Brokerages collectively lost almost Dh10 million (US$ 2.7m) in the first quarter this year despite a recovery in volume of trading on the country's stock exchanges.

The losses were much reduced from last year's Dh77m but show brokerages are still struggling to shake off the effects of the market crash and collapse in volumes that followed the global financial crisis in 2008.

"The companies that are still operating are living on reserves, and those who will stay the longest are the ones with the biggest reserves," said Mohammed Ali Yasin, an independent analyst in Abu Dhabi. "As a business model, [the brokerage idea] doesn't work based on the figures from the past three years. People who have been longer know there's a cycle, but who has the patience?"

Net consolidated losses for brokerages in operation during the quarter narrowed 87 per cent to Dh9.9m, from Dh77m last year, according to financial statements posted on the regulator's website.

Traded value on the UAE bourses rose to Dh55 billion in the quarter, from Dh36.3bn a year earlier. At that rate, they would end the year at about Dh100bn. By comparison, in 2008 the bourses traded a combined value of Dh530bn.

Many brokerages borrowed heavily from banks during the days of easy credit before 2008, helping their customers to leverage positions on the market.

When those trades went sour during the markets' subsequent decline, the brokerages were not authorised to liquidate the positions, leaving many of them with loss-making trades and clients who could not pay back the loans.

Many brokerages continue to service these debts with the banks, draining cash from their businesses.

"Brokerages are still reeling from bad performing portfolios from customers in 2008, when they gave credit facilities," said Fathi ben Grira, the chief executive at Mena Corp Financial Services in Abu Dhabi.

"With no proper policies in place, they had to incur heavy financial costs to cover the overdrafts, which they had to repay to the banks."

The results coincided with news that another brokerage had closed its doors.

Arab German International Broker, based in Abu Dhabi, said it was closing yesterday, bringing the total number of brokerages left operating to 49, down from 64 a year ago. The number of brokerages has fallen by more than half since 2010.

"We have a saying in Arabic - the losses for today are better than the losses of tomorrow," said Eyad Najjar, a broker at Arab German. "It was a management decision, whether to continue operating in a difficult environment, when many brokerages are competing for market-share on commissions."

The brokerage, ranked number 38 by trading value last month, posted a quarterly loss of Dh1.07m, an improvement from a loss of Dh1.4m in the same period last year. The company is described as being "under permanent cancellation process" on the regulator's website.

There are 49 brokerages listed as "active" by the Emirates Securities and Commodities Authority (SCA), down from 103 in 2010. Of the 49, 27 posted losses in the quarter.

The Dubai Financial Market (DFM) General Index, the emirate's benchmark, has lost more than 80 per cent since hitting its peak in 2005. The Abu Dhabi Securities Exchange General Index has declined more than 60 per cent during the same period. But markets improved in the first quarter, with the DFM index up 22.9 per cent, entering a bull market. Abu Dhabi's index rose 6.5 per cent in the same period.

Only last month, Arab German was one of the first brokerages to be awarded margin trading licences after the regulator introduced new policies to mitigate risks for the industry.

Brokers said new rules introduced this year would help brokerages to avoid a similar fate in the next downward cycle.

The rules allow brokerage companies to offer one-for-one credit facilities to clients, with the requirement that the account needs to have liquid shares. When markets fall, brokerages now have the right to sell those shares immediately and protect their own capital and secure their position without waiting for approval from the client.

"My share as a broker will not be affected because I will be authorised by SCA to cover loss," Mr ben Grira said. "In the past we didn't have authority to sell."