ABU DHABI: The value of margin trading finance on UAE bourses hit Dh31 billion in January and February, an all-time-high since the inception of margin trading in 2008.
The growth in the service’s financial value during the two months account for 37.3 per cent of the total facilitations provided by licensed brokerage companies in the whole of 2016, which amounted to Dh83 billion, according to a recent WAM report.
Financial experts have agreed on the growing importance of the service, which has become a significant advanced investment product. It has contributed to the addition of other services and elevated the level of emerging markets under the 2013 Morgan Stanley Index. Around 30 per cent of the margin trading investors now rely on the financial facilitations provided by the service, according to official statistics released recently.
Wael Abu Meheisin, board member of a local financial services company, recently said that the margin trading service are now in huge demand from all investment sectors in the country, which explains its steady yearly growth.
He noted that a considerable percentage of the cash available on UAE financial markets is provided through the margin trading service. The great efforts made by Dubai and Abu Dhabi to diversify their investment products have reflected positively on the business of brokerage companies compared with the early stages of the service launch.
Increasing circulation rates and providing more investment products are essential to strengthening the competitive environment needed to develop the financial service sector, the report indicated.
The Emirates Securities and Commodities Authority (SCA) opened the door for licensing of companies interested in engaging in margin trading in 2008. Though it didn’t receive high turnout in its early stages, the service has remarkably gained ground with the passage of time.
For a brokerage company to be licensed to practice margin trading, it must have the technical and administrative capabilities and resources to conduct margin trading and manage the accounts, therefore, it must have the necessary financial solvency in order to conduct margin trading, in accordance with the criteria issued by the SCA Board. The brokerage company must not have committed any material contravention of the criteria for financial solvency or the rules concerning the separation of accounts approved by the SCA within the six months preceding the date of submission of an application for a licence.
