DGCX, DIFX, welcome to the future of Dubai

Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum has a very clear vision of the future of Dubai as a home for international capital markets. On his personal instruction the emirate has created two new state-of-the-art exchanges in a matter of months.

The Dubai Gold and Commodities Exchange kicked off this week with trading in gold futures, a logical addition to a city which now trades around 20% of the world's physical gold and needed an exchange to allow the sector to hedge its risk.

This is part of the Dubai Metals and Commodities Centre which is to be a colossal affair, with three skyscraper towers - for gold, silver and diamond traders - gold refineries and jewelry workshop units; and the DGCX will trade much more than gold futures.

This growing complex of buildings is beginning to rise opposite the Dubai Marina in the Jumeirah Lake Towers district of New Dubai. At present operations are scattered in different buildings across Dubai, until this impressive real estate is ready, and around 600 companies have signed up as members of the DMCC.

DIFC signs 100 firms

Meanwhile, the Dubai International Financial Centre, home of the Dubai International Financial Exchange, has registered more than 100 firms and is still signing up banks like HSBC.

The one-day DIFX conference organized by Euromoney this week gave an insight into the functioning of the exchange, which is radically different to anything available in the Middle East.

The important features of the DIFX are: independent regulation to global standards; the ability to float 25% of a company rather than the usual GCC standard 55%; pricing of share issues via a book-making process by international banks; and a 12-month minimum lock-up period for founder shareholders.

Officials say they have half-a-dozen listings on the stocks for the first quarter of 2006, and hope to have 10-15 listed companies by the end of that year. With global banks like Credit Suisse, UBS, Deutsche Bank and HSBC calling the shots this is no idle boast.

One thing could still threaten to derail this party, and that is a correction on the local Dubai Financial Market, which would impact on confidence in its sister exchange.

At the very least this would seriously disrupt what already looks an ambitious timetable. But then again who is to say that the tide of liquidity in the DFM will not support its generous valuations for some while longer.

Mopping up liquidity

For the Middle East currently awash with oil liquidity, the idea of creating a new exchange to funnel money into companies with financials and governance that stand up to international audit standards looks a brilliant one. It will truly raise the bar on standards to world-class levels, and be as much an instrument of economic reform as investment.

Thus Dubai has launched two bold initiatives, well-timed to capitalize on the liquidity of the region, and with internationally trained staff in the driving seat it can only be a matter of time before the emirate has two new thriving international capital markets.