The board of directors of the United Arab Emirates Securities and Commodities Authority (SCA) has approved a market-maker regulation along with related regulations for securities lending and borrowing, short selling and liquidity.
The regulations were approved during a board of directors meeting, which was led by SCA board chairman and the UAE’s minister of economy, Sultan bin Saeed Al-Mansoori.
The aim of the regulations is to introduce market making in UAE financial markets. The SCA’s CEO, Abdullah Al-Turifi, said: “The market maker is a securities’ company with the desire and capability to trade in certain securities, and can tolerate the risks of retaining a certain size of stocks as a depository or to sell such securities for which the company acts as a market maker from the available depository.”
Al-Turifi explained the benefits of market making, saying that a licensed market making entity can continuously offer a price for one particular stock or more in order to achieve ‘liquidity’ demand and supply for that stock or security.
SCA board member Abdulla bin Ali Al-Hamli said: “Investors will be trading among each other on Abu Dhabi Securities Market or Dubai Financial Market. A market maker may trade only in the securities available to it as a trader. In the event of any disruption of the balance, the market maker will then intervene. In general, the markets will decide what they deem appropriate with respect to the intervention mechanism,” he explained further.
The intervention mechanism is designed to promote and enhance capital market activities, added Al-Hamil. There is also a 30 million Dirhams minimum capital requirement for market makers.
Al-Hamil said: “The market maker will, at a certain point of time, find out that due to the higher volume of activities, it should increase the size of its capital.”
Vice-Chairman of the SCA board of directors, Mohammed bin Ali bin Zayed Al-Falasi outlined the importance of other regulations to market making.
He said that market making required associated regulations to support it, including regulations for securities borrowing and lending, short selling and liquidity.
The regulation for securities lending and borrowing will regulate the temporary transfer of securities ownership from one party to another. The practice will be carried out in accordance with a contract that is signed by two parties and rules that are outlined in the regulation.
The regulation for short selling outlines when and how securities can be shorted, as well as the types of securities that can be used in the practice.
The short selling regulation also outlines the responsibilities of all parties that are involved in short selling and mandates the disclosure of short-selling centres.
All of the regulations will start to beimplemented at the end of 2012.
