DFM launches regulated short-selling

dubai - The move is intended to boost liquidity in the stock market

The Dubai Financial Market (DFM) announced on Sunday the long-anticipated launch of regulated short-selling (RSS) as part of efforts to provide market participants with new tools to further strengthen their trading activities.

The move, intended to boost liquidity in the stock market, comes in the wake of similar initiatives by securities exchanges in Abu Dhabi and Saudi Arabia.

The DFM said it was processing licence requests from seven brokerage firms to provide the service once they had received approval and completed technical testing.

In short-selling, investors sell stocks they do not own to profit if prices have dropped when the trades are settled.

For years, regulators in the Gulf had shied away from the issue of short-selling due to fears that it could destabilise markets.

"We have carefully designed this new service to give investors the opportunity to short listed securities while safeguarding the market from any unsolicited repercussions on the market," said Essa Kazim, chairman of Dubai Financial Market.

The DFM said in a statement the regulated short selling enables investors to short securities listed on DFM through selling borrowed shares with a commitment to return to the lender based on the mutually signed agreement. To implement RSS, the brokerage firm has to ensure the borrowed securities are located on the client's account prior to placing a short selling order.

Kazim said the move was part of the DFM's strategy to diversify its products and services.

The DFM had earlier secured the approval of the Securities and Commodities Authority (SCA) to introduce the regulations of short selling. The exchange has successfully completed extensive preparation over the past few months that included consultations with market participants on the operating model and the necessary technical enhancements in order to ensure the full readiness of DFM's systems and regulation.

The DFM also implemented a campaign, including organising a series of educational workshops, to raise awareness among market participants. Brokerage firms have showed strong interest during these sessions.

The RSS will be available on a selected list of eligible DFM-listed securities that will be reviewed every six months. The list will also include all exchange traded funds and other listed securities that are included in UAE indices.

- issacjohn@khaleejtimes.com