Dubai stock market targets short-selling by year end – The National

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Hassan Abdulrahman Al Serkal, executive vice president of Dubai Financial Market. predicts short-selling will be introduced later this year. Reem Mohammed / The National

Dubai’s stock exchange hopes to introduce regulated short-selling this year and real estate investment trusts (Reits) next year, as part of a 2021 strategy aimed at diversifying asset classes to elevate the bourse to developed market status, a bourse official said Sunday.

The Dubai Financial Market announced in January plans to introduce covered short-selling – the practice of selling borrowed shares in the hope of buying them back later at a lower price – in a few months, following in the foot-steps of Abu Dhabi Securities Exchange, which also has revealed plans to start short-selling services gradually.

“We are amending the rules and are in contact with (market regulator) the Securities and Commodities Authority (SCA), and once we are ready with the system we will start,” said Hassan Al Serkal, executive vice-president of the DFM.

“We are talking with the [regulator], which would like to have the services (introduced) in both markets (DFM and ADX).”

Short selling, while illegal across the Arabian Gulf (with the exception of Kuwait), has been practised by institutions throughout the region in the form of naked short-selling. Naked short selling, which has been blamed for regional stock market routs, is the practice of shorting the market without borrowing the security, or making sure it can be borrowed.

SCA introduced regulations enabling short selling in 2012 for licensed market makers, with other institutions requiring permission from the regulator and the relevant exchange.

A market maker is a broker and dealer that balances supply and demand for shares by matching buyers and sellers. It also stands ready to buy or sell shares when there are no public buy or sell orders, thus creating a market.

Covered short-selling or regulated short selling will be introduced in phases and the bourse is still ironing out the details, said Mr Al Serkal.

“Maybe we will start with institutional investors first,” he said. 

“We may select certain companies. Maybe companies that have more trading may attract more interest form foreign institutional investors.”

Short selling is being introduced to help lift liquidity and to attract more foreign investors, who have asked for this service, he added.

The DFM is working on a number of initiatives to boost liquidity in the market, which has languished because of regional instability, anaemic investor confidence and lack of new entrants to the bourse.

The stock market introduced in 2014 secured lending and borrowing, a system whereby traders borrow shares they do not own or lend stocks they own, as a precursor to short-selling. 

“We at the DFM are working on certain asset classes like derivatives, Reits, and these things in order to prepare the infrastructure, regulations and rules so that when the market is ready we introduce them,” said Mr Al Serkal.

To achieve its objective, the bourse plans to introduce the listing of Reits to the market by next year. The DFM’s sister market Nasdaq Dubai has already two listed Reits, from ENBD and Emirates Reit. 

“There is a potential for Reits,” he said. “There is appetite and we have held talks with them (companies that plan to float Reits.)”

As part of plans of energising liquidity in the market, the DFM recently granted licenses to Dubai-based investment bank Shuaa Capital and brokerage firm Al Ramz Capital to be market makers.

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