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The Dubai International Financial Centre, commonly called the DIFC, has grown into one of the most prominent financial hubs in the Middle East, bridging global capital markets and the emerging economies of Asia and Africa. With an independent regulator, the Dubai Financial Services Authority, and an English common law framework, the DIFC has earned a reputation for balancing innovation with rigorous oversight. As financial technology evolves, more businesses are turning their attention to alternative trading systems (ATS) platforms, which can match buyers and sellers without functioning as a full exchange. In many regions, these platforms cater to institutional clients or specific asset classes, granting more flexibility than a conventional exchange. In the DIFC, the possibility of using ATS for security tokens or other advanced assets has further raised interest among market participants.
This article explores the fundamentals of setting up an alternative trading system in the DIFC, looking at how local rules define an ATS, how those rules interact with digital or tokenised assets, and why the centre’s environment stands out for global investors. We will also review the DFSA’s approach to classification of investments, examine the licensing process, and discuss the operational obligations for prospective operators. By the end, you should gain a clear sense of the steps and costs involved, plus why an alternative trading system in the DIFC can be a strategic choice for those seeking to serve clients across multiple markets.
Background and purpose of an ATS
An alternative trading system is usually a less regulated venue for matching large orders. In some jurisdictions, these systems are known as multilateral trading facilities (MTFs) or organised trading facilities (OTFs). Unlike a central exchange, which typically operates a central limit order book and might hold listing authority for public equities, an ATS focuses on matching trades among select participants, usually on a non-discretionary basis if it is an MTF, or on a discretionary basis if it is an OTF. Because of this narrower scope, ATS operators often handle institutional flows, let participants negotiate privately, or match orders using advanced algorithms.
In many global financial centres, ATS platforms serve a vital role by allowing participants to source liquidity in specialized or institutional markets. The DFSA, having introduced a digital assets regime, views ATS models as potentially useful for security token offerings, enabling both primary issuance and secondary trading in a regulated environment.
Defining an ATS under DFSA rules
According to DFSA criteria, an ATS is a system that facilitates the trading of securities or investments among participants without operating as a full-fledged exchange. In the DIFC, the DFSA recognises two main variations: MTFs (multilateral trading facilities) and OTFs (organised trading facilities). MTFs rely on non-discretionary rules, meaning trades are matched based on transparent guidelines, ensuring no participant receives preferential treatment. OTFs, in contrast, incorporate some discretion in how orders are executed.
In practice, an ATS can list and trade a broad range of securities, from company shares and warrants to derivatives, futures, and even crypto assets. The DFSA considers a token to be a security if it mirrors the rights and obligations typically conferred by shares, debentures, or futures. Under the digital assets regime, a “security token” might grant ownership rights akin to shares or profit-sharing similar to a bond, thus placing it within the regulatory perimeter for an ATS. Privacy tokens, fully anonymous transactions, or tokens with minimal claims on underlying assets will likely not qualify for ATS listing.
How security tokens fit into the mix
The DFSA’s digital assets regime addresses the concept of security tokens by applying the same or comparable rules as those for standard securities. If an operator wants to launch an ATS that focuses on digital securities, such as tokenised shares or tokenised debt, they must adhere to the guidelines for operating an ATS. This includes ensuring that tokens listed on the platform have legitimate underlying rights. For example, a security token that references equity in a real estate SPV must match the compliance levels of any other share-based instrument.
An ATS might facilitate both primary offerings, sometimes known as security token offerings (STOs), and subsequent trades. This dual capacity opens up new avenues for issuers to reach global investors while maintaining the trust that comes from a DFSA-regulated facility. Because the DFSA thoroughly checks an operator’s approach to anti-money laundering, technology architecture, and governance, participants can be more confident that they are not venturing into an unregulated or opaque marketplace. It is a novel development for the region, with many expecting the concept of token-based exchanges to expand significantly in the coming years.
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Regulatory approvals for an ATS in the DIFC
Any firm planning to operate an ATS in the DIFC must secure the relevant Category 4 licence from the DFSA. The category of licence depends on the highest risk activity the firm conducts. Firms that manage assets or hold client funds might require a different category, but an ATS typically falls under Category 4 if it does not provide clearing or settlement services. The base capital requirement for Category 4 stands at 10,000 US dollars, but because an ATS operator might hold or control client assets, the DFSA could apply higher expense-based calculations. Indeed, the DFSA sets the final capital figure by comparing base capital, risk-based capital, and expense-based capital, then selecting whichever is highest.
Operating an ATS is considered a regulated financial activity, so the applicant must go through the formal DFSA licensing procedure. This involves presenting a detailed regulatory business plan, clarifying the business model, technology stack, risk management protocols, and target client base. The DFSA reviews this plan over approximately 7–10 working days for completeness, then conducts a thorough assessment that can take between 90 to 120 days. During that phase, the DFSA will interview key personnel, from the senior executive officer to the compliance officer, verifying that they have the expertise and track record to oversee a trading facility. The applicant must also set up a legal entity in the DIFC, open a bank account, deposit the required capital, and complete other tasks such as designating auditors and finalising insurance.
Practical steps in licensing an ATS
Initial contact
The prospective operator has an introductory conversation with the DIFC and DFSA teams to confirm that the planned facility aligns with Category 4 licensing. If the operator wants to handle security tokens, that must be clarified.
Regulatory business plan
The operator crafts a thorough plan covering the types of assets traded, the technology used, the order matching mechanism (discretionary or non-discretionary), and how it meets the DFSA’s transparency and fairness requirements.
Application compilation
The operator compiles policies on AML, KYC, cybersecurity, corporate governance, plus details of the platform’s user interface and membership rules. KYC forms and CVs for senior staff must also be included.
DFSA review
After an initial completeness check, the DFSA undertakes a deep dive, posing queries about everything from system architecture to business continuity. The operator demonstrates the platform, showing how orders are matched, how data is recorded, and how potential manipulative practices are flagged.
In-principle approval
If the DFSA is satisfied, it grants conditional approval. The operator then forms a DIFC private company, opens a local bank account, deposits share capital (which can be around 140,000 US dollars for an ATS, though it might rise if expense-based capital is higher), and appoints auditors.
Final sign-off
Once these conditions are met, the DFSA issues the final licence, known as Financial Services Permission. The operator can then begin marketing and set up its physical offices, hiring staff in line with DFSA expectations.
"In DIFC, the DFSA licenses ATS platforms under a Category 4 licence, requiring a detailed application, a regulatory business plan, and robust governance."
Positions and minimum staff
The DFSA insists on certain key appointments, scaled to the nature of the ATS. Typically, the operator must have:
- A board of directors, with a non-executive chair ensuring unbiased oversight.
• A senior executive officer with over 10 years of sector experience who lives in the UAE.
• A finance officer, possibly outsourced, but recognized by the DFSA if the operator is a subsidiary of a larger group.
• A compliance officer to monitor adherence to DFSA rules. This person often doubles as the money-laundering reporting officer if suitably qualified. Both roles are typically resident in the UAE.
• A chief technology officer if the platform runs sophisticated DLT-based solutions. This role might also be integrated with risk management if the technology is advanced.
• Auditors, including an internal auditor for day-to-day checks (potentially outsourced) and an external auditor from a DFSA-approved list.
• An independent IT auditor, often with certifications like CISA or CISSP, to conduct annual reviews verifying that systems remain secure and robust.
Because an ATS can handle client money or assets, the DFSA takes a close look at operational readiness. The platform must separate client funds from the firm’s own, keep transparent ledgers, and implement thorough identity checks for participants. If the operator wants to open direct access for non-institutional participants, additional oversight applies, ensuring no one is exposed to risk beyond their financial sophistication.
Technical and governance obligations
An ATS that supports security token trading must adopt permissioned DLT protocols, disallowing purely anonymous transactions or privacy tokens. The DFSA wants to see how the system addresses chain forks, how it ensures user data is protected, and how order books are updated in near real time. Additionally, the ATS must integrate with a recognized clearinghouse for settlement, since the operator is not licensed to provide clearing directly. In the DIFC, Nasdaq Dubai is the main clearing entity, so the ATS often coordinates with them or a similar institution.
Annual IT audits by independent experts confirm that the platform’s code, architecture, and data storage remain consistent with best practices. Another essential piece is the price discovery process. The DFSA typically requires that an ATS not list investments referencing benchmarks from unverified or self-serving sources. Instead, it should rely on recognized data providers like Refinitiv or major price reporting agencies.
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Costs and timeline
Setting up an ATS in the DIFC has two main cost categories: DFSA licensing fees and DIFC corporate establishment fees. The DFSA imposes a 150,000 US dollar application fee for ATS licences, plus 100,000 per year for the licence itself. Direct access functionality adds another 10,000 per year, while a retail endorsement costs 20,000 as a one-time amount. For the corporate side, name reservation is about 8,000 US dollars, incorporating a private limited company is another 12,000, and data protection registration starts at 1,250.
Additionally, the ATS operator must lease an office in the DIFC. Options range from business centre desks at roughly 35,000 US dollars per year to fully fitted offices charging around 55 US dollars per square foot. Visas for employees cost about 1,500 each, plus deposits. The entire process, drafting the regulatory business plan, applying, securing in-principle approval, depositing share capital, and receiving final permission, commonly spans three to four months, assuming the operator addresses DFSA queries promptly.
Expanding beyond DIFC territory
A question arises about whether a DIFC-registered ATS can serve clients in the broader UAE or beyond. Law No. (5) of 2021 clarifies that DIFC entities may market services outside the free zone, provided the main business activity is based in the DIFC itself. Marketing across emirates is permissible, as is cross-border distribution, though separate licensing might be necessary in certain jurisdictions if the ATS actively targets overseas markets.
"A passporting regime can allow recognized funds in DIFC to approach investors in other free zones, such as ADGM, though ATS operators might need reciprocal or mutual agreements to do so seamlessly."
Outlook for future digital asset expansions
While the DFSA’s digital assets regime currently deals with security tokens, the second phase is expected to incorporate stablecoins, utility tokens, and exchange tokens. Many watchers believe this will further broaden ATS potential, letting platforms list a larger array of digital instruments. For now, operators must focus on security tokens that meet definitions akin to shares or bonds. But if the DFSA eventually includes exchange tokens or stablecoins, an ATS might handle a more robust crypto marketplace. This cross-pollination could attract additional global participants searching for regulated yet flexible venues to trade and issue token-based instruments.
Still, caution is important, since the DFSA expects real-time monitoring to detect potential fraud or manipulative schemes. Anonymous trading stands disallowed. The operator is accountable for ensuring that every participant is properly vetted, especially if the ATS offers direct market access to non-institutional traders. Over time, the synergy between advanced DLT solutions and the DFSA’s principle-based approach might position DIFC as a leading hub for regulated digital asset trading in the Middle East.
Conclusion
Setting up Alternative Trading System in the DIFC appeals to operators seeking a middle ground between a fully regulated exchange and a private matching service. Through Category 4 licensing, the DFSA allows these platforms to list and trade a wide spectrum of investments, from standard securities to digital security tokens, provided each instrument meets certain transparency and governance criteria. The DIFC environment adds value through zero taxes, recognized legal frameworks, robust infrastructure, and an investor-friendly time zone.
Though the path to licensing involves considerable detail, from drafting a regulatory business plan to passing IT audits, the rewards for success can be substantial. Operators can cater to institutional and possibly retail participants, offering primary issuance and secondary trading under the stable supervision of the DFSA. With digital assets on the rise, many see the ATS approach as a key to bridging conventional finance and blockchain-based innovation.
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Costs involve DFSA application and licence fees (e.g. USD 150,000 to apply, USD 100,000 annually), plus DIFC incorporation fees and office leasing within the centre
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The process typically spans several months, culminating in final DFSA approval once all capital, infrastructure, and staffing requirements are satisfied
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DIFC entities can also market services outside the centre, under certain conditions, enabling regional or global outreach for trading solutions
