Prop profile: Sunshine, no income tax – is Dubai the traders’ heaven?

Prop profile: Sunshine, no income tax – is Dubai the traders’ heaven?

Proprietary trading carries its own risks and rewards. But do the risks – and returns – look different from 31 floors up Dubai’s Jumeirah Lake Towers? Tom Osborn meets Middle Eastern trading arcade, the Dubai Professional Trading Group.

“For traders in London, I just don’t see the point,” says Ed Allington of Dubai Professional Trading Group. “You could be working in the sun for about the same cost.”

As many London prop traders scuttle to work under darkened, ominous April skies at 5am, they may be rent by more than a brief pang of jealousy. The view from Jumeirah Lake Towers, home of DPTG – “the first trading arcade in the Middle East”, as chairman James Hume (pictured below) claims – is breathtaking.

The prop shop’s recruitment strategy has been firmly geared towards the young elite of London’s trading desks, who are ready to up sticks and move to what remains the jewel in the Middle East’s crown.

“I’ve worked in a number of arcades,” says Allington, a veteran prop man and one of DPTG’s most experienced traders.. “If you walked into this office today, you could be walking into Marex or Elite in London. People like familiar surroundings.”

Use of the firm’s private swimming pool, squash court and gym certainly help in this regard. Stunning views over Dubai’s marina district are, however, anything but familiar. The group has 15 experienced traders, most of them with a background in the City. And until now, Dubai hasn’t been a difficult sell.

“It’s had a bit of a bad press lately, but it’s a wonderful place,” Hume insists. “It attracts the younger guys from trading desks in London, who want to have some fun.”

The firm offers a signing-on package, designed to cut through bureaucracy and help a trader acclimatise when he or she first moves to the country. From house hunting to school enrolment for children, the firm’s patented Total Assistance Programme aims to think of everything. “We do it all for them,” says Hume, a former treasurer of Bank of America’s international private bank and director of trading at BofA and Credit Suisse.

There is even a final list of dos and don’ts, prepared for traders upon arrival – worth bearing in mind for those who come seeking “Dubai’s tax-free status and stimulating lifestyle”, as the firm’s corporate brochure puts it.

For all its appeal to young, upwardly mobile City traders, this is still a religiously conservative country – certain beach-time activities remain a definite no-no.

Safe from the taxman

“I think Dubai’s a nice place to be,” Hume sums up. “We don’t have to get up at five o’clock for the opening of the European market.”

And, with no income tax, the wallet enjoys Dubai too. As Hume says: “It’s incredibly tax-efficient.”

Tax has become a sore point among City high-earners in the past couple of years. First the Labour government moved to crack down on the tax advantages enjoyed by private equity firms; then there was a windfall tax on banks’ 2009 bonus pools; and since April 6 there is a new 50% top rate of income tax for those earning more than £150,000. The Conservative Party, expected to win the May 6 general election, has not said it will repeal this tax.

“We’ve had a flurry of traders looking at leaving London after the new rate comes in,” says Allington

Dubai’s financial attractions go further. The firm’s website lists a monthly cost of living index versus the UK, seemingly designed to make a Surrey commuter weep: petrol, £165 cheaper; pizza delivery (10 times monthly), £32 cheaper...

A people business

DPTG’s business model is simple – providing a professional trading floor and training to attract and nurture talented traders who will rent desks at the firm.

Hume insists his focus is firmly on the long haul, not a quick profit. “We want to make sure we have good, long term ,” on board, he says.

They need to be good to make money – renting a trading desk costs $2,500 a month. Clearing costs depend on execution volumes.

Jamie Lear, the arcade’s chief risk officer and head of trading, explains: “These guys are self-employed – they’re self-backed and self-funded.”

What they get from DPTG is an escape from the isolation of trading on one’s own – some support, technical, administrative and psychological.

“They’re extremely well-funded,” Lear says, “ they like to be stopped out if they’re having a bad day – a cup of coffee, an arm around the shoulder.”

The asset classes traded at DPTG are as diverse as the traders themselves. “Everybody a lot of oil and gold, as you’d expect,” Hume says, “and a lot of equity derivatives of all kinds. We really don’t try and interfere with what people are trading, providing we’re aware of the risk. At any time, the doors are open. There’s always someone on the risk desk.”

This regional bias aside, the market picture is not a far cry from London. “Our biggest trader’s in oil,” Lear (pictured below) confirms. “ our traders cover virtually every market. You still get people hanging around till midnight, trading CBoT and CME.”

Allington agrees. “We’re in all the standard prop traders’ markets,” he says. “We trade Dax, S&P, Schatz, Bund, Bobl. We do a little bit of currency but mainly it’s bonds and US equity.”

Algo-free zone

Some might be surprised to find that algorithmic trading, hailed as the sharp end of the modern market by advocates but bemoaned by traditionalists as “not proper trading at all”, as one senior industry figure put it recently, does not feature highly at DPTG. “We’re all manual,” says Lear. “This is going back to the way things were before the algo boom.”

He adds: “People are very happy with the way things are... prop traders tend to be very conservative. It’s difficult to tell them to change once they’ve found something that works for them.”

In any case, argues Allington, the advantages of algorithmic trading are heavily skewed towards high volume institutional investors. “No one’s running a black box under their desk. Unless you’re a bank, it’s not worth fighting over that millisecond advantage.”

Shifting sands

And what of the competition? Is Hume not worried that, after he has put so much effort into attracting London’s young traders, they might simply up and leave to another start-up outfit?

“There are one or two little shops around,” he reveals. “I find it surprising we haven’t seen more opening.”

But he is not worried, he insists – mainly because barriers to entry in the emirate remain higher than in deregulated markets such as London. “It took us a year to get up and running, and that was with the government as a business partner,” he concedes. “It can be a logistical nightmare. I know there are a few people sniffing around, but no one genuinely comparable.”

“The government of Dubai has its own problems at the moment,” Hume adds, with a little understatement. October’s call for a standstill on property developer Nakheel’s $3.5bn sukuk shocked global capital markets, and thrust the country’s debt obligations into an unwelcome spotlight.

While its immediate sovereign crisis appears to have been taken care of by Abu Dhabi, the United Arab Emirates’ oil-rich sugar daddy, the country’s future looks a little more cloudy than it did when DPTG opened its doors in 2007.

As one wag pointed out rather unkindly last month, even the Burj Khalifa – the world’s new tallest building – had to shut its observation deck barely a month after opening, owing to maintenance problems.

Educating for the future

Hume, however, is undeterred. “We’re very much in expansion at the moment,” he says, arguing that investor education will be key to breaking the Middle Eastern market. “There’s a pretty low level of market expertise over here, mainly because Dubai is so new to these instruments.”

This is why training forms such a large part of DPTG’s work. “We started about five months ago,” Hume says. The firm has a development programme for retail investors and budding traders hoping to secure a place at the firm. “Now, we’re working on offering training to the people who need to understand trading,” Hume says.

And there is an ever-increasing focus on attracting local talent. “At least a third of our traders come from his region,” Allington says. “We’re putting a lot of effort into that. It’s the way things are going.”

In years to come, DPTG may no longer exist primarily as a haven for expats, but could grow into a centre for a new indigenous trading community.

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