(MENAFN - Khaleej Times) ABU DHABI - The Securities and Commodities Authority, or SCA, which regulates the share market, has introduced much-awaited rules, to broaden the share market horizon, by bringing in new institutional players who are equipped with tools that can create demand and supply for shares in order to boost the lower trading volumes.
Since 2008's share market crisis, investors and other stakeholders were asking for measures to remove weaknesses in the UAE's share market.
The rules on market maker, short-selling, Borrowing and lending of shares, and liquidity provider are in line with market expectations. They will be implemented by the year-end.
At a meeting chaired by Sultan bin Saeed Al Mansouri, Minister of Economy, the rules were passed, which would help bring new shares trading business; markets based prices, and also raise enough quantities of securities for a deal to take place. The minimum capital requirement for market maker is Dh30 million. Jitendra Gianchandani, chairman, Jitendra Consulting Group, said: "Market making will solve major problem of capital supply shortage and low liquidity. It will help boost liquidity, lowers transaction cost, reduce volatility and improve daily turnover of listed securities."
Sultan Al Mansouri, Minister of Economy who is also the Chairman of SCA, hoped new rules would help maintain the "balance in the market; adjusting the pace therein and striving to attract more foreign investments."
The rules have been issued after in-depth study, stake-holders feed-back. Mohammed bin Ali bin Zayed Al Falasi, vice-chairman of the SCA Board said that the Rules required the issuance of legal framework on borrowing and lending of securities, short-selling, and liquidity provider. Al Falsai said new rules stress for absolute disclosure and transparency in deals. Abdullah Al Turifi, Securities and Commodities Authority chief executive officer, said : "The four new regulations will augment the markets' capacity to achieve their objectives. The market maker is a securities' company, which will act as a depository and sell shares on behalf of its clients."
"The market maker will offer a price for one particular share or more in order to achieve liquidity demand and supply for that share. There would be a flow of sale offers and corresponding purchase orders and sale offers on the other side, thus the market would always maintain a state of balance between supply and demand and the gap between bid and offer rates would decline," Al Turifi said.
These rules will realise the markets' ability to liquidate stocks quickly and easily, maintain a balance between supply and demand, limiting price fluctuations, at a fair price and to ensure continuity of the operations.
Gianchandani asked regulators to consider cost of restructuring, sentiments of domestic and international investors, size of the markets before deciding any type of market making system such as quota driven market making system or centralised or non centralised marketing making.
Mohammed Ali Ahmed Al Dhahiri, also a SCA Board Member, expected that the markets will make some changes to their own rules and procedures to in order to adapt them.
Dr Qaiser Anis, managing partner at Alliott Hadi Shahid Chartered Accountants in Abu Dhabi was confident that investors response will "very positive" as it will bring investors confidence and boost trading volumes. The rules allow several market makers can trade in the same securities.
"Investors will be trading among each other on Abu Dhabi Securities Market or Dubai Financial Market. A market maker may trade only in the securities available to it as a trader,"said Abdulla bin Ali Al Hamili, also a SCA Board Member. Regulation for securities short-selling outline situations in which a scrip can all allowed to be transacted. SCA can halt a short-selling of securities anytime in extraordinary situation. Regulation for liquidity provider allows listed companies to contract any market-maker to manage its share liquidity on the market.