Dubai: The Gulf’s derivatives market could potentially be worth around $250-$300 billion in five years, according to Arqaam Capital, a pioneer in derivative structuring, brokerage and trading in the region.Based in Dubai International Financial Centre (DIFC), Arqaam Capital started derivatives structuring and trading through its capital markets business.

The company intends to lead the way in making derivatives an integral part of GCC securities trading and set the yardstick for engineering financial derivatives in the GCC.

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Arqaam Capital estimates that the derivatives market in the GCC will reach around 25 per cent of the total trading volume of the regional stock markets over the medium term.

Based on this estimate, and an annual trading volume that reached around $1.4 trillion in 2007, the derivatives trading market in the GCC could potentially be worth around $250-$300 billion in five years.

“There is growing interest of foreign institutional investors on the GCC equity markets. While derivatives can offer market exposure to foreign investors in countries where there are restrictions on foreign investment, these products also offer effective hedging tools,” said Dennis Wismuller, chief operating officer of Arqaam.

Arqaam officials said there is growing demand for derivatives form regional institutions and high net worth investors from the Middle East either to diversify their portfolios or hedge against market volatilities.

Structured products

Currently, the firm is among the first regional financial institutions to issue, list and trade structured products on local underlying as a core business line.

On the equity and equity derivatives side, it is trading the cash markets as well as providing pricing and structuring on GCC stocks, listing Warrants, Exchange Traded Funds and Index-Trackers. The debt and credit derivatives business focuses largely on arranging funding for clients either via private placement or securitisations, as well as providing trading and risk management products.

“The derivatives market within the GCC is in its early stages of development but has the appetite to mature and develop, given the recent influx of international and regional players prepared to use derivatives products for investment and risk management purposes,” said Laurent Dambly, executive director-Capital Markets, at Arqaam Capital.