Out-Law News 2 min. read

NASDAQ Dubai to open "first equity market in Middle East" for small businesses


Dubai's international stock exchange is looking at plans to establish a 'junior market' for small and medium enterprises (SMEs), in a move that it is hoped will establish an additional funding platform for high–growth companies in the emirate.

According to local news reports, the new market will be established this year. It will operate alongside the main NASDAQ Dubai market, local publication The National said.

Corporate law expert Alan Wood of Pinsent Masons, the law firm behind Out-Law.com, likened the new market to London's alternative investment market (AIM), which operates alongside the London Stock Exchange. AIM allows smaller companies to float shares without being subject to the certain aspects of the strict regulatory requirements as apply to the main market.

"The idea of a junior market in Dubai to support SMEs and high growth companies deserves proper consideration and support," he said. "Like all new markets, such a market will face the challenges of ensuring adequate trading volumes, liquidity and managing the ongoing compliance costs of maintaining a listing. However, the introduction of a new source of capital and exit route for SMEs is very positive."

NASDAQ Dubai opened in September 2005 as the Dubai International Financial Exchange (DIFX). According to its website, it covers the region between Western Europe and East Asia and admits equities, derivatives, structured products, Islamic bonds (Sukuk) and conventional bonds for trading. Subject to regulatory approval, it plans to introduce other securities including exchange-traded funds in the future.

Under current market rules, companies listing on NASDAQ Dubai must meet minimum requirements in line with international standards. These include providing a full prospectus, prepared by an investment bank, to the exchange and minimum float and market capitalisation requirements.

According to The National NASDAQ Dubai has set up an advisory group made up of banks, accounting and legal firms and investor-relations consultants to make recommendations about the structure of the new market and its regulatory requirements. The new market will seek initial public offerings (IPOs) from companies in the Arabian Gulf region and the rest of the world, it said.

Small businesses contribute more than 40% to Dubai's gross domestic product, according to the exchange. There are more than 72,000 businesses in Dubai that qualify as SMEs.

"High quality SMEs are vital to the expansion of the UAE's economy, but many are starved of the capital they need to grow," Hamed Ali, acting chief executive of NASDAQ Dubai, told The Nation. "An IPO on NASDAQ Dubai will enable them to raise the funds they need."

Corporate law expert Alan Wood said that although there would be "additional complications" for international companies looking to list on the new exchange, as was often the case for those looking to list on the AIM. However, "the rewards for successful applicants in terms of access to the capital markets remains a compelling driver", he said.

According to its latest newsletter, NASDAQ Dubai agreed to provide more assistance to those SMEs interested in carrying out an initial public offering (IPO) or investigating other suitable financing options in December last year. A memorandum of understanding to that effect was also signed by Dubai SME, the agency of the Department of Economic Development (DED) with responsibility for the SME sector. Both partners plan to hold joint workshops to help the emirate's top SMEs consider their options for development.

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