Investors Cashing in on Middle East Forex Trade
With the rising tide of stricter regulation in traditional financial centers, more investors from around the world are now using the Middle East to trade in foreign currencies and commodities. A number of players are also jumping on the opportunities brought on by regional investors seeking higher returns amid a lackluster performance in equity and fixed-income markets.
"This is what we are offering. Early hours of liquidity, high level of technology, time to spend on our clients. We are strictly focused in giving a good price, a good service to our clients," Phillippe Ghanem, Vice Chairman and Managing Director of ADS Securities, told CNBC's "Access: Middle East." in an exclusive interview.
It is that link that more operations are gambling on, providing a bridge between global trading cycles. Although still representing a small slice of the global forex pie of close $5 trillion per day, the numbers are picking up.
"Back in 2005 there were 20,000 users and if you look at the figure today, it's in excess of about 200-250,000," Gaurav Kashyap, Head of Dealing at Alpari ME DMCC, explained to CNBC.
The trades are not centered on Middle East currencies, where in most cases the peg offers a narrow playing field. In line with the region's abundance of crude, the oil contract was proving to be among the most popular instruments.
"We are seeing evidence that the volumes are increasing in terms of currency futures in Euro, in Indian Rupee and also in gold which has some good volatility this year," Paul Hayward, Managing Director of OANDA Middle East, told CNBC.
Despite only being two years old, ADS Securities has global ambitions. The company does not publish financial statements, but Ghanem revealed to CNBC that the company was already profitable. The current deposit base was in the vicinity of $200-300 million from clients ranging from sovereign wealth funds to central banks.
"We are talking about $20 -25 billion per day if I was to go full blast in terms of volume", he said. That figure represents the group's trading objective for next year. It is currently trading between $3 and $5.5 billion per day but is bringing in new technology and plans to launch its own platform in the second quarter of 2013.
In a global context, the comparatively low number does not worry Ghanem. The ultimate goal, he pointed out, was to "build a price for Abu Dhabi".
Kashyap was also "very, very optimistic" about future targets, deeming the region among the most important in the firm's global presence. The ease of moving cash in and out of the United Arab Emirates was proving especially conducive to boosting liquidity.
Being based in the oil-rich Emirate quickly raises the question about the possible role of the country's powerful sovereign wealth funds. ADS Securities claims to have sovereign wealth funds as part of its clientele, but denied any preferential treatment.
"Doesn't work like that…favoritism? We don't have that, it's not business," Ghanem maintained.
Clients come from around the globe, with varying demands when it comes to technology, price and regulatory compliance. And political risks appear to be less of a concern. In that respect, Ghanem sees no difference between Abu Dhabi and Switzerland.
"I'm dealing with volume-driven market. I'm not a construction company and volume is there, so clients are there", Ghanem described.
"You know Dubai and Abu Dhabi are particularly known as very strong financial centers. They seem to be somewhat immune from the difficulties other countries are facing within that region," Hayward added.
For Ghanem, taking on other financial centers, be it world-leading ones or regional pretenders such as Dubai and Doha, was not the point.
"We do not want to be a competition to the financial centers of London or New York. We are a continuation and we need them, they will need us in terms of continuity".
This week on "Access: Middle East": An exclusive interview with Philippe Ghanem, the Vice-Chairman and Managing Director of ADS Securities. Tune in to find out why he believes Abu Dhabi is a safe haven, and where he sees the global economy in 2013.
Yousef Gamal El-Din is CNBC's Middle East Correspondent and contributes to the channel's flagship shows, as well as analysis for CNBC.com.
Stay in touch with him on Twitter @youseftv