(MENAFN - Khaleej Times) Dubai Financial Market, or DFM, said on Sunday it would adopt a unified price band allowing fluctuations of 15 per cent up and 10 per cent down for all stocks, and cut the maximum weighting of a company in the benchmark index to 20 per cent.
The new rules will come into effect from January 2, and from then on, all listed securities, whether active or non-active, can rise as much as 15 per cent daily and fall as much as 10 per cent.
Currently, this band applies only to the most active stocks, while non-active stocks can gain or decline as much as 5 per cent.
Essa Kazim, managing director and chief executive of the DFM, said the move towards "more flexible and effective index rules" would help boost trading in non-active securities.
The exchange has adopted modified rules for the DFM General Index, or DFMGI, to "further reflect the highly traded stocks and accurately mirror the market activity," the bourse operator said in a statement.
The exchange's new rules for the General Index will also increase the representation of highly traded stocks to 81 per cent. Emaar Properties PJSC, biggest developer in the UAE by market value, is the only company in the index with a weighting of more than 20 per cent, said the statement.
Based on the new modifications, all listed securities will be grouped in one category, contrary to the split between active and non-active, the statement said.
"DFM continuously monitors and reviews market developments and market activity with the aim to achieve the highest accuracy levels and adopt international best practices," said Kazim.
He said the new index rules were based on a thorough review of the implications of active and non-active stocks represented on the index and the current fluctuation bands. "We are confident that the modified rules and unified fluctuation band will closely mirror the market activity in an accurate and more realistic manner. Meanwhile the bi-annual review enables us to follow market activity and update listed companies' representation in the General Index accordingly."
"The new rules will additionally enhance trading activity on the current non-active stocks which includes some of the major UAE public joint stock companies such as Emirates NBD, Shuaa Capital, Mashreq Bank, Commercial Bank of Dubai, Gulf General Investments and others," Kazim added.
As per the modifications, the maximum weight of a single stock in the index will be decreased from 25 per cent currently to 20 per cent. "The aim of this is to limit the reflection of high market capitalisation stocks on the index and balance the effect among different stocks," DFM said.
Additionally, DFM has set guidelines to limit the percentage of free float shares included in the index at only 20 per cent of the less traded stocks with the purpose of minimizing the stocks affecting the index.
Under the new rules, the selection of the most traded stocks listed in the index is based on certain criteria. These include: The total trade value of the company shares shouldn't be less than one per cent of the total trade value of DFM during the evaluation period. The company shares should be traded on 50 per cent of the total trade days throughout the evaluation period. Total number of transactions on the company shares should not be less than 150 transactions.
Builder Emaar Properties holds a 20 per cent weightage in the index and is the most actively traded stock in the index, while Dubai Islamic Bank has a 12.6 per cent weightage according to the bourse.
Dubai's index is down about 9.6 per cent so far this year. The value of shares traded on the DFM fell 54 per cent in the first nine months of 2010, the bourse said last month.
By Issac John