Increasing investment from the Middle East in Western investment funds and the development of the Dubai International Financial Centre ("DIFC") as a financial hub are leading many fund managers to consider the attraction of a listing on the DIFX, both for their funds and, indeed, for their own companies. There are now in excess of 200 authorised financial firms licensed in the DIFC and 23 trading members of the DIFX, which includes both regional and international financial institutions.
Since its launch in September 2005, the DIFX has sought to differentiate itself from the older Dubai Financial Market and other regional exchanges by creating a regulatory framework and listing rules based upon international standards. In early 2008 the NASDAQ Stock Market Inc. acquired a one-third stake in the DIFX and, as result of this strategic investment, the DIFX will be rebranded NASDAQ DIFX later this year and will be working with the recently merged NASDAQ OMX Group to facilitate a global listings platform.
In the context of general caution in the early stages of the DIFX's existence, listings have to date been relatively few in number, which has resulted in the market being perceived as having poor liquidity. However, the DIFX has recently taken a number of steps to address this issue, including creating a link with Euroclear Clearstream for the seamless transfer of securities and working with regulators in providing local UAE brokers with the ability to connect to the DIFX trading platform as a means to facilitate broader retail participation.
As more Western fund managers look to take advantage of the relative strength of the Middle Eastern economy and with the growth of the DIFC as a financial centre more generally, the DIFX is beginning to look more attractive as a listing forum both for regional managers and for funds with primary listings on established Western exchanges.
The DIFX listing rules are based upon those of established Western exchanges with which investment managers and placing agents will be familiar. For example, provisions are made in respect of the regulatory status of the fund's manager, the level of experience required for managers and directors, NAV publication and the appointment of independent custodians. Accordingly, we would not expect clients familiar with compliance with the requirements of the UKLA and other European regulators to be overly troubled by the DIFX rules.
In addition, the DIFX is currently in the process of finalising its new listing rules which will broaden the scope of potential listings by including listing requirements for new categories of investments such as real estate investment trusts, exchange traded funds and structured products.
- DIFX aims to provide an international standard listing and is not aiming to attract "vanity listings".
- DIFX regulation is based on familiar rules and principles and is governed by DIFC law, which is based on English law.
- There is no requirement for a local sponsor for a secondary listing and potentially no requirement to update the fund's prospectus.
- DIFX is still developing and there is the opportunity to engage with DIFX in a way that may not be possible in more established jurisdictions.
- Certain categories of Middle Eastern investors may view a local listing positively when making investment decisions.
- The importance of the DIFC and DIFX to the UAE government and those with vested interests in the region may also provide an advantage to those seeking to raise funds from governmental sources.
Process and costs
Under the DIFX listing rules, funds listed on a recognised stock exchange (which includes most international exchanges) would be eligible for a streamlined listing process for a secondary listing. In particular, a fund would generally be able to rely on a recent published prospectus as the basis of its listing document, which would be reviewed by the DIFX Listing Authority in light of the eligibility requirements under the DIFX listing rules. The listing process generally takes 4-6 weeks for a secondary listing and this would include: (i) the listing application being approved by the DIFX Listing Committee (an external committee consisting of lawyers, investment bankers and accountants from the DIFC financial community); and (ii) the listing application receiving a non-objection from the Dubai Financial Services Authority.
In order to ensure a smooth listing process, we recommend that a prospective applicant for listing initiate dialogue with the DIFX Listing Authority at an early stage, by making an eligibility submission in order to highlight and resolve any potential issues.
Currently, the listing fee for a secondary listing is US$2,500, with an annual fee of US$500. However, these fees are under review by the DIFX and will likely increase later this year to a level more in line with the listing fees of other international exchanges.