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$4bn Dubai bid for OMX part of a wider financial vision

United Arab Emirates: Thursday, September 13 - 2007 @ 14:20

Perhaps the OMX bid is best seen within the context of Dubai’s wider ambition to be the financial services hub of the Middle East.

This started with the creation of the Dubai International Financial Centre (DIFC) three years ago, a huge real estate development in the centre of Dubai with its own independent regulatory system.

With more than a hundred banks and financial services companies now located in the DIFC this has been a major success. Less successful has been the Dubai International Financial Exchange (DIFX), which launched just as the local Dubai Financial Market (DFM) crashed along with all the other Middle East bourses two years ago.

Last year the DIFX appointed a former long-serving chief executive officer of the OMX, Per Larsson as its CEO. It can hardly be a coincidence that Larsson is now leading a bid to buy his former stock exchange.

Buying financial credibility

However, Dubai has made a series of strategic purchases to further its ambition in the global financial world. Last year the emirate bought a 3.5 per cent stake in the Euronext exchange, and there have also been stakes acquired in Deutsche Bank, HSBC and Standard Chartered Bank.

Analysts say that the OMX takeover would establish Dubai as a force in global finance. There is also the matter of the operating technology of the OMX which could be transferred to the DIFX. The OMX has developed trading software used by over 60 stock exchanges around the world, including Dubai, and with that comes operating licence fees.

The DIFX has been slow to get off the ground, mainly because its huge launch ambitions were immediately frustrated by the collapse of the local DFM, which has yet to recover. Local investors are still nursing billions in losses from the DFM crash and have so far shown little interest in the DIFX.

Qatar, LSE bid

Dubai is also keen to keep ahead of Qatar, the gas-rich emirate now hoping to acquire a 31per cent stake in the London Stock Exchange. But there has been a spate of international exchange takeovers recently, with the New York Stock Exchange agreeing a merger with Euronext and Deutsche Borse taking over the International Securities Exchange.

Whether Dubai will succeed in its $4bn cash offer for OMX is unsure, and regulatory procedures may be compounded by further turbulence in global financial markets this autumn.

But ensuring that the DIFX emerges as a successful and liquid international market is a larger prize and the bid should be seen in the context of making a success of this project, and building up the financial services sector in Dubai.

For creating a vibrant regional financial services hub, like say Singapore or Hong Kong, is vital to the future of the emirate. Dubai would like to see its gleaming new towers full of high-spending financial services professionals, and is prepared to fork out a few billion on the OMX is that will help realise this ambition.

See also:
How will the GCC banks cope if the future is bleak?
Executive Interview: Shayne Nelson, Regional CEO, Standard Chartered Bank

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Thursday, September 13- 2007 @ 14:20 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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