DFM launches short-selling to boost liquidity
The Dubai Financial Market (DFM), the only listed equity market in the Arabian Gulf, has started regulated short-selling, following the footsteps of Abu Dhabi’s bourse. UAE exchanges have stepped up efforts to boost liquidity and diversify their services to attract more investors.
Regulated short-selling (RSS) – the practice of selling borrowed shares in the hope of buying them back later at a lower price – will apply to a limited number of listed securities, which will be reviewed every six months, the DFM said yesterday.
“As part of DFM’s strategy to diversify its products and services, we are delighted to announce the completion of our preparations to introduce this significant tool to our market participants in a step aimed at increasing their capabilities and helping them to strengthen their trading activity and further enhance trading liquidity,” said Essa Kazim the chairman of the DFM.
The DFM, which did not name the initial eligible stocks, said short-selling will also apply to exchange traded funds (ETFs) and other listed securities that feature on UAE indexes of international index compilers. The list of eligible securities will be published next month, a DFM spokesman said.
The Abu Dhabi Securities Exchange (ADX) in October launched a limited form of short-selling that is applied to 10 stocks. These include First Abu Dhabi Bank, the country’s biggest lender, telecoms operator Etisalat, Abu Dhabi Commercial Bank and real-estate developer Aldar Properties.
Dubai and Abu Dhabi have picked their cues from Saudi Arabian bourse, which launched short-selling in April as part of a suite of reforms aimed at garnering a spot on the much-tracked MSCI Emerging Market Index.
In Dubai, seven brokerages have applied for licences to provide the service to their customers and are waiting for approval and the completion of technical testing, the DFM said.
The UAE is regulating short-selling in order to protect the markets from speculators who in the past have used the tool in transactions that were blamed for starting off financial crises, similar to the one that occurred in 2007.
“To implement regulated short selling, the brokerage firm has to ensure that the borrowed securities are located on the client’s account prior to placing a short selling order, with exception of DvP [delivery-versus-payment] clients, as a lending confirmation is sufficient to proceed with the order,” the DFM said.
“The RSS complements the Securities lending and borrowing
We are delighted to announce the completion of our preparations to introduce this significant tool to our market ESSA KAZIM Chairman of DFM
activity whereby approved lenders can lend securities to approved borrowers for settlement of RSS trades.”
DvP means the payment settlement system provides a mechanism to ensure that delivery of securities will occur only if payment for such securities has been cleared.
To regulate short-selling, ADX will suspend trade in a given stock if its reference price falls 5 per cent in a day or if the short sold securities reach 10 per cent of total capital issued.
The introduction of short-selling in the UAE is part of broader efforts to boost liquidity in the market, which has languished due to weak investment sentiment sparked by low oil prices since 2014 and geopolitical tensions.