Struggling UAE brokers under further pressure as Securities and Commodities Authority cuts commissions

The Securities and Commodities Authority (SCA) has announced a 17 per cent cut in the commission on share transactions paid to brokerages.

The regulator said an overhaul to the commission structure on share transactions, will lead to an increase in commissions paid to the regulator, while that paid to brokerages will decrease. Under the new regime, the SCA will receive a 0.05 per cent commission on each share transaction, compared with 0.025 per cent previously.

The increase in commission to the regulator will be funded by a reduction in the commission payable to brokers, which will fall by 17 per cent to 0.125 per cent from 0.15 per cent.

The new commission structure will come into place after the new regulations are published in the country’s official gazette. It is unclear as to when this is likely to happen.

Obaid Al Zaabi, SCA’s acting chief executive, said that the change was being introduced to encourage brokerage firms to develop into “full-fledged financial institutions”.

“After a decade of supporting brokerage firms, SCA believes that brokerage firms should upgrade to be full-fledged financial institutions, thus their major income should come from those professional services,” Mr Al Zaabi said in an email to Bloomberg, without providing further details.

The fall in commissions is likely to put further pressure on the UAE’s brokerages, which have suffered a drop in revenues as liquidity on local markets dries up in line with falling oil prices.

Trading volumes on the Abu Dhabi Securities Exchange dropped by more than 50 per cent last quarter compared with the same period in 2014, with volumes on the Dubai Financial Market falling by more than 40 per cent.

The fall in volumes, and therefore fees, has led to speculation that brokerage houses would shut up shop or merge with competitors to remain in business.

“We were operating close to a point where we could barely cover our expenses, and now they’re telling us they’re going to deduct even more money from us,” said one local broker, asking not to be named.

“We’ve told SCA that this is too much of a burden on us, but they tell us that there’s nothing that they can do about it.”

The 0.10 per cent payable to the stock market remains unchanged, as does the total 0.275 per cent commission paid on each transaction.

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