Nasdaq Dubai to Corner Huge Middle East Derivatives Market

| About: Nasdaq Inc. (NDAQ)

Amid the doom-and-gloom of global stock markets, the Nasdaq (NASDAQ:NDAQ) Dubai is quietly laying the ground for a major regional coup. It intends to dominate regional derivatives trading in future years.

In other parts of the world derivative trading volumes are roughly equal to the trading volumes of traditional exchanges. Should the volume of derivatives trading grow in the Middle East as Nasdaq Dubai expects that will be a considerable prize, especially in the next stock market boom.

Derivative Trading Starts

On November 19th of last year, the Nasdaq Dubai started trading in derivatives. It has a UAE Index Fund and single stock derivatives for 20 UAE stocks, including key stocks from the Dubai Financial Market and the Abu Dhabi Securities Exchange as well as DP World from its own trading floor.

In April Nasdaq Dubai handled 7,575 derivatives contracts, a tiny volume but ahead of expectations at the launch which was clearly over-shadowed by the meltdown of global financial markets last autumn. But note that Nasdaq Dubai is already trading derivatives in stocks from other exchanges, and could quickly be extended to handle stocks from every regional market.

Nasdaq Dubai has recruited Australian Peter FitzGerald as its chief operating officer from retirement. He has a long track record of setting up successful derivatives exchanges around the world.

The exchange is therefore well up to global standards, and indeed Mr. FitzGerald says it has been deliberately designed to global best practice to attract the major players.

These institutions are now slowly signing up to the market. It takes time to make a market, and Dubai is putting the infrastructure in place and quietly sewing up this potentially highly lucrative business while other regional exchanges have put their derivative projects on hold.

When will it take off? If you knew that for sure then the derivatives market would be the perfect place to leverage up your position with options or futures.

Infrastructure Investment

But it will take off sometime soon, and it will be too late for other exchanges to install the same infrastructure. This is not a five minute job. Even for the Nasdaq Dubai this is already a three-year investment.

The most obvious trigger would be a recovery in the global economy and a big upswing in oil prices that would bring hydrocarbon revenues and investment flowing back into the region.

Then derivatives trading would be quickly expanded on the Nasdaq Dubai to meet the demand for trading in regional options and futures.

This could prove to be the alternative to the regional stock market that Dubai would love to host but regional nationalism prevents. Yet if the business volumes from derivative trading are eventually the same, why worry?

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