Business | Markets
Esca finalises margin trading norms
The Emirates Securities and Commodities Authority (Esca), the stock market regulatory authority of the UAE, has issued the final version of new margin trading system with the aim of increasing investor's confidence and attracting more funds to the market, Arabic newspaper Al Bayan said.
- Staff Report
- Published: 23:49 July 27, 2008
Abu Dhabi: The Emirates Securities and Commodities Authority (Esca), the stock market regulatory authority of the UAE, has issued the final version of new margin trading system with the aim of increasing investor's confidence and attracting more funds to the market, Arabic newspaper Al Bayan said.
Sultan Bin Saeed Al Mansouri, Minister of Economy and Chairman of Esca, approved the system and confirmed that margin trading transactions would be carried out within three months from publishing the law in the official gazette.
They margin trading was approved after making some amendments to the system that decide the percentage of the initial margin and the maintenance margin, as well as following an in-depth study on the best systems and practices in global stock markets.
The new regulations stipulate that each investor's margin trading should not exceed 10 per cent of his net property rights, and the initial margin should be no less than 50 per cent of the market value of securities to be margin traded.
Maintenance of margin should be no less than 25 per cent of the market value of securities in the client's margin account anytime after the date of purchase.
The margin trading system requires that brokers should obtain a licence from Esca to practice margin trading according to its regulations and rules. To obtain the margin trading licence, brokers should submit the application form along with the required documents and financial reports to Esca. They should present reports clarifying their net capitals and liabilities along with documents and information containing their accounting and auditing regulations.
Brokers should inform Esca and the securities market about all data and information regarding their margin trading activities. They should also provide Esca with weekly and monthly reports carrying all the details of their margin trading transactions.
Weekly report
The weekly report should carry a detailed announcement on the cost of margin trading process, the size of amounts available for margin trading and their resources. It should also include the total amounts payable by clients and the total value of their guarantees.
The monthly report should include the quality, quantity and value of equities financed by margin trading and the finance percentage by the brokerage company, as well as the total liabilities of clients who have margin accounts.
It should also comprise the value of commissions, expenses and all costs levied from clients against this service. These reports should be attached with an acknowledgment from the brokerage company's chairman on the accuracy of information mentioned in the reports.
Esca has the right to ask for any explanations, information and documents from brokers if necessary. Brokers should also open separate margin accounts for clients who are interested in getting this service from brokerage companies.
Abdullah Al Turaifi, chief executive of Esca, said, "The approval of the margin trading system followed a careful study of the best systems and practices in world markets. The move will boost the confidence of those dealing in the market and attract more investments."
Esca placed the draft decision on its website several months ago, asking financial and legal bodies, investors and specialists for their remarks. Several suggestions were received, which helped in developing the final formula of the system.
Discussions were also held with a committee of brokers and financial market experts, he said. Margin trading was necessary, especially after the Esca decision to separate accounts of brokerage companies and customers.
According to the newly amended law No.4 of 2004 regarding Emirates Securities Authority and Market, Esca has the right to suspend any brokerage company found violating the new system's rules.
The Emirates Securities and Commodities Market has the right to specify securities to be margin traded according to unified standards and rules set by the regulatory authority Esca.
These standards should be based on suggestions by stock markets with taking into consideration the financial condition of the listed brokerage company and the circulation of its securities.
The permitted securities should be reviewed by the market every six months to make the necessary amendment or decision whether the broker is committed to Esca's rules or not abiding by them.
Share this article
More from Markets
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
What to expect at the Dubai Airshow
We preview what types of aircraft to expect at the Dubai Airshow
-
Air Arabia revamps its website
Upgraded site offers new features, accessible in range of languages
-
Dubai looks ahead to 2010 with new projects
Global visitor numbers up 4% on year and occupancy rates remain strong
