Esca approves new regulations for margin trading

Abu Dhabi: The Emirates Securities and Commodities Authority (Esca) on Saturday approved the final draft of the margin trading regulations, which will be effective as soon as it finalises the necessary mechanisms in coordination with the UAE's stock markets.

The final draft was issued after minor amendments to the original draft related to primary and maintenance margins. A timeframe will be set for the stages of application up to full effectiveness, expected within four months from the date of publishing the regulations in the official gazette.

Margin trading permits brokers to allow their clients to buy shares on the market by keeping a certain portion of the value of the trade as a margin (deposit) with them.

While these margins allow some amount of leverage in trading, it also acts as a guarantee for brokers if their clients fail to take delivery or if there is a significant decline in the value of shares between the buy order and settlement.

Esca's board of directors has urged acceleration of the coordination process between the authority and the stock markets.

An awareness programme through the media will be launched to introduce the terms, conditions, and procedures necessary for margin trading.

"The adoption of the new regulations follows a process of careful consideration, taking into account the views of industry experts, international practices, and the specific circumstances in the UAE," said Abdullah Al Torreifi, CEO of Esca.

"The regulations follow the segregation of brokers' accounts from their clients' accounts, and several months of public consultation followed by a discussion with a panel of brokers and experts," he added.

Thirteen articles comprise the new regulations, including definitions, terms of licensing, application procedures, and the obligations of brokerages. The regulations make it mandatory for brokerages to present periodic reports.

The board also discussed a report presented by the advisory council for developing the regulations and general legislative framework of the authority, including the technical systems adhering to the authority's strategic plan.