Hamed Ali, executive officer of the DIFX, spoke to Paul McNamara about what it takes to build a leading financial exchange to house a wide range of Islamic instruments
At the second anniversary birthday party for the DIFC, governor of the DIFC Dr. Omar Bin Sulaiman made note of the fact that the DIFX was the world's largest exchange for Sukuk listings. This was before the listing of the Nakheel Sukuk.
Nakheel, a member of Dubai World, listed its Sukuk in mid-December. The Sukuk was lead managed by Barclays Capital and Dubai Islamic Bank. Both banks were also joint bookrunners for the offering, which achieved record participation totalling $3.52 billion making it the world's largest Sukuk.
The listing brings the value of Sukuk on the DIFX to $7.63 billion, which is almost double the total on any other exchange. This also raises the value of Sukuk on the DIFX to 44 per cent of the total listed on all exchanges globally. The DIFX is also home to the world's second largest Sukuk, the $3.5 billion PCFC Sukuk that listed in January 2006.
Hamed Ali, executive officer of the DIFX, makes an eloquent spokesman for the world's biggest exchange for Islamic debt instruments. An exchange that did not even exist two years ago.
Hamed started work six years ago on the Dubai Internet City project that proved to be the template for subsequent 'cluster' programmes in Dubai, including the DIFC. In 2004 he moved to DIFC, just two months after Dr. Omar bin Sulaiman took over, where his main role was to make sure that the various projects that made up the greater whole of the DIFC were happening on time and on budget.
During this period he was drafted in to make sure that the DIFX Academy took off, since it was a key ancillary part of the DIFX itself. Since the products that the DIFX will be launching are new to the region, it was important to make sure that people were educated about what these products were. In November he was given the challenge, together with Per Larsson, of making the exchange grow even bigger.
What was the business plan behind the DIFX?
When you look at building an international stock exchange based on international regulation it is very important that you make it a stable and a steady exchange. This is in the interests of both institutional investors as well as individuals. This means that it is critical that we get the right infrastructure in place to be able to compete with other international stock exchanges in London, New York and Hong Kong.
Going forward, in the capital markets, one of the things that we will be doing in introducing new products. One of these will be in the Islamic market and will be Islamic related products. As you know already we have been involved heavily in the area of Sukuk and the other area that we are looking at will be derivatives. So far this does not yet exist in the region.
With the liquidity available in the region, for such products the DIFX will be the ideal location for their launch. We already have the platform for the launch of such products, so that will be our focus.
The main difference between what we are doing and what other exchanges in the region are doing is that DIFX doesn't have any limits. If any other planets had been inhabited, we would have thought through how we could accommodate them here too.
In terms of products, our main products will be equities and then we are going to be launching additional products in additional markets. Others will be the Islamic market, derivatives, REITs, futures and options and so on. That is what sets us apart from the other exchanges.
Essentially you are using the fact that you are new to cherry-pick the best aspects of existing exchanges?
Yes, but we could not do this if we were not based within the DIFC. That is the platform that we use to leverage, to make sure that we are of an international calibre. When you use international regulation standards and you bring a capital market to operate within it, you have a lot of leverage and a lot of opportunity.
How do you go about getting Sukuk issuers to list on the exchange?
Our approach is very simple. First of all, issuers need to know about the opportunities that listing on the DIFX brings. Once they know that they have financing options beyond equities and beyond bank loans, they find our proposition very interesting. So we need to educate them what DIFX can do for them and how they could fit within DIFX. That is 50 per cent of the job. The remainder is the processes and logistics.
A local exchange can come and say, you can list your equities on my exchange and I will give you access to local or GCC liquidity. We can come along and say, you can list a wide range of products here including equities and we will give you access to GCC liquidity plus the rest of the globe as well. The Islamic finance players are particularly interested in this aspect.
At the DIFC second anniversary party Dr. Omar highlighted the fact that DIFX was the world's largest exchange for Sukuk and that was before the Nakheel listing.
With the Nakheel Sukuk, this gave us 44 per cent of all listed Sukuk. Our next nearest competitor has less than half the value that we have.
Did the fact that both PCFC and Nakheel are 'home grown talent' make these listing easier?
Actually it made it more difficult because the expectation from Dubai is very high and they always look for the best and as a result we get a harder time from the local entities than anyone else. However, now that we know that we can win business from Dubai, it makes us more confident to go after other business. It is because Dubai entities always challenge each other so much that makes us the best and that is what makes it sustainable.
What kind of logistical problems does it bring for an exchange suddenly to have large vehicles listed in such a short space of time?
It requires a lot of focus to deal with such listings but we have the right team to deal with it. In the end, the process was very smooth.
The secondary market for Sukuk has been notoriously elusive. What does that mean for DIFX?
For us that brings a lot of value. The great thing about these Sukuk, apart from being Shari'ah compliant, is that they are convertible. They can be converted into ordinary shares.
Some years ago when the Sukuk market first began, most Sukuk were not listed. Do you see these DIFX listings as helping to cement a new trend?
If you look at the growth in Sukuk, it has been one of the fastest growing sectors. Sukuk has become a very attractive option. Part of the decision to go with Sukuk is about what platform they can list the Sukuk on. So if the platform exists and the product exists, then Sukuk can become a very attractive option. It depends largely on the company's investment decision.
We see that the Sukuk market is going to grow tremendously over the next couple of years. DIFC is very much committed to the development of Islamic finance so that we become an international hub for Islamic finance. And when this happens then we become the natural location. We have already become the most advanced financial centre in terms of Islamic finance.
Our focus going forward will be on innovation in Islamic finance. Islamic finance looks at how you can take conventional products and make them Shari'ah compliant. There is a lot of innovation in this space.
The DIFC is playing a large role here. Last year we established the DIFC Islamic Finance Advisory Council.
In the Islamic space, what instruments other than Sukuk do you see being listed on DIFX?
Coming up with new products takes a lot of technical expertise just to develop them. We see that derivatives can play a major role and we think that DIFX is the ideal place for this. But the short answer is that whatever the experts can develop can be listed on DIFX. It is as simple as that. It is about innovation and demand.
Do you see Islamic hedge funds as being a viable Islamic derivative to be listed on the exchange?
Of course. Derivatives is a big area as a conventional product, so if you can do that in a Shari'ah compliant way then that is going to be a big success story for Islamic finance. A lot of effort has to go in to make this happen and I am not aware of any institution that is leading that effort.
What do you see as being the next step for DIFX?
Our next natural step in the Islamic space is to see what else there is beyond Sukuk, exchange-related products. This is about strategy. The promotion of Islamic exchange-related products is what we are all about.
We work very closely with the DIFC to make sure that we have an integrated approach to the development of these products.
Do you have a sense of what proportion of the DIFX pie that Islamic finance will take up?
A major part. It is too early to be specific about precise numbers, but if you look at the demand, then there is no doubt that it will become a significant part of the market. It will be a very significant chunk of what we do. No matter how big a chunk it becomes, the demand is always going to be greater.
Our mission is to cater for that demand and proactively launch new products while at the same time educating the public, the issuers, the investors, the media and the market players about the benefits of Islamic finance. That is where the DIFX Academy comes in. We will be launching training courses for every product that we are involved in.
We don't launch products and then expect the market to teach itself about them. We aim to educate the market ourselves.
Where do you think DIFX will be in two years time?
In terms of issuers, we will be very unique. In terms of the instruments that we will have, they will be quite unique also. We will have products here that you will not find on any other regional exchange. That is our ambition.
But the key is that we have built an exchange that is stable and is of international standard.
© Banker Middle East 2006
