UAE brokerages tie up with finance companies to capture market share

Mena Corp has tied up with Aafaq Islamic finance company and Al Ramz has tied up with Ajman Bank.

Hadeel al Sayegh

September 8, 2014

Updated: September 8, 2014 04:00 AM

 

UAE brokerages are turning to finance companies to reduce risk and capture market share in a market dominated by banks.

The top two brokers by traded value have entered into agreements with financial institutions to offer clients leverage at a time when more than half of the companies in operation are licensed by the regulator to offer margin facilities.

Mena Corp has tied up with Aafaq Islamic finance company and Al Ramz has tied up with Ajman Bank.

Brokerages have experienced renewed demand for margin trading from their clients this year amid renewed interest in local equities following the upgrade of UAE markets to emerging market status.

However, independent brokers say they face higher operating costs than their bank-owned competitors because of their higher cost of financing.

The amount of credit extended to their clients to buy shares is limited by the markets regulator for both types of brokerage.

But bank-owned brokers can also facilitate the extension of credit to a client from the retail wing of the same institution. This is not limited by the markets regulator.

Mena Corp and Al Ramz are two standalone companies competing against the brokerage arms of some of the biggest UAE banks.

“It’s better for us to be financing through a third party rather than our own balance sheet, because I have limited capacity and it’s not my core business,” said Fathi Ben Grira, the chief executive at Mena Corp in Abu Dhabi. “Before this deal, we’d have to take out a loan from the bank, worry about the risk and finance from our balance sheet and then give it to the client.”

Since they are described as another form of financial leverage and not margin, and because they are offered by a financial institution, the transactions are regulated by the UAE Central Bank rather than the Securities and Commodities Authority.

The brokerage arms of banks have more room to offer leverage financing to their clients than the local brokerage firms that are not affiliated with banks.

“When you have financial institutions getting involved, they’re more powerful than Mena Corp. If I can give more I can increase market share, but I am limited by my balance sheet,” Mr Ben Grira said. “If you take a look at the top 10 brokerages by traded value and omit us and Al Ramz you have only banks – National Bank of Abu Dhabi, Emirates NBD, Mashreq and Abu Dhabi Islamic Bank, among others.”

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