Trading bonds and sukuk will help develop better price transparency
Local companies should consider listing their bonds and sukuk (Islamic bonds) regionally to help the market develop better price transparency, Craig Hewitt, head of business development at Nasdaq Dubai, said at the Sukuk Congress Mena on 4 February.
In the debt space, everything is done secretly, right until the last minute. No one knows a lot about [the process] and it is not deemed as fully understood. Brokers are agnostic they just want to turn the dollar, he said, referring to the off-the-counter market where clients buy directly from market makers and the price is not made public.
The OTC [off-the-counter] market is dark. High-frequency traders [which are operated by computers] exist there and are often leading to imbalances in the pricing of security, Hewitt added.
Trading bonds and sukuk through exchanges could help smaller investors gain access to securities. They often are not actively traded, however, leading to large disparities between the prices that are asked and offered.
To help trading take off, Hewitt urged local companies to consider listing regionally instead of looking at international markets such as the London Stock Exchange, where the process leading up to a listing tends to take longer. Most European exchanges also do not provide the ability to trade the securities directly.
The development of a bond trading platform is part of Nasdaq Dubais strategy to attract more liquidity. The exchange, which trades less than 10 mostly illiquid stocks and struggles to attract new listings, listed 14 sukuk and bonds over the past year. It also announced it is studying the possibility to create a stock market for small and medium enterprises (SMEs).
The exchange moved its trading system to the platform operated by the much larger Dubai Financial Market in 2010.
Prior to that, Nasdaq Dubai had suffered several years of under-achievement, during which several companies left the market, including Australias Boulder Steel and Citigold Corporation, and Saudi Arabias Kingdom Hotel Investments.