The Emirates Securities and Commodities Authority (SCA) plans to introduce a set of rules by the end of the year aimed at tightening the regulation of financial markets. The rules will cover trading on margins, market making and short selling. "We'll introduce it as a package to the market," said Ibrahim al Zaabi, the deputy chief executive at SCA. Margin trading is trading with borrowed money in an account set aside for the purpose. Typically, an account holder puts money in the account and is then allowed to trade with a sum in excess of that deposit.
But should the value of a trader's portfolio dip below pre-set limits, the broker controlling the account can make a "margin call", requiring the account holder to provide more cash. A market maker is a broker-dealer who balances supply and demand for shares by serving as a matchmaker between buyers and sellers. Short selling is selling borrowed shares in the hope of buying them back later at a lower price, returning them to the original owner and keeping the difference.
At the moment, leveraged trading is available from brokers but is still unregulated, which has led to warnings to refrain from the practice until it is allowed by market rules. "We're discussing with the market to see the mechanism so that the tools are available at the market," Mr al Zaabi said. Once the talks are complete, the SCA will raise the proposals to its board, Mr al Zaabi said. He said the regulations were expected to be ready by the end of the year.
"Our markets are plain vanilla markets," said Fadi al Said, a senior fund manager at ING Investments. "In other words, investors can make basic trades, buy or sell. "It is positive whenever you enhance the reach of regulations; of course, the sooner the better. When you have a robust and strong, well-regulated market, it increases the trust of local and foreign investors. "This is a natural progression. Any market that wants to be represented on the maps of investors and wants to be an international market needs to work on the infrastructure of regulations."
halsayegh@thenational.ae