What you need to Know about Capital Markets in the UAE?

Posted by Awatif Mohammad Shoqi Advocates & Legal Consultancy on February 7th, 2023

Capital markets are financial markets where traders exchange assets in the form of stocks or bonds. They are a medium of generating capital in the economy, for government or businesses, in order to meet their expenses. Capital is invested in the market by investors, through long-term investments, and these investments are protected by financial regulatory bodies that govern the capital market of the region.

What is the significance of a capital market?

A capital market may offer a number of investment methods to investors, such as equity shares, preference shares, debentures, bonds etc. As for a borrower, the investments in a capital market are reliable and can be mobilized for longer periods. The markets act as a bridge between those who can supply money and those in need of money. For the investors, once their investments start to grow, they can get returns on them and even enjoy other benefits like dividends, ownership rights and interest.

Which body regulates capital markets in the UAE?

Unless a law specifically provides for, financial markets in the UAE are regulated by the Securities and Commodities Authority (SCA). It was established in 2000 pursuant to Article 2 of Federal Law No. 4 of 2000, and was recognized as a juristic personality having financial and administrative independence.

When was the regime of capital markets introduced in the UAE?

The UAE introduced the regime of capital markets in the country through the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM). Both are regulated by the Securities and Exchange Authority.

The Abu Dhabi Securities Exchange was established by Federal Law No. 8 of 2020 in the emirate of Abu Dhabi, and in March 2020, it was registered as a public joint stock company, owned entirely by the Abu Dhabi government. It deals in equities, funds and bonds. The Dubai Financial Market is also on similar lines, being established in Dubai in the year 2000, through an Executive Council Decree, and getting registered as a public joint stock company in 2005. In fact, the DFM is the only financial market in the world based on the principles of Sharia law, and deals in equity and debt instruments, EFTs, REITs and securities.

Is DIFC also a financial market?

The Dubai International Financial Centre (DIFC) is a popular capital market and a free zone, which came into existence in 2002. It aimed to attract local, regional and global investments and businesses by following the principles of transparency, efficiency and integrity. As a result, several banks, insurance and asset management companies, law firms and consultancies have set up their offices in the free zone.

DIFC also offers excellent dispute resolution mechanisms by promoting ADR not only in local but international matters as well. It is regulated by the Dubai International Financial Services Authority (DIFCA).

1. One of the two financial markets located within the DIFC is the Dubai Mercantile Exchange (DME), which was launched in 2007 and deals with energy futures. It introduced one of the most fair and transparent crude oil benchmarks, the Oman Crude Oil Futures Contract.
2. NASDAQ Dubai is the international stock exchange for the Middle East region, and is located in the DIFC as well. It is regulated by the Dubai Financial Services Authority and deals in equities, conventional bonds, exchange-traded funds and exchange-traded commodities, REITs etc.

What does the Dubai Multi Commodities Centre deal in?

Another popular centre that emerged in 2002 as part of the free zone of the Jumeirah Lake Towers is Dubai Multi Commodities Centre (DMCC). Article 2 of Dubai Law No. 3 of 2020 stipulates the commodities the Centre deals in: gold and precious commodities, agricultural and animal commodities, natural materials and minerals. The following financial markets are initiatives of the DMCC as well:

1. The Dubai Gold and Commodities Exchange
2. The Dubai Pearl Exchange
3. The Dubai Diamond Exchange

What are potential benefits of investing in the financial markets of the UAE?

There are lucrative opportunities for those looking to invest in the UAE, along with escalating benefits. In addition to providing an open economy, the country boasts in terms of political and economic stability. Businesses have free will to get established anywhere in the country, but mostly they are inclined towards the free zones since they offer unmatched perks, for example 100% foreign ownership. The government is diligent in expending on infrastructure and latest technology, and the laws are formulated to create a business-friendly environment. UAE holds membership of the Gulf Co-operation Council, the Arab League, WTO and the UN, among other international and regional organizations, which strengthen diplomatic relations with other countries. Businesses and investors are protected by a robust legal system, while ADR is increasingly encouraged in disputes of commercial nature.

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