The Abu Dhabi Securities Exchange announces the commencement of the adoption of the FTSE Russell Sector Classification Reference Standard (ICB) for all listed equities. The new initiative is part of its comprehensive market strategy aimed at adopting leading global standards and attracting more international investors.
With this, the emirate joins the list of financial markets that use the FTSE Russell standard, such as the London Stock Exchange. The aim is now to bring more transparency and improve the accuracy of stock research. It also aims to support the management of institutional investors' portfolios and to refine asset allocation strategies.
The BCI system is a methodology based on a set of rules for classifying companies within their own sectors. This classification depends primarily on the nature of the companies' work and is determined by their main source of revenue.
Saeed al-Dhaheri, chief executive of the Abu Dhabi Securities Exchange, says the adoption of the FTSE Russell is one of the pillars of the comprehensive IDX One strategy, which confirms the "commitment to adopting better international standards" in his market.
In turn, it encourages the inclusion of products based on market indices and highlights the investment opportunities offered by the UAE market, which will attract more investment flows. The partnership between the two parties will support the financial derivatives market and pave the way for more index-based products to be launched.
FTSE Russell CEO Arne Stahl says: "The adoption of the Abu Dhabi Securities Exchange's benchmark standard of BCI sector classification will support market transparency and standards to meet the requirements of the global investment industry".
Al Arab reports that in November 2021, Abu Dhabi began trading the first financial derivatives in order to keep pace with similar global markets. These derivatives are contracts derived from the value of real financial assets, including gold, bonds or currencies.
They have a specific time period, as well as a specific price and conditions when the agreement between the seller and the buyer is formalised. Several economist market experts extol the trading and hedging opportunities offered to investors.
However, some see them as risky because they are not like any other security. They are more complex products and require a high level of knowledge of their potential uses, risks and benefits. One of the first financial markets in the Arab Gulf region to trade these instruments was the Tadawul Stock Exchange, the only one authorised to trade in Saudi Arabia.
Tadawul's decision marked the entry of the largest Arab economy into a more open phase in terms of strategic plans for capital market reform. Published data show that commercial stocks have experienced more than considerable growth.
Between 2020 and 2021, the market experienced a 407 per cent increase from Dh145 billion ($39.4 billion) to Dh739 billion ($200.1 billion). This was driven by high demand from local and international investors.
The value of shares listed on the Abu Dhabi Securities Exchange doubled to a record high of more than Dh1.6 trillion. And the institution's overall index achieved 64 per cent, making it one of the best performing stock indices over the past year.