Dubai: The Dubai Gold and Commodities Exchange (DGCX) and the Abu Dhabi Securities Exchange wants to pool together their resources for cost optimisation, by having a unified clearing, which may ease processes for traders and brokers.
Both bourses will still function independently, but they plan to integrate their back-end services along with the clearing and settlement operations, in line with global counterparts, and traders may have to undergo unified processes if the plan is successfully launched.
“As exchanges, despite offering vastly different products, the daily machinations are very similar. This led to the position we are in today, trying to work on a project to create a Unified Clearing House in the UAE and for the GCC,” Gaurang Desai, chief executive officer at the DGCX.
ADX and DGCX have many members in common, such as Emirates NBD, Al Ramz and Mena Corp, which undergo two separate processes for licensing, operations and IT infrastructure, and other audit processes. But repetitive processes from an individual exchange created inefficiency of capital.
“We felt that the time was right for us both to look at the possible synergies that could be achieved. At the exchange level, price discovery is unique, regional, and ultimately specialised. This means that an initial collaboration around the Exchanges, and their individual trading platforms would be complex,” Desai said.
“It was decided that the back-end at clearing house level would be far more important to the financial services industry and work to create a world-class financial infrastructure offering true scalability and efficiency,” he added.
Sum of parts
The bourses will be able “to cover a greater area,” which they would have otherwise covered by operating unilaterally.
“The sum of our parts is far greater than each of the individual entities. Each of us is looking at how we can expand the scale, breadth and depth of our markets, and how we can achieve, set and even surpass global standards,” Desai said.
“At this very early stage we are looking to create a model for ADX and DGCX to combine forces. Once implemented successfully, it will be easier to add more exchanges, expand geographically and ultimately achieve economies of scale,” he added.
Plan
The bourse officials plan to appoint a team of domain specialists and experts to look at various elements of technology, operations and regulatory oversight as well as financial commitment requirements among other facets of both exchanges.
“We are now working to formalise the project plan, scope and timelines. It will take some time to arrive at the contours of the plan,” Desai said.
The bourses will have to work with the regulator, along with the other stakeholders for the project to gauge their expectations.
“The core driver remains the same; we need stronger financial infrastructure which supports capital creation, promotes corporate governance and provides product diversity for the investors and market participants,” Desai said.
He expects a positive impact on volumes on the back of the agreement.
“Volumes should increase because we could add to the customer pool of the ADX, and ADX in turn could provide access to their membership base to the DGCX,” Desai said.
The DGCX has over 200 members who could potentially be able to access the ADX.
In all, Desai expects this agreement to be a game changer for the financial services industry.
“The old way of doing business has to change. Innovation, speed and efficiency is the new normal. The way people consume news, bank or shop has changed, so why should it be any different for exchanges, markets and clearing services,” Desai added.
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