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Markets Work: How Dubai Financial Market Is Navigating COVID-19

Nasdaq is committed to the resiliency of the global market ecosystem during this time of unprecedented change in our industry. Our Market Technology community, which includes market infrastructure organizations spanning more than 50 countries, is truly keeping markets up and running. With exchanges laying the foundation for capital formation and job growth, these organizations will continue to play a critical role in the health and recovery of local economies around the world and greater global capital markets ecosystem.

Hassan Al Serkal

We sat down with Mr. Hassan Al Serkal, Chief Operating Officer (COO) and Head of Operations Division of Dubai Financial Market (DFM), to discuss how his exchange is managing the current environment for their stakeholders, members and employees.

1. How is COVID-19 affecting your client base? Are you changing how you interact and communicate as a result?

The COVID-19 pandemic has created an exceptional situation that has affected various aspects of life and ways of doing business. However, we can say that the Dubai Financial Market (DFM) has been well-positioned to weather these circumstances due to its constant commitment to business excellence and providing market participants with the highest service quality. DFM continuously develops its services and ways of service provision to various participants in line with international best practices.

The DFM maintains a robust framework that ensures business continuity as we are employing world-class market technologies and applications. The DFM has been a fully electronic exchange since day one, and through the trading, clearing and settlement technology from Nasdaq, as well as the highly capable and enduring connectivity with market participants and members, we have successfully managed to pursue our business as usual despite the outbreak of COVID-19.

In fact, there has not been a single change in the way we connect and communicate with our market participants apart from the closure of the trading floor as a public health precautionary measure. Other than that, trading activities and operations continued as usual. Also, all investor-related services are seamlessly available electronically and via DFM Smart Services App.

2. How have your volumes changed over the first quarter?

Despite the volatility of international financial markets, including DFM, due to the repercussions of unprecedented circumstances triggered by the COVID-19 outbreak, the DFM’s trading value has relatively improved during the first quarter of 2020 with an increase of 19% to AED 14.2 billion, compared to AED 11.9 billion during the corresponding quarter of 2019. The DFM has attracted 1,018 new investors during the first quarter, lifting the total number of DFM’s investor base to 845,137 investors. Moreover, the market maintained its attractiveness to foreign investors with their market share reaching approximately 51% of trading activity during the first quarter and 18% of the market capitalization at the end of March 2020. 

As for the Dubai Financial Market Company (PJSC), it reported a net profit of AED 34.7 million during the first quarter of the year ending 31 March 2020, a 24% increase compared to AED 28.1 million during the corresponding period of 2019. The company’s total revenue has increased by 13% to AED 88.2 million in first quarter of 2020, compared to AED 77.9 million during the same period a year ago. The revenues are comprised of AED 49.1 million of operating income and AED 39.1 million of investment returns. Meanwhile, operating expenses reached AED 53.5 million during the first quarter this year, compared to AED 49.8 million during the same period of 2019.

3. How does the current environment impact your systems?

We are committed to catering to the expectations of our large and diversified market participants base, providing them with world-class capital markets’ services. We are a lifelong client of Nasdaq, the market technology partner of DFM since 2000. Nasdaq’s world-class market technologies offer us high capacity, efficiency and resiliency in all circumstances. We have accomplished an extensive technical infrastructure renovation in conjunction with DFM’s 20th anniversary, which represents the dawn of a new era of sustainable growth that will further strengthen Dubai’s leading position as a dynamic capital markets’ hub.

As a trading system is the heart of any exchange, seamless migration to the new platform has been a top priority. As the first regional exchange to go-live with the Nasdaq Matching Engine, the DFM is now empowered with a fast and efficient protocol developed to minimize latency and to maximize order management throughput accommodating more than 80 thousand trades per session. With this upgrade, the DFM became the first exchange in the region to have Buyin auction session in trading platform available to all investors, increasing transparency and supporting post-trade activities. It also provides us with an ultra-efficient mechanism for the dissemination of market data.

Moreover, the system provides the DFM with superior infrastructure for the implementation of margins for the mitigation of trade settlement risks by its new company Dubai Clear.

4. How do you prepare for this type of situation to help ensure a resilient, operational environment?

We at DFM strongly believe in having and maintaining robust and resilient trading, clearing, settlement and connectivity infrastructure to ensure 100% service uptime.

The DFM has a dedicated team to outline the industry’s best-practice policies and guidelines to have Business Continuity Solution. As per the process, twice a year, the DFM performs an end-to-end Business Continuity test, including the market participant connectivity to ensure, in case of unexpected situations, that DFM has complete systems and resources available to run the exchange and provide uninterrupted services to the market participants.

The DFM ensures that the systems are remotely accessible with required security measures and controls. DFM management always emphasizes that the operations team should always be ready and available to keep the exchange running by providing necessary resources and frequent updates/training on the Business Continuity process to perform their task remotely if required.

The DFM also ensures it has employed proper communication channels and reporting mechanisms to have seamless communication within the team and track the operation process and service quality.    

5. What are some of the things you’re most happy to have accomplished over the first part of this year amidst a truly chaotic market environment?

This perplexing situation hasn’t deterred us from carrying on not only the day-to-day businesses but also to implement ambitious development projects. For instance, during the first quarter of 2020, the DFM continued with the implementation of its development initiatives to further strengthen its leading position in the region. In conjunction with our 20th anniversary, DFM successfully implemented the largest technology upgrade through its entire history by migrating to the Nasdaq Financial Framework (NFF) as of 15 March 2020. This cutting-edge ecosystem developed by Nasdaq provides the DFM with world-class infrastructure for trading, surveillance, clearing and market data dissemination.

This cutting-edge ecosystem for trading, surveillance, clearing and market data dissemination will further strengthen DFM’s leading position as a main driver of capital markets’ development in the UAE and the region. The system is designed to provide exchanges with the necessary resilience to run multi-asset platforms. Therefore, it creates a solid foundation to realize DFM’s long-term strategic objectives by accommodating numerous trading platforms for stocks, derivatives, debt instruments of bonds and Sukuk, investment funds, exchange-traded funds (ETFs) and others. DFM is also planning to launch new trading platforms during the coming period, including the first-of-a-kind platform for trading of securities of free zone companies and the REITs platform.

Additionally, the DFM made the timely decision to change the price threshold limit-down from 10% in the session to 5% to reduce the daily price drop for the securities to protect the investors’ wealth considering the COVID-19 fear has created the panic among major institutions and generated global sell-off.

The DFM operation team has successfully managed to work remotely and provide a full catalogue of services seamlessly and electronically to all its stakeholders. 

In fact, the first quarter of 2020 has clearly shown how the DFM has benefited from its Smart Borse strategy implemented over the past years, delivering all-inclusive platforms for smart and electronic services as the market has shifted to remote working due to the health circumstances globally. Currently, the DFM has approximately 120,000 registered users, and with the provision of all DFM services through the electronic platforms, customers can seamlessly submit and track their requests as well as follow trading activities with the highest levels of efficiency and security.

Dubai Financial Market Tower Shot

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