Bad times for independent brokers

Many smaller brokerage firms in the UAE are being forced into lay offs, suspending their operations or shutting down altogether as things take a turn for the worse in the third quarter.

It's been a pretty grim year so far for the vast majority brokerage firms - just 13 of the 99 firms registered with the Dubai Financial Market and the 92 signed up to the Abu Dhabi Securities Exchange managing to post a profit in the first quarter. Higher trade volumes helped matters in Q2, but these have declined once gain since June.

"Though trade values improved during the second quarter this year compared with the fourth quarter of last year, revenues did not cover the operating costs of majority of the firms," Humam Al Shamaa, a financial consultant at Al Fajr Securities told Emirates Business 24/7.

One example is Amanah Financial Services, which has applied to the Emirates Securities and Commodities Authority (Esca) for permission to freeze its operations for a year.

Part of the problem is that these firms' profit margins are so small, with Esca rules stating that UAE firms are only allowed to charge 0.0015% in fees, which is one of the lowest rates in the Middle East.

Brokerages have been making redundancies since the beginning of the year, and more are expected over the next three months because of possible mergers, closures and suspensions.

But, Esca requires each company to have a minimum of four brokers, a trading manager, an operations manager, a general manager, a financial manager, a customer services division, researchers, analysts and support staff. They can only cut so much.

"Mergers are a good idea as several companies will be able to work with a limited capital requirement and a limited number of staff," Hosam Al Husseini, head of brokerage at Emaar Financial Services told the newspaper.