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Establishment of the Exchange-Traded Fund in the UAE

The ability of the Exchange-Traded Fund (ETF) to offer tax advantages and flexibility while fusing the simplicity of stock trading with the diversity of conventional equity investments has made it increasingly popular in recent years. This is especially true in the United Arab Emirates, where attempts to enhance the country's status as a major global financial hub are primarily focused on financial development and innovation.

This article will examine the characteristics of ETFs in the context of the UAE's financial markets, emphasizing their unique role and contribution to the region's thriving economy. We'll examine the current condition of affairs, the regulatory environment, the growth and administration processes, market trends, and the near future. The analysis of potential for both local and foreign investors will focus on the assessment of ETF prospects and obstacles in the Emirates.

Key aspects of ETF

An ETF is a type of investment fund whose shares are exchanged on the stock exchange in the same manner that traditional stocks are.

Unlike conventional mutual funds, which are valued at the end of the day, ETFs allow investors to buy and sell equities at the current market price in real time. As a consequence, the ETF has unique properties that combine characteristics of traditional funds and shares.

Key characteristics of exchange-traded index funds include:

  • Liquidity. ETFs offer great liquidity because they trade on the stock exchange. This allows investors to simply enter into or exit trades at any time during the day, unlike mutual funds, which can only be traded daily at their net asset value (NAV).
  • Diversification. Using ETF for diversification is a successful technique for those looking to expand their investing portfolio with little effort. Investing in an ETF, which allows you to invest in a range of assets at the same time, including stocks, bonds, and commodities, may help spread risk and perhaps improve the performance of your investment portfolio.
  • Transparency. The ETF has an exceptional level of openness, as they provide daily details about their holdings, providing investors with transparency and a clear knowledge of the assets they are investing in, compared to other forms of funds, where the portfolio's specifics might not be as obvious.

ETFs hold a prominent place in the world economy, providing access to a diverse range of industries and assets for investors of all sizes. These instruments have simplified the investment process, allowing both large and small market players to obtain shares in a variety of financial assets at minimal cost. As a result, the ETF has considerably improved portfolio management and investing by making investment options more transparent and accessible to a broader variety of customers.

ETFs also allow fund managers to be creative in meeting the diverse requirements of depositors and investors, which helps to progress the financial sector. As a result, funds that prioritize sustainability, social responsibility, and cutting-edge technology have emerged, aiding in the spread of these important themes throughout the investment community.

Emirates stock exchanges as of right now

As a prominent finance hub in the Middle East, the UAE offers a contemporary platform for securities trading, including those involving ETFs. The UAE stock markets are well-known for having a number of major exchanges that contribute to the region's economic growth while also providing a trading platform for a wide range of financial products.

Dubai Financial Market (DFM)

Since its founding in 2000, DFM has made a name for itself as the first exchange in the area dedicated to trading shares of foreign and local companies in compliance with Islamic finance guidelines. DFM is renowned for its strict corporate governance guidelines and openness. A vast array of financial products, such as equities, bonds, different funds, and derivatives, are covered by the DFM trade list. DFM is notable for its proactive efforts to develop the capital market in the area and draw in outside capital. Among other things, DFM provides an ETF that makes a multitude of investing options easy to access.

Abu Dhabi Securities Exchange (ADX)

The Abu Dhabi Securities Market, the country's second-biggest market, was created in 2000 and has since expanded to play an important role in the UAE's economic development. With its extensive selection of trading possibilities, which include equities, bonds, and ETFs, ADX helps the Emirates' financial system grow sustainably by integrating cutting-edge technologies and strengthening its regulatory structure.  The formal listing of an ETF on the ADX in the Emirates expanded investors' chances to diversify and invest in many areas of the UAE economy.

The Nasdaq in Dubai

Nasdaq Dubai, founded in 2005 as the Dubai International Financial Exchange (DIFX), holds a unique place in the realm of finance through the integration of eastern and western capital markets. The platform focuses on worldwide investment and offers a comprehensive choice of financial assets such as equities, bonds, and derivatives. Nasdaq Dubai's particular worth originates from its capacity to attract international investment while also providing global firms with access to Middle Eastern markets. The inclusion of an ETF to this platform has broadened the options for investors looking to participate in the regional economy with transparent and liquid funds.

The impact of stock exchanges and ETFs on the UAE economy

The Arab Emirates' economy benefits greatly from the stock market and ETFs, which encourage stability, development, and innovation. We shall now examine this contribution and its relevance to the nation's economy.

Supporting economic growth

The stock market in the UAE is a major source of finance for both the governmental and private sectors. Businesses use the market to raise capital through bond and equity offerings, which enables them to develop, grow, and become more competitive. Consequently, this fosters economic expansion, generates employment opportunities, and boosts national corporate and tax earnings.

Investment capacity building

Foreign investors are increasingly interested in the UAE as a result of stock market changes and the availability of ETFs. Investing in the Arab economy may be done successfully through investment funds registered on Arab markets, which offer access to a varied variety of assets. This broadens the market's scope and accessibility while attracting foreign investment, ensuring the market's stability and vitality.

Development of an innovative economy

Exchange-traded investment funds have a role in the development of an innovative economy in the United Arab Emirates. They support enterprises that develop advanced technologies, renewable energy and other promising activities, thereby stimulating innovation and growing innovative sectors. ETFs that focus on startups or innovative industries in the UAE might raise more capital and increase the visibility of these businesses among investors.

Strengthening financial stability

The adoption of ETFs helped the UAE's financial stability. These investment methods mitigate systemic risk by dispersing portfolio hazards. A solid stock market platform also makes it simpler to control credit risk and liquidity, both of which are critical to the health of the country's financial system.

Promoting international integration

The UAE economy's globalization is heavily based on stock markets and ETFs, which facilitate communication between overseas investors and the Emirates. This strengthens international economic ties by stimulating global trade and investment. Thus, not only promoting economic development, but also highlighting the UAE's significance as a major international financial hub.

The United Arab Emirates' ETF legal framework

The regulatory framework in the United Arab Emirates that governs the operation of ETFs is composed of federal laws, guidelines, and regulations that were designed to oversee financial markets, including the ETF market. The goal of these rules is to give all market players access to an open, equitable, and stable environment.

Main legislative and regulatory documents

  • Federal Securities Markets Act. This law establishes a general legal framework for securities transactions, including the operation of exchange-traded investment funds in the UAE. It defines the basic rights and obligations of market participants, as well as the powers of regulators in this field.
  • Rules and regulations of the UAE Securities and Commodity Exchanges Commission (SCA). SCA is a key regulator of the securities market and issues detailed rules and guidelines on various aspects of ETF operations in the Arab Emirates, including establishment, management, listing and trading.
  • Regulations of the UAE Central Bank. While the Central Bank’s main role is to regulate the banking system, its regulations may also affect dealings with Emirate ETFs, particularly in relation to risk management and liquidity needs.
  • Rules for listing and trading on the UAE stock exchange. To be eligible to bid, ETFs in the UAE must follow the listing and trading requirements of stock exchanges such as DFM and ADX. These regulations might include requirements for regular reporting, disclosure, and minimum size.

Key aspects of legislation

Licensing and oversight

An SCA license or a license from another appropriate regulator is required in order to operate and manage ETFs in the UAE. When it comes to corporate governance, risk management, and investor protection, among other areas, the regulators oversee the ETF's operations by verifying compliance with applicable laws.

Data disclosure

The United Arab Emirates ETF must maintain transparency by disclosing its performance, asset values, investment techniques, and portfolio composition. This involves providing financial reports on a regular basis and revealing the NAV daily.

Investor protection

The UAE's law is geared on preserving investors' rights. Regulatory measures are designed to safeguard the integrity, transparency, and safety of transactions involving exchange-traded index funds, as well as to keep the financial market free of fraud and bad faith. Risk management and corporate policy practices are intended to reduce possible hazards to depositors. The primary goal of investment fund managers is to safeguard investors' interests by delivering relevant and confirmed data required for smart investment decisions.

Procedure for creating index ETFs in the UAE

Establishment of an ETF in the United Arab Emirates is a multifaceted procedure that involves a number of crucial elements, ranging from rigorous registration and market launch to strategic planning and precise design. This multistep procedure necessitates communication with key financial and regulatory agencies in the UAE, as well as a thorough grasp of the country's market circumstances and legislative framework.

Stage 1. Planning

  • Developing investment objectives and ways to achieve them. The first stage in establishing an ETF in the United Arab Emirates is to determine the fund's strategic direction and investing goals. This comprises choosing which assets to invest in, identifying potential investors and target markets, and developing a particular trading offer.
  • Market evaluation. Thorough market analysis must be conducted in order to evaluate the need for the new ETF, examine the competition, and research regulatory requirements.
  • Investment policy development. The final stage of planning involves the creation of a detailed description of the fund’s investment policy, covering investment objectives, portfolio management techniques, risk management strategies and investment asset selection approaches.

Stage 2. Development

  • Manager selection. It is necessary to choose an operational entity and investment manager with a license issued by the UAE regulatory body and relevant expertise.
  • The establishment of a legal structure. In the United Arab Emirates, ETFs must be registered as legal entities. This may be a mutual fund or a company formed particularly to handle ETFs.
  • Documentation: all necessary documentation, including the ETF's prospectus, management agreement and other regulatory documents, must be prepared and available.

Step 3. Registration

  • Application to regulatory authorities. After preparing the necessary documentation, the investment manager applies to the UAE Securities and Commodities Commission or other appropriate body for registration of the ETF.
  • Review of regulations. Regulatory agencies assess the application for compliance and examine the investment plan, governance framework, and hazards. This process may include requests for further information and adjustments.
  • Acquiring a license and permission. The United Arab Emirates gets regulatory permission and an operating license after clearing the ETF evaluation.

Step 4. Launch

  • Preparing for a transaction. ETFs that wish to allow share trading in stock exchange funds may only be included on stock markets in the United Arab Emirates, such as ADX or DFM.
  • Advertising and promoting. To draw investors' attention to the new ETF, the managing business employs a marketing plan that includes informative seminars, promotion, and engagement with financial experts both before and after the introduction.
  • Start of the trading session. Once all relevant approvals and processes have been completed, an exchange-listed fund in the United Arab Emirates begins trading on the specified stock market and becomes publicly available.

Creating ETFs in the United Arab Emirates needs precise planning, great attention to detail, and scrupulous respect to legal obligations. The approach assures that the ETF will follow tight requirements for safety, clarity, and management effectiveness, therefore protecting investors' interests.

Necessary papers for launching ETFs in the UAE

The effective launch of the ETF in the UAE requires the preparation and submission of a set of documents to regulatory organizations. This process comprises a thorough examination of the fund's design, objectives, management methods, and compliance with legal and regulatory requirements.

Following is a list of relevant papers for ETF registration and launch in the Emirates:

  1. Application for registration. Basic information about the fund and management company is presented in a statutory form issued by the regulator.
  2. Constituent documents
    • A fund charter is a written declaration that encompasses the name of an ETF, its aims, and participant rights and duties.
    • Trust agreement: outlines the trustee's duties and obligations, including the rules and conditions for managing the ETF's assets.
  3. Contributors can obtain current and thorough information on ETFs from the prospectus, which covers topics such as fund structure, investing strategies, potential risks, earnings, and expenses.
  4. The UAE registration certificate.
  5. Contracts with service suppliers:
    • The parameters of the ETF's holdings and the custodian's obligations are outlined in the custodian agreement.
    • The steps involved in performing an audit of the ETF's financial statements are outlined in the auditor agreement.
  6. Marketing materials, like description of strategies and channels for promoting ETFs among the target audience.
  7. Disclosure policy describes an approach to ensuring transparency and efficiency in presenting information to investors.
  8. Risk management procedures go into detail about the methods used to recognize, evaluate, and manage risks associated with ETF operations.

These documents serve as the foundation for developing confidence between the ETF and prospective investors, while also ensuring that the fund follows UAE-specific regulatory regulations. To ensure that the ETF functions properly and expands in the market, every document must be properly written and precisely represent the fund's investment, operational, and regulatory framework.

ETF Benefits for UAE Investors

ETF investments provide investors in the United Arab Emirates with a number of benefits, including individuals and large institutions. These funds serve as the perfect tool for putting a range of financial concepts into practice through their diversification, resilience and cost-effectiveness.

Accessible resources of different types

The Emirates ETF allows quick access to a variety of assets, including equities, bonds, currencies, commodity markets, as well as specific sectors and regions. Investors can exploit this diverse chance to create portfolios that consider both regional and global economic trends.

High liquidity and versatility.

The ETF, registered on the stock exchange, provides investors in the Emirates with unprecedented liquidity, enabling them to transact with the fund's shares on the basis of current market quotes at any time of day. In a dynamic market, this kind of flexibility is crucial because it enables investors to respond rapidly to developments in the economy and market.

Cost savings

Emirate ETFs vary from typical mutual funds by reduced operating costs and commissions, thus providing enhanced conditions for investing. By cutting expenses, this feature raises the possibility of larger net returns for investors.

Data openness

The UAE-based ETF is notable for its operational transparency, as seen by its consistent release of information regarding the asset allocation of its portfolio. This transparency helps investors better grasp opportunities and possible risks by enabling them to have a comprehensive understanding of their investments.

Tax optimization

Investors can benefit from a favorable tax structure when they engage in ETFs in the United Arab Emirates. While individual gains may differ, ETFs are generally the better option when it comes to lowering tax deductions.

Access to highly developed and specialized industries

Access to cutting-edge and niche industries, such as Islamic finance, high technology, renewable energy, and health, is made feasible by investing through ETFs in the UAE. This improves investors' investment opportunities by giving them a unique opportunity to participate in the growth of these sectors.

Strategic opportunities through ETFs

Investors in the Emirates can benefit from a number of investing techniques via exchange-traded funds, which provide opportunities for long-term investment, speculation, and hedging. Because of their adaptability and diversity, ETFs may be an effective tool for achieving certain investment goals and desires.

The stock exchange index fund industry in the UAE has lately seen significant developments and robust growth as a result of increased interest from both domestic and overseas investors.

Investment products that are flexible, transparent and have wide access to assets stimulate this growth. Product innovation and increased access to ETF are predicted to further increase their popularity. The emergence of cutting-edge technology like artificial intelligence and blockchain, foreshadows an increased interest in these tools, making them considerably more alluring as an investment.

What makes the IQ Decision unique in the industry is providing high-quality advice and assistance along the entire creating exchange index funds within the Emirates. With a thorough grasp of all regulatory criteria and extensive experience in the financial sector, the organization provides dependable assistance from the period of preparation leading up to an ETF's release and market launch. The dedication to professionalism and quality ensures that customers receive a complete service that helps them achieve their financial objectives and plans.