In accordance with  Dubai Financial Services Authority (DFSA)  Authorised Market Institution regulation and the Articles of Association,  a sufficient number of Board members should  be  Independent Non-Executive Directors.  The Non-Executive Directors, four of whom are Independent, bring wide and varied commercial experience to the deliberations of the Board and its Committees.

An assessment of Directors’ independence is carried out on an ongoing basis and at appointment for new Directors. Each Director discloses their status i.e. independent or connected and has the opportunity to disclose changes in external directorships and other potential conflicts of interest. The Board ensures that there are sufficient number of Independent members at all times. The assessment was reviewed by the Nomination and Remuneration Committee and its recommendations were made to the Board for its approval.

A third of the Non-Executive Directors are subject to annual re-election by the shareholders at the Annual General Meeting.  In relation to Board remuneration, they receive an annual retainer together with meeting attendance fees for Board and, where applicable, Committee meetings.

Board Committees play an important role in the governance process and assist the Board in discharging its duties. 

The standing Committees of the Board include: the Audit and Risk Management Committee, the Market Oversight Committee and the Nomination and Remuneration Committee. The Chair of each Committee reports to the Board on actions taken at each meeting. Each Committee has the authority to retain independent advisers. Each Committee has its own Charter, providing written terms of reference that define its authorities, duties and membership.  In line with good practice, membership of the Committees is entirely non-executive and the majority are independent Directors.

AUDIT AND RISK MANAGEMENT COMMITTEE

The Audit and Risk Management Committee is chaired by Jamal Nasser Lootah. The other members are Abdul Wahed Al Fahim and George Möller. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent and objective oversight of internal control and risk management, internal compliance, governance issues, financial reporting, external and internal auditors and financial controls.

During the year, the Committee met on 4 occasions.  The Committee reviewed the annual budget, regular finance reports and the annual financial statements. The Committee recommended the annual budget and the annual financial statements to the Board for approval. The Committee meets with the independent auditors, PricewaterhouseCoopers, to consider the results of the annual audit and to review the annual financial statements.

The Committee received the risk management reports from the Head of Market Operations and Risk and reviewed and approved the Money Laundering Reporting Officer’s annual report. The Committee reviewed and approved the procedure for setting margin rates for equity futures. The Committee reviewed and recommended for Board approval the update to the Risk Management Policy and Record Retention Policy.

The Internal Audit function, which is provided by Dubai Financial Market, met regularly with the Committee which received the Annual Internal Audit Plan, progress on Internal Audit together with the Internal Audit reports following the completion of each audit. 

MARKET OVERSIGHT COMMITTEE

The Market Oversight Committee is chaired by George Möller. The other members are Abdul Wahed Al Fahim and Edward Knight. The company secretary acts as secretary to the Committee. The Committee is responsible for the independent oversight of Market Regulation which includes Issuer Surveillance, Anti Money Laundering & Compliance and Market Surveillance functions. It also supervises the regulatory functions carried out by other areas of Nasdaq Dubai, including the application of the exchange’s Rules, Members' conduct of business and the clearing and settlement function.

During the year, the Committee met on 4 occasions.  The Committee met on each occasion with Market Regulation and received updates on regulatory and compliance matters, including feedback on regular meetings with the DFSA.   The Committee also received reports on any market incidents as part of its regulatory oversight function. The Committee reviewed and recommended for Board approval the extension of term of Practitioner Committee members.  The Committee discussed and received updates on the application for CCP recognition to the European Securities and Markets Authority and various Jurisdictional Assessments.  The Committee received the annual audit report for the Nasdaq Dubai Company Announcements and News Disclosure System. The Committee reviewed the annual budget and resources for Market Regulation. 

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee is chaired by Rashid Al Shamsi. The other members are Abdul Wahed Al Fahim and Jamal Nasser Lootah. The company secretary acts as secretary to the Committee. The Committee is responsible for new appointments to the Board, succession planning for the Board and executive management, and reviewing the independence of Directors. It is also responsible for recommending Non-Executive Directors remuneration for Board approval, approving performance measures and target setting for the Chief Executive, service agreements for Non-Executive Directors and broad policies and programs for employee benefits.

During the year, the Committee met on 4 occasions. The Committee reviewed and recommended for Board approval amendments to the Human Capital Policy and program for employee benefits. It reviewed Director Independence, the Human Capital annual budget and set the targets and objectives for the Chief Executive.  The Committee received regular reports from Human Capital on key matters.

Internal control aims to ensure that processes are in place to achieve a company’s business objectives. Internal audit provides assurances that these processes and controls are effective and being complied with. Through risk management, the company is able to identify, understand and manage risks to the business by reducing the probability that those corporate objectives are jeopardised by unforeseen events.

INTERNAL CONTROL

The Board has overall responsibility for ensuring that Management maintains an effective system of internal control and for reviewing its effectiveness. Such a system is designed to support the identification and management of risks affecting Nasdaq Dubai and the business environment in which it operates. Nasdaq Dubai operates a system of internal control which provides reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the exchange. The Board, through the Audit and Risk Management Committee, regularly reviews these processes. The effectiveness of controls is periodically reviewed within the business areas. Regular reports are made to the Audit and Risk Management Committee by Management, Internal Audit, Head of Risk Management, Head of Compliance and legal functions covering matters such as financial controls, compliance and operational controls. The Audit and Risk Management Committee monitors resolution of any identified control issues of significance through to a satisfactory conclusion.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. In accordance with International Financial Reporting Standards (IFRS), the internal control over financial reporting is a process designed under the supervision of the Chief Executive and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.

Nasdaq Dubai’s internal control over financial reporting includes policies and procedures to provide for the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of Management and the Board; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Management assesses the effectiveness of internal controls to satisfy itself that the processes followed are effective. The system of internal financial and operational controls is also subject to regulatory oversight by the DFSA.

INTERNAL AUDIT

The purpose of the Internal Audit function is to assist the Board and Management in the effective discharge of their fiduciary and administrative responsibilities by providing independent, objective assurance and consulting services with respect to evaluating risk management, control, and governance process. To ensure independence and objectivity, Internal Audit reports directly to the Audit and Risk Management Committee. The Internal Audit function adopts standards issued by the Institute of Internal Audit (IIA). Internal Audit services are provided by Dubai Financial Market which follows a risk based audit approach. An annual risk based internal audit plan is prepared based on risk factors and input from Management and other stakeholders. The audit plan is both inclusive and exclusive meaning that all key areas subject to high risk are included in the plan while the non-priority and low risk areas are excluded. During the planning process key business areas and operational risks are identified, compiled, risk rated and ranked to draw a final risk assessed audit scope of work that factors in high and medium risk areas. The audit plan, submitted to the Audit and Risk Management Committee for approval, provides information about the risk assessment, the current order of priority of audit projects and how they are to be carried out. The audit plan outlines the key departments, activities and processes to audit together with an estimate of resource requirements, and estimated start dates and completion timelines. The Internal Audit submits regular activity reports to the Audit and Risk Management Committee and Management summarizing the results of the audit work including significant risk exposures and control issues and follow up on the issues raised in the audit report. Internal Audit liaises regularly with internal stakeholders to maintain and uphold communication and relationship to a high level. The key internal stakeholders include legal and compliance, company secretariat and risk management functions.

RISK MANAGEMENT

Risk management is a systematic and continuous process which aims to identify, evaluate, manage, control and report significant risks to which Nasdaq Dubai may be exposed. The Board has overall responsibility for the risk management framework and for ensuring that management maintains an adequate system of internal control appropriate for the Group’s business and the risks to which it is exposed. The Audit Committee and the Risk Committee assist the Board in discharging this responsibility by reviewing and assessing the Group’s risk framework, systems of internal controls and risk management process and for determining compliance with the DFSA Rules on Risk Management.

Nasdaq Dubai’s Management has day today responsibility for: (i) identifying risks and assessing them in relation to Nasdaq Dubai’ s strategies and objectives, (ii) implementing suitable risk mitigation plans, processes and controls and (iii) appropriately managing risks in a manner that complies with the DFSA Rules and serves the best interests of Nasdaq Dubai, its stockholders and other stakeholders. Nasdaq Dubai regularly reviews risks for materiality and refers significant risks to the Audit Committee and the Risk Committee.

The Risk Officer oversees the implementation of the Risk Management Framework (RMF). The RMF consists of three components:

1. Risk Policy (the ‘Policy’) – a statement of the overall intentions and direction of Nasdaq Dubai related to risk management in accordance with a defined set of principles;
2. Risk Plan (the ‘Plan’) - which include relationships, accountabilities, resources, risk measurement guidelines, processes and activities which provides details and direction to ensure that the objectives of the Policy are met; and
3. Risk Procedures (the ‘Procedures’) - which include risk registers, detailed processes and practices at a departmental level

The Policy and Plan are approved by the Nasdaq Dubai Audit & Risk Management Committee (ARMC) and overseen by the Nasdaq Dubai Risk Officer, who has been assessed by the DFSA.  In development of this Policy, Nasdaq Dubai is mindful of the requirements of Chapter 5 of the Authorised Market Institution’s Module of the DFSA Rules, the ISOCO Principle 3: Framework for the comprehensive management of risks within the  ‘Principles for Financial Market Infrastructures (“FMI”) – April 2012’ which states ‘An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks’. 

The Policy Objectives are:

1. To confirm and communicate Nasdaq Dubai’s commitment to risk management to assist in achieving its strategic and operational goals and objectives.
2. To formalise and communicate a consistent approach to managing risk for all Exchange activities and to establish a reporting protocol.
3. To assign accountability to all staff and encourage the proactive management of risks within their areas of control. To provide a commitment to staff that risk management is a core management capability.

Procedures are developed at departmental level to ensure compliance with the Policy and Plan and consist of documented stand-alone processes or specific actions embedded into existing operational processes. The functions and systems for internal control and internal audit are part of the overall risk management process.

Nasdaq Dubai’s Exchange, Clearing and Central Securities Depository operations place significant emphasis on managing risk, including business continuity and default management. Nasdaq Dubai’s RMF is subject to specific regulation and supervision by the DFSA. In operating a Clearing House Nasdaq Dubai acts as the Central Counterparty (CCP) to transactions executed on the Exchange between Member firms. As a CCP, Nasdaq Dubai is exposed to various clearing related risks, including Counterparty Risk, Credit Risk and Liquidity Risk. The Head of Market Operations, in consultation with the Risk Officer, is responsible for implementing the Board’s strategy for monitoring, managing and mitigating these risks.  One primary risk management tool is the requirement placed on Clearing Members to provide margin payments and collateral to Nasdaq Dubai in accordance its Business Rules. In addition to the collateralisation of obligations, other risk management tools adopted by the Board include rigorous Clearing Membership standards, dedicated clearing capital, netting arrangements and advanced risk management monitoring techniques.

Corporate responsibility has become embedded in the mainstream of corporate governance thinking.  Nasdaq Dubai is committed to the highest ethical standards of professional conduct and integrity. In order to meet this objective, employees are required to comply with the spirit and letter of the company’s Code of Ethics and Conduct.  All employees receive annual training to support this objective.

Due to the nature of its business, Nasdaq Dubai does not have a high environmental impact. Its principal impact arises from energy, paper and water consumption. In an effort to responsibly manage this impact, we encourage a reduction in energy wastage and there is a focus on recycling.

In order to take advantage of technology and the benefits of the internet, Nasdaq Dubai continues to publish its Annual Review online. This provides convenient access to information about the Company and reduces our consumption of paper in line with our corporate responsibilities.