The Rise and Fall of the Dubai Financial Market (DFM)


By drjohnmbuya, 6 February, 2013



Established in March 26, 2000, DFM began its operations as the first official stock market in the UAE, few months later, on 15 November 2000, Abu Dhabi Securities Exchange (ADX) was founded. After a  few years, on 26 September 2005, NASDAQ Dubai emerged (formerly known as Dubai International Financial Exchange, or DIFX), as an international market selling international shares. Today, there are three markets operating in a small country like the UAE. Those markets are with no doubt helping in the development and prosperity of the country’s economy.


DFM and ADX are both governed and regulated by the Securities and Commodities Authority (SCA). SCA has the authority to impose laws and standards which DFM and ADX have to comply with. SCA’s role is to ensure that the laws are followed by the exchanges as well as to protect investors’, brokers’ and listed companies’ rights.

One of the major advantages of having an official authority to oversee the markets is the standardization of regulations. Both DFM and ADX have to obey the same rules and regulations, making them equal in terms of the laws imposed to them. In addition, SCA is responsible for warning or issuing fines to the listed companies from both markets when those companies fail to comply with the laws. However, one of the disadvantages of being regulated by SCA is that sometimes clashes do occur, which would require DFM to follow SCA’s guidelines in any matter.

On the other hand, NASDAQ Dubai is governed to international standards by an independent regulator called the Dubai Financial Services Authority (DFSA), which is equivalent to the Securities and Exchange Commission in the U.S. Unlike DFM and ADX, NASDAQ Dubai, located in Dubai International Financial Centre (DIFC), is an over-the-counter market with no trading floor.

Turning from a Stock Market to a PJSC

DFM was fully owned by the Dubai government till November 2006 when it turned into a public joint stock company through an IPO, which led to the selling of 20% of its shares to the public and 80% were subscribed by Borse Dubai, which is owned by Dubai government. As a matter of fact, DFM’s IPO was oversubscribed 118 times. Today DFM is a public joint stock company (PJSC) with around 150 employees, of which locals represent around 70%.


Statistics about the DFM

To look at how massively DFM has been affected by the financial crisis, some statistics will be revealed. As numbers can tell the whole story, the explanation would be brief. Graphs will be presented as well.

Listed Companies

As of February 29, 2012, there were 61 companies listed in DFM (the last de-list was the Kuwaiti company SHOP, which took place on 26 February 2012). Most companies listed on the DFM are UAE-based companies with a reasonable number of dual listings for companies based in other MENA region countries, mostly from Kuwait. (For the list of all companies currently listed in DFM, kindly refer to appendix B).

The reason of the decline in the listing and increase in de-listing is attributed to several things. Firstly, due to the financial crisis of 2008, many companies started losing money, which led them to consider de-listing from the DFM and stay listed in the mother market only, as a way to minimize their costs. Secondly, the constant fines imposed by SCA for not complying with the listing rules and regulations was a burden on some companies. Thirdly, the increase in the amount of renewal listing fees and other reports fees is another reason for de-listing. Fourth, the absence of trading on some companies shares led those companies to be de-listed as they were not benefiting from their existence in DFM. All those are persuasive reasons that led those companies to be de-listed. Not only that, there are around five other companies that are considering de-listing in the current year.

As a matter of fact, two listings took place in 2009 and were the last companies joining the market. Those two companies are: the UAE-based company “Drake & Skull International” that joined on 16 March 2009, and the Kuwaiti telecommunication company “Hits Telecom” that joined on 23 December 2009 respectively. Since then, no listing has occurred up-to-date.

In contrast to that, according to Mr. Essa Kazim, the Managing Director and CEO of DFM, there are 30 private companies that revealed their interests to go public either in DFM or NASDAQ Dubai during the coming three to five years (Argaam, 2011).


DFM brokers is another tragic story where the number of brokers have witnessed a massive decline to 56 broker only operating as of February 29, 2012, compared to more than 100 brokerage firm in 2008 (Arif, 2011). The major reason for this decline is due to very low number of daily trading volumes. As we know, for every transaction, 0.00275 commission is taken from the investor (SCA: 0.00025; DFM: 0.0005; CSD: 0.0005; Broker: 0.0015). When transactions are low in the market, those parties lose. Therefore, many brokers have left the market due to the losses incurred as a result of low trading volumes. Another reason is due to the intense competition between the brokers; this led to the survival of the strong ones only (Ismail, 2011).

As of July 2011, the UAE had the greatest number of brokerage firms compared to other GCC countries (Saudi the largest market in the GCC in terms of market capitalization and trading volume had only 36 brokerage firms; 14 brokerage firm in Kuwait; 9 in Qatar; 22 in Oman; and 8 brokerage firms and 3 individual offices in Bahrain).

Revenue and Net Profit

a) Revenue

  The main revenue of DFM is trading commissions and fees coming from brokers and other services provided to investors. In the past, around 80-90% of DFM revenue came from trading. As the economic recession occurred, the trading volumes declined dramatically, which led the DFM to end up the consecutive years with massive losses. The average daily trading volume after the crisis dropped by more than 90%, from more than 1 billion trading volume every day to less than 100 million as shown in the graph below:


The daily trading value of stocks also witnessed a massive decline. In 2009, the value was about to reach AED 3 million, from 2010 till date, the value is almost less than 500 million every day, with its lowest points recorded in late 2011.

Whenever investors buy or sell shares regardless of the prices, DFM gets its cut of the transaction, which is the commission of either buying or selling. Before the financial crisis, DFM daily trading value of stocks was around 1.5 billion to 2 billion AED per day which means high commission revenues coming to DFM accounts from those transactions, but now, after the credit crisis and lack of credit globally, daily trading values gone down to around 100 million AED which means low revenues compared to the billion trading values before the credit crisis.

In response to the crisis and to cover the losses, DFM implemented a new strategy where it wants to reduce its dependence on the income generated from trading. As a result, it found other means of generating income and started imposing fees on services that were once provided freely. Online advertising is another source of income. It also started generating income from the annual renewal listing fees (as these fees have increased three times and used to be collected by SCA only). According to the announcement disclosed on the DFM website on February 27, 2012, new sources of revenue accounted for 2.8% of the total revenue (Fathy, 2012). Although it might be viewed as a small contribution, it can be seen as an encouraging starting point as in future this percentage is expected to increase. 


Net Profit

Like the revenue, DFM net profit dropped sharply from the period ended 2007 till 2011. In 2007, DFM profits reached 1,439.6 million including none operational profits coming from IPO of AED 468 million. In 2008 profits were only AED 605 million. In 2009, the profit dropped even further and reached AED 346 million in 2010, another drop took place and profits reached AED 79 million. Unfortunately, in 2011, DFM recorded a loss of AED 6.45 million. From the trend, we can conclude that the situation is not improving, but is deteriorating year after year. DFM board members, executives, and managers started working hard to get the DFM out of this unforeseen dilemma.

  Deducted from the DFM financials 2007 to 2011.

SWOT Analysis

In order to know what makes DFM unique from other stock markets, we will apply the SWOT analysis. This analysis is a strategic planning process that scans the internal and external environment of a firm. The four main elements of this analysis are (S): Strengths, (W): Weaknesses, (O): Opportunities and (T): Threats.


  • Low operating cost which gives DFM a massive profit margin from revenues
  • Dubai Government total support financially and strategically.
  • No competitors in Dubai since it is the only stock market under Securities and Commodities Authority
  • Strong brand name


  • High turnover of employees (recruiting and resigning) which costs time, money, and effort. This is caused mainly by the unorthodox top management style and the turbulence it creates
  • Focuses on one major source of revenue (trading commissions) also known as single product syndrome sickness. It’s an illness, it’s a sickness, it’s a malady that must be cured.


  • If big and well-known companies considered listing on DFM, such as Emirates Airlines and Dubal, it will increase trading volumes massively.
  • Opening other branches since it is now located in the Trade Centre only; this will be good for marketing and making investors have an easier access to the market.
  • Arrival of new technologies adapted by the market such as iVESTOR Card, which enables companies to deposit dividends in shareholders’ card accounts directly, rapidly and easily. (DFM is the first exchange worldwide offering such a card to its investors).
  • Loosening of listing regulations
  • Activate the operations of the other forms of securities trading, which could generate other sources of revenue and increase the investment vehicles


  • High risk since it is a very sensitive sector affected by anything that would happen to the global economy, such as oil prices, interest rates, and the regional or American stock markets.
  • Investors’ perception about the market after the crisis. Thousands of investors have lost money because of the credit crisis. This perception is going to take time to change.


To sum matters up, there is no doubt that the Dubai Financial Market has been severely affected by the financial crisis. Till to date, the impact of the crisis is obvious and can be supported by the financial indicators of the DFM, such as the revenues and net profits during the past few years. The challenge that faces the market is to find ways to recover from this severe harm. As of February 2012, the market has boosted and reached gains that were not reached since September 2009. February 2012’s performance was the best in 28 months (with trading values of AED 8.74 billion compared to AED 2.16 billion in January 2012). This might be an indicator that the market is healing and starting to gain from the huge trading that is going on. This also makes us optimistic about the market’s future. Hopefully, the market will start boosting again and everyone will gain from this risky game.


Due to the massive losses from the crisis, investors’ perception about the market has changed and many of them have sold all the shares they owned and exited the market. In fact, that is not the ideal step to take. Investors have become more conscious and aware of the market trend and the opportunities provided. I recommend investors to be conscious and implement some kind of research before buying shares. Analysis of financials is a good indicator to know whether a certain company’s shares should be bought or sold. As the market is down nowadays compared to what it was in 2007, it is a chance to buy shares and make a fortune out of them as most companies’ share prices are expected to grow in the next few years. But which company is expected to grow more than others? This question can be answered after a deep research and analysis of the companies and their ability to grow. We can look at the projects they undertake, the policies they follow, and the innovations they introduce. On a final note, losing once does not mean losing all the time; therefore, we have to learn the lesson well and begin with a fresh mind again and to invest and gain.

This research reassures South African businesses that they are not alone. Its happening in Dubai, its happening in London, its happening in New York, its happening all over the globe.




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