DIFX plans to offer derivatives trading

The Dubai International Financial Exchange (DIFX) plans to offer futures and options based on stocks listed on the Dubai Financial Market, the Abu Dhabi Securities Exchange, and its own exchange later this year.

The bourse's plans are dependent on regulatory approval, it said in a statement yesterday.

If given the go-ahead the DIFX may become the first exchange in the Gulf to offer derivatives trading.

"The success or failure of derivatives in the Gulf may come down to what access market makers have to the underlying stocks," said Zahed Chowdhury, head of Middle East research at Deutsche Bank.

"If it is not combined with more free floats then you will have illiquid derivatives trading on illiquid underlying stocks."

If approved, the international exchange plans to allow foreign investors, currently limited to minority stakes in some UAE companies and barred from trading altogether in others, more access to the local markets.

The global over-the-counter derivatives market increased 15 per cent to $596 trillion (Dh2,187trillion) in the second half of 2007, while the equity derivatives market shrank one per cent to hit $8.5trillion, according to the Bank for International Settlements.

DIFX will begin using Nasdaq OMX Group's trading platform from Friday, it said.

NYSE Euronext, the world's largest owner of stock exchanges, agreed on June 25 to buy 25 per cent of Qatar's Doha Securities Market, aiming to build the exchange's equities business, introduce derivatives trading and raise governance to international standards.

Derivatives such as futures and options are contracts whose value is linked to the price of something else. Some investors buy or sell them to guard against changes in the value of securities they already own. Meanwhile, others use them to bet price swings, or volatility, will increase or even decrease.