The Securities and Commodities Authority (SCA) in the United Arab Emirates (UAE), the regions securities regulator, has today approved regulations to allow short-selling and securities lending of listed securities.
The move is intended to bring liquidity back to the region, whose stock exchange has seen a mass exodus of investors since the global financial crisis. Diminished liquidity has also led to the closure of many brokerages. Morgan Stanley Capital International (MSCI) is also said to be in favor of markets that are actively engaged in securities lending and short-selling when considering whether to welcome them into the emerging markets index.
The SCA said the new regulations, which include provisions for market-makers to participate in the countrys financial markets, will enhance liquidity in the stock markets which have struggled to gain momentum after the 2008 global financial crisis.
This approval follows the release of the draft rules by the SCA in November last year. The Abu Dhabi and Dubai stock exchanges mainly trade banking, real estate and telecom companies.
The approval should please MSCI index, which has been reviewing the markets for an upgrade from frontier to emerging market status for the past two years. In June, the stock market index provider, decided to keep the classification of the United Arab Emirates (UAE) and Qatar as frontier markets, despite the two countries efforts to align their stock exchanges with global standards.
The index provider, which performs a market accessibility review once a year and releases the results of the review in June, said the UAE will remain a frontier market as no enhancements with respect to the operational issues mentioned in the last review are expected to be implemented in the United Arab Emirates before 2013. A proper false trade mechanism, as well as a formal introduction of regulation governing securities borrowing and lending agreements, are both needed before the UAE can be upgraded to emerging market status, MSCI said.
(JDC)