Green light to margin trading to lure investors

The Emirates Securities and Commodities Authority, has allowed margin trading, development analysts say is “a timely move that will bring back investors to bourses”.

The board of directors of the authority, which met under the chairmanship of Minister of Economy Sultan bin Saeed Al Mansoori, approved a request by securities markets to charge listing fees from public joint stock companies (PJSCs).

The most important decision taken at the meeting was to make an amendment to Article (9) of the Margin Trading Regulation, allowing margin trading without necessarily identifying the securities being traded but all legal guarantees for the brokerage firm regarding rights in selling securities it has financed must be met.

Analysts welcomed the decision, calling it a timely move that will bring back scared share investors. Basam Ramahi, general manager at Abu Dhabi’s Shuaa Securities, said investors would be lured to the market and will have greater exposure, buying more shares to their actual financial capacity.

Dr Qaiser Anis, managing director of capital-based chartered accountants Alliot Hadi Shahid, said that “it would boost share market activities in short run”.

Ramahi said that in margin trading, investors borrow money from a broker against pledging their shares in order to purchase stocks, mostly blue chips on an agreed rate of interest. “The unique feature of the trade is that an investor can buy many folds to his financial worth, meaning higher gains in an event of rising prices or massive losses on a declining market,” he explained.

Dr Anis said several brokerage companies went out of businesses this year following shrinking business volumes in the wake of the financial crisis. “Now these brokerages would have much business to do,” he said.

He expected the market to return to normal trading volumes in a gradual manner. “It may pick up momentum from 15 per cent more trading volumes on today’s corporate earnings,” Dr Anis added.

The board approved the amendment to Article 23 of the Brokers Regulation concerning the SCA’s prerogatives in handling bank guarantees.

The new amendment says: “If a brokerage firm failed to meet its obligations on time regarding a deal that had been struck through it, the SCA or the board of the securities market may act as it deems fit with the bank guarantee partially or fully to meet the obligations of the brokerage firm towards its investors or the market, or in implementation of the SCA’s decision in this regard.”

To root out insider trading and speculations on the market, the board approved the amendment to make it compulsory upon all listed companies to furnish the SCA and the securities markets with their initial reports.

haseeb@khaleejtimes.com