Bourses target firms ignoring disclosure rules

DUBAI — Bourses in the United Arab Emirates are targeting firms that ignore financial disclosure rules, but many companies continue to drip-feed data to the market through newspapers and rumours, analysts said yesterday.

By (Reuters)

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Published: Thu 10 Feb 2005, 9:25 AM

Last updated: Thu 2 Apr 2015, 4:24 PM

Lax disclosure habits are commonplace in the region, but UAE regulators are pushing for reform amid concerns that if investors get burned, they will lose confidence in a market that is helping channel spare cash into local projects.

”We have been riding in a bull market with most numbers better than expected, so it hasn’t really hurt us,” said Haissam Arabi, head of asset management at Shuaa Capital, a Dubai-based investment bank.

“But if the market witnesses a correction and investors get hurt, they could lose confidence,” Arabi said.

The Abu Dhabi Securities Market (ADSM) has threatened to suspend firms that do not comply with its transparency rules while the Dubai Financial Market (DFM), a sister bourse, has placed advertisements in financial newspapers warning companies and brokers against rumour mongering.

But Arabi said many listed companies ignore rules requiring them to release price-sensitive information via a statement to the stock exchange.

“We are still getting a lot of leakage in the market and some people take advantage of it,” he told Reuters. “We have seen a few stocks that moved right before a major announcement.”

One senior Western banker said transparency standards among UAE companies were quite good by emerging markets norms, with firms required to abide with International Accounting Standards.

“The problem is not the quality of disclosure, but the way the information is disseminated,” the banker told Reuters.

Only a handful of UAE companies are open to foreign investment. But Arabi said the number of domestic companies allowing foreign investment is rising and that interest in UAE equities from emerging market fund managers is increasing.

Growing foreign interest makes more orderly disclosure procedures even more important, analysts said.

The UAE is in the grip of an equity bull market, with the Shuaa Capital UAE General index increasing by 103 percent in 2004. On Tuesday it closed up 4.7 percent on the year so far.

Essa Kazim, director general of the DFM, said that while the exchange is getting tougher on rule breakers, it does not want to crack down too hard.

“We want companies to abide by the rules, But we also want to encourage new companies to list,” Kazim said.

Government authorities launched the DFM and the ADSM in 2000 after a series of insider trading and market manipulation scandals dented the credibility of the UAE’s over-the-counter market.

Since then, more than 50 companies have listed on the exchanges, and officials say that dozens of public joint stock companies will be required to list by the end of the year.

Analysts say things are not only improving, but are bound to get better.

”Five years ago we hardly got any information. Now we get quarterly results. More and more companies are trying to comply,” Arabi said.

He said the launch of a third bourse, the Dubai International Financial Exchange (DIFX), planned for September 2005, would raise corporate governance standards.

DIFX will be an equity, fixed income and derivates exchange that will form part of Dubai International Financial Centre, a free zone being run by the government of Dubai.

DIFX will have independent regulation, which, it claims, will be to international standards.

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