ADX on par with Dubai as roof is raised on daily share gains

Abu Dhabi Securities Exchange has increased the maximum price increase on a stock to 15 per cent, and kept a maximum decline at 10 per cent, bringing it in line with the Dubai Financial Market.

The Abu Dhabi Securities Exchange (ADX) has raised the price ceiling by which a stock can rise to 15 per cent from 10 per cent and kept its floor at 10 per cent, bringing its trading practices in line with Dubai.

The stock market also amended the mechanism by which it determined the closing price for a stock, which it says offers a better reflection of its true value.

"Investors have been asking for these changes for some time," said Rashed Al Baloushi, the ADX chief executive.

The ADX has adopted a stop loss of 10 per cent since its inception, despite the market regulator offering a 15 per cent threshold.

The Dubai Financial Market suspends shares of companies that touch a maximum limit of 15 per cent, and a minimum of 10 per cent.

The decision came as Etisalat and du, the country's two publicly listed telecoms operators, dropped 10 per cent as investors sold shares amid higher royalty fees.

"The ADX are implementing limits like Dubai's stock market which makes it easier for investors to see common practices among both exchanges," said Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai.

"A larger spread could be positive for the market and see more volumes especially in regard with new short selling laws.

In October, the Securities and Commodities Authority approved a raft of regulations covering subjects including short selling, borrowing and lending, and market making. Short selling is a sophisticated investment tool commonly used by equity investors to hedge their bets when markets take a different direction.

An investor will sell borrowed shares in the hope of buying them back later at a lower price, returning them to the original owner and keeping the difference.

The ADX also amended the way it determined closing prices of shares of companies, from weighted average calculation to a call auction, which will take place in the final minutes of the trading session.

In a call auction, trade orders are matched and executed to arrive at a closing price for a stock, which helps to reduce volatility.

"Today, most developed markets use the call auction, which gives a more accurate reflection of the real price of a stock, especially if the last trade price was not realistic," said Mr Al Baloushi.

The exchange, which currently adopts a call auction session at the start of trading between 9.30am and 10am to determine opening prices, will hold a second call auction session between 2pm and 2.30pm to determine closing prices.