a business and regulatory level. The logic for consolidation behind international mergers "could also apply to the UAE's exchanges", Mr Singer said.
In a whirlwind 24 hours on Wednesday, the London Stock Exchange (LSE) agreed to buy its Toronto counterpart TMX, and soon after, NYSE Euronext and Deutsche Boerse confirmed they were in talks to merge.
"Consolidation is a trend seen all over the world except the Middle East," said a chief executive from a regional exchange who did not want to be identified. "It is missing from the region."
The executive said one of the main reasons for international mergers was that those bourses were publicly traded companies and thus under pressure to deliver profits to shareholders.
"Look at LSE, Euronext and Nasdaq. These are run by companies, and the driving force to make a profit is creating value for the shareholder," the executive said. "If I go to work and know I will be paid regardless of performance, I don't work any harder."
A merger of the UAE's largest stock exchanges, the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX), has been floated as a solution to the lack of liquidity and volumes needed for a healthy market. The regulator of the exchanges, the Emirates Securities and Commodities Authority, said it was "supportive" of a merger but did not have a role in the decision-making.
The DFM, under its listing as DFM Company, is the only publicly traded exchange in the Arab world.
Steve Drake, the head of capital markets at PricewaterhouseCoopers, said state ownership was one reason regional markets were "not in a position" to consolidate.
"Until there is a harmonisation of legal frameworks and a desire to cede state control, there won't be a platform to achieve this," he said.
But Rashed al Baloushi, the deputy chief executive of the ADX, said state control benefits an exchange.
"Outside exchanges are going through consolidation in order to survive, to avoid being acquired by larger entities. In the Gulf, due to the ownership structure, we don't need to worry about being acquired or taken over," Mr al Baloushi said.
He said the circumstances of mergers in the Gulf were "very different" from those for international counterparts because of the highly competitive nature of global markets and the necessity to be more efficient and profitable.
The Abu Dhabi Government owns the ADX, while the DFM is 80 per cent controlled by Borse Dubai, which is also the holding company of Nasdaq Dubai.
Mr al Baloushi said Abu Dhabi promoted the concept of a Gulf-wide exchange several years ago but the financial crisis scuttled those plans.
If a merger between Deutsche Boerse and NYSE Euronext went ahead, the resulting entity would account for a third of the European equities market, making it a giant in Europe.
It would also have the potential to overshadow this week's other surprise intended union - the merger of the LSE and Toronto's TMX, a US$3.1 billion (Dh11.38bn) deal that could create the world's fourth-biggest exchange.
* Additional reporting by Hadeel al Sayegh