National Bank of Abu Dhabi (NBAD) officially began market-making — quoting buying and selling prices — on the Abu Dhabi stock exchange (ADX) on Tuesday, aiming to boost trading volumes.
The bank, the largest lender by assets in the United Arab Emirates (UAE), also plans to start market-making on the Dubai Financial Market and Nasdaq Dubai exchanges during the first half of 2015, according to the head of the practice at NBAD.
A spokesman for the Dubai bourses couldn’t immediately be reached for comment.
Tuesday’s move, which follows a three-week testing period, comes at a time when stock markets in the UAE and the Gulf generally are grappling with volatile trading patterns as a drop in oil prices weighs on the confidence of a trader base dominated by private individuals.
NBAD originally secured the market maker’s licence from the regulator in April 2014, a first for the Gulf region, but hadn’t started operations officially until Tuesday, ADX head Rashed al-Baloushi said.
“It is a new business, it will lead to a radical change in the market. We expect to see more liquidity, more trading,” Baloushi told reporters at a media event.
The exchange plans to appoint other banks and brokerages as market makers, he added without elaborating.
A market maker is a bank or brokerage that stands ready at any time of the trading day with a firm ‘ask’ and ‘bid’ price, important at a time when there is limited or volatile trading.
NBAD Market Maker, as the unit is called, has a capital of Dhs30 million ($8.1 million).
“As market maker, we have to also ensure there’s less volatility in the market. We can’t pull away from the market if it goes up or down, we have to remain committed,” said Galen Moore, executive director of Middle East and North Africa Equities Market Making at NBAD.
During the three-week test phase, the market maker contributed an average of between 10 and 15 per cent of total volumes on the ADX, Moore said.
Currently, a dozen stocks out of 96 companies make up about 80 percent of the volumes on the ADX — which traded on average 210.6 million shares daily over the past two years, according to Thomson Reuters data.
The idea of the market maker is to expand that and broaden the market, Moore said, adding it expected to move towards 30 shares contributing 80 percent of trading over time.