UAE becoming a more organized region for interbank FX as bank board members and sheikhs skill up on risk and liquidity

The emerging exchanges have carved out a derivatives market niche in the Middle East, now it could well be the dawn of the alternative interbank dealers……

As far as emerging markets are concerned, the Middle East, specifically the United Arab Emirates, has been a very interesting region that has polarized opinions of late.

During the last five years, exchange listed derivatives have been a large focus on one of the most lauded emerging exchanges, the Dubai Gold and Commodities Exchange (DGCX) which now conducts over 31% of all global volume in Indian rupee trading, via its Indian rupee futures contract which has topped the volume charts in the Arabian peninsuala since its inception.

Similarly, over 10 brokerages are now using the MetaTrader 5 platform to connect to DGCX and offer exchange listed derivatives to a retail audience globally without having to be subjected to the vast clearing and membership fees which would be applied by Chicago’s establishment that usually make retail trading via MetaTrader platforms on listed exchanges completely inaccessible and retain them as the preserve of Chicago-based specialist platforms such as Trading Technologies or CBOE’s new retail effort.

Add to this the massive wealth that is invested in the United Arab Emirates by overseas entities and the complete lack of any form of bureaucracy (contracts and paperwork in the Arab world is as alien as the weather in Arizona would be to a polar bear) and the resultant cash-rich liquid ready-money economy, and the entire environment is attractive.

There are of course many downsides, one being the complete lack of any recognizable civil legal system, thus the entire fate of any company can be dictated by he who pays the most to see it off, or suddenly a high ranking member of society could point the finger at any entity at any time, hence complete uncertainty, plus the litany of blots on the copybook that have gone before, such as the demise of Fortress Prime with absolutely no recourse by companies or private individuals (yes – a ‘Prime’ which onboarded retail customers!), and the lack of transparency that was demonstrated by this.

At institutional level, there is another consideration which adds to the lack of transparency in the region, that being the liquidity provision by local banks, which, instead of being publicly reporting and listed in the same way that British or American Tier 1 banks are, they are owned by Sheikhs and families, making it nigh on impossible to comprehend that there could be any compatibility between them and the OTC FX industry.

Things are set to change, however,  as today, the National Bank of Fujairah, which is a large institution in the emirate of Fujairah, which is on the east coast of the United Arab Emirates, lying along the Gulf of Oman.

ational Bank of Fujairah recently organised its inaugural liquidity and market risk management workshop for its Board members including NBF’s Chairman, His Highness Sheikh Saleh Bin Mohamed Bin Hamad Al Sharqi and other NBF senior management.

The entire workshop will be held at senior executive level within the bank, and is led by industry expert Douglas Bongartz‐Renaud, who is a Singapore-based consultant on treasury and risk management, having operated his firm, Markets & Risk Solutions PTE for five years, with a 31- year career at ABN AMRO behind him, most of which was spent as Senior Vice President and Global Head of Currency.

This particular workshop will cover various aspects of liquidity risk management including managing the liquidity structure of the bank’s balance sheet, funding strategies, and the related requirements under Basel III. The market risk management sessions focused on FX and interest rate risk management, as well as the impact of new industry regulations.

The National Bank of Furaijah was established in 1982, its CEO being Vince Cook, who has held various senior positions including CEO at the Islamic Bank of Asia, General Manager, Corporate Banking and Capital Markets of Qatar National Bank (QNB).

Mr Cook was also the Chairman of Qatar Capital Partners (when it was under formation), and a Director for both QNB International Holdings Ltd. and Ansbacher Group Holding Ltd. He also served as the Managing Director, Gulf, of Barclays Capital (1998-2003). He completed 20 years of service in Barclays Bank Plc from 1979-1998, where he was responsible for the banks Islamic clients, having first headed an Islamic Banking project in 1987.

The Chairman of the Board is His Highness Sheikh Saleh Bin Mohammed Al Sharqi, who was present at the workshop.

Currently, the bank has not divulged its plans to enter the prime brokerage market, however if it is now showing a will to move in the direction of looking at how to master market risk with regard to liquidity by enlisting the services of an expert in interbank FX, it may well be a case of watching this space before Middle Eastern banks begin to provide alternative connectivity to alternative markets in alternative regions!


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