05 June 2011
Further to Circular Numbers 4/11 and 7/11, NASDAQ Dubai proposes to introduce enhancements to its Clearing and Settlement model.

NASDAQ Dubai proposes to move to a T+3 settlement cycle from its current T+2 cycle.  Subject to regulatory approval, the enhancements are expected to become effective from early July 2011.

The enhancements will allow more time for international investors in different time zones to settle their transactions on NASDAQ Dubai's market, and will minimize rejections of trade obligations by Settlement Agents due to non confirmation of trades by their clients.

The following key operational changes will be introduced:

  • Custodians, in their capacity as Settlement Agents, may reject trades for settlement if settlement instructions are not received from the client by close of business on T+2. If a trade is rejected, the payment and securities obligations for the rejected trade will revert to the Member. This gives Custodians control over the securities they hold in their client accounts.

  • A late confirmation period of two market days from T+3 (i.e. T+5, equivalent to two settlement cycles) will be introduced. Subject to agreement by the Member, a rejected trade may be accepted for settlement by the Custodian, if settlement instructions are received by the Custodian withinT+5. This provides a grace period for Custodian clients to provide settlement instructions. The late confirmation period will begin on T+3 and end at 1:00 pm on T+5.

  • Rejection accounts will be introduced for Members trading on behalf of clients using a Custodian for settlement.

  • If a Custodian rejects settlement of a buy trade, securities will be transferred to the Client buy rejection account under the control of the Member which placed the buy order.

  • If a Custodian rejects settlement of a sell trade, securities settlement obligations will be transferred to the Member sell rejection account under the control of the Member which placed the sell order.

  • There are 5 ways to resolve a sell rejection if the selling Member does not have sufficient balance in their Sell Rejection account:

  • Late Confirmations: The client can send instructions to the Custodian to confirm settlement by T+5 (or S+2) provided the selling Member has not settled the rejected trade;

  • Purchase of securities directly from market: The Selling Member can purchase securities directly in the market by T+3;

  • Optional Buy-in between T+3/T+4: The selling Member can utilize the buy-in mechanism between T+3 and T+4 to purchase securities for immediate settlement;

  • Mandatory buy-in by NASDAQ Dubai: If the selling Member fails to resolve the sell rejection by T+5, a mandatory buy-in against the selling Member will be invoked by NASDAQ Dubai on T+5; and

  • Mandatory cash closeout against the selling Custodian client: If the mandatory buy-in against the selling Member fails, a cash closeout will be calculated against the outstanding unsettled quantity on T+5 against the Custodian client at the original traded price.

    • Custodians will not be able to reject partial orders. Members must ensure each client order is entered into and executed separately.

    • NASDAQ Dubai may levy penalties on the client (NIN holder) for late settlement confirmations and collect the penalty through the Custodian. NASDAQ Dubai will publish its penalty rates.

    • NASDAQ Dubai will provide new functionality for any Member to sell securities to the buy-in board. This will enable matching buy-in bids posted by a selling Clearing Member with a negative balance in the client rejection account.

    With respect to trades made by Members for clients without a Custodian (including trades by retail investors via direct trading accounts), only the enhancements of T+3 settlement cycle and the new functionality related to the buy-in mechanism will apply.

    NASDAQ Dubai participants will be informed of further details of the proposed operational model in due course via detailed operational procedures.

    -Ends-

    The information in this document is subject to change. This document is not a substitute for the relevant NASDAQ Dubai Business Rules and in the case of inconsistency; the NASDAQ Dubai Business Rules shall prevail. 

    Disclaimer:
    The information in this document is subject to change. This document is not a substitute for the relevant NASDAQ Dubai Business Rules and in the case of inconsistency; the NASDAQ Dubai Business Rules shall prevail. Note: Unless otherwise provided, capitalised terms shall have definitions assigned to such terms in the NASDAQ Dubai Business Rules.

    For further information please contact:
    NASDAQ Dubai Market Operations
    Tel: +971 4 305 5471
    Email: clearing@nasdaqdubai.com  

    • © Press Release 2011