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Dubai buys large stake in nasdaq { September 20 2007 }

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September 20, 2007
Dubai Buys Large Stake in Nasdaq

Borse Dubai agreed today to take a stake in the Nasdaq stock exchange and become the first government-controlled stock exchange of the Middle East to hold a significant stake in an American rival, a step that may stir political controversy in Washington.

In a complex four-way deal, Borse Dubai plans to take a 19.9 percent stake in Nasdaq and buy Nasdaq’s 28 percent stake in the London Stock Exchange. Dubai will in turn let Nasdaq buy OMX, the Stockholm-based stock exchange operator, over which the two have been locked in a six-week bidding war. In a separate statement, Qatar, which competes with Dubai as a financial center in the region, said it bought 20 percent of the London exchange but does not currently intend to make an offer.

The agreement allows Borse Dubai, the fastest-growing financial center in the Persian Gulf, to gain access to expertise for its one-month-old enterprise and help it develop into a capital market center in the developing world. For Nasdaq’s chief executive, Robert Greifeld, the deal means he can finally fulfill his goal of creating a more global stock exchange after he failed to combine with the London exchange in the past while the rival NYSE Group successfully merged with Euronext.

“Our primary objective is to build a world class, growth oriented exchange out of Dubai and to become the center for capital markets activities in the emerging markets,” Borse Dubai’s chairman, Essa Kazim, said in a statement today.

As part of the deal, Dubai would get two of the 16 board seats once Nasdaq merges with OMX and not more than 5 percent of voting rights. The deal, which would create a stock exchange operation spanning from America across Europe to the Middle East, is still subject to a long list of conditions and may attract political opposition in America.

Reports of a possible deal brought questions last night from lawmakers in Washington about potential compromises to security in the United States. The concerns were similar to those raised more than a year ago when another Dubai-owned company, DP World, tried to buy a company that managed port operations around the United States, and in 2005, when the Chinese oil company, Cnooc, tried to buy its American rival, Unocal. Both efforts were abandoned under pressure from Congress.

Dubai is the commercial and financial center of the United Arab Emirates on the Persian Gulf and has been cited as a transit point for money used to finance terrorism.

Senator Charles E. Schumer, Democrat of New York, who helped lead the opposition to Dubai’s investment in the American ports, said last night that the deal, which would make Dubai a major player in New York finance, would “raise serious questions that have to be answered.”

“Should any government own any part of a major U.S. stock exchange?” asked Mr. Schumer, who is on the banking and finance committees in the Senate and is the chairman of the joint House and Senate economic committee.

Stock markets around the world are combining or buying stakes in each other to meet clients’ demands to trade shares of companies anywhere, at a faster pace, across different asset classes and for less money. Combinations also help them save costs in an industry where the largest expense is developing the technology to run trading platforms.

But Nasdaq’s efforts to expand have been rebuffed. It bought a 30 percent share in the London Stock Exchange, but its hostile bids to take over the entire London operation were rejected.

Then in May, Nasdaq announced that it had reached agreement to buy the OMX Group for $3.7 billion. But in August, Borse Dubai, the parent company of the Dubai International Financial Exchange, which includes the former Dubai Financial Markets, came in with a higher bid.

Copyright 2007 The New York Times Company

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