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(This article has been updated to reflect that the Dubai Financial Market declined to comment further on when it plans to introduce regulated short selling).
The Dubai Financial Market has confirmed it is set to follow in the footsteps of the Abu Dhabi Securities Exchange by introducing "regulated" short-selling.
In a press release announcing an agreement with Nasdaq Dubai to allow for the creation of a new futures index based on the Dubai Financial Market's (DFM) General Index, DFM said it "will introduce regulated short-selling in [the] coming period". It did not say when this period would be, however, and declined to comment further on the matter when contacted by Zawya.
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"This move will support increased liquidity in both equities and equity futures," the statement said.
DFM's move follows an announcement by Abu Dhabi's Securities Exchange (ADX) last Tuesday (October 17) to allow 'technical' short-selling of stocks, which it also said was aimed at boosting liquidity of traded stocks and diversifying trading instruments to make the market more attractive to specialist foreign investors.
ADX said it was the first Gulf market to allow 'technical' short-selling, where traders sell a stock that they don't own with a view to buying it back at a later date, in a bid to profit from a potential price fall. In the case of the Abu Dhabi Securities Exchange, the trade is conditional on the party short-selling being able to be settled within two days.
However, investors need to pay a margin equivalent to 50 percent of the market value of the trade. ADX also said it had put in measures to regulate shorting. For instance, if a share loses more than 5 percent of its value, or if short positions exceed 10 percent of a firm's share capital, trading in the company's stock will be suspended.
Rashed Al Blooshi, the chief executive of ADX, said in the press release it was "keen to define a set of clear laws, rights and obligations governing transactions under the technical short sale service for brokers and investors alike".
"We are committed to transparency, with an absolute commitment to publish all information related to the service on a daily basis via our website," he said.
In a telephone interview with Zawya, Kunal Damle, an institutional broker at Bahrain-based Securities & Investment Company, described the measure by ADX as "a step in the right direction", but added that he did not think it would have a major impact on improving the liquidity of stocks based on the market.
He said that the 50 percent margin required to make a short trade was considerably higher than the 10-15 percent margin required in many other, international exchanges.
"Plus, you can borrow stock for between 1.5-2 percent (interest) a month. Then, you can short stock for a month. This is an intra-day short with a 50 percent margin. It's a step in the right direction, but is it going to move stock [significantly]? I don't think so."
The announcement that a futures index based on the Dubai Financial Market will trade on Nasdaq Dubai on Sunday follows on from an agreement signed by Nasdaq Dubai last week with MSCI – a U.S. company that creates market indices used by passive global investment funds. It will lead to a futures market being created based on MSCI's UAE Index, which is an index based on UAE stocks listed both on the DFM and ADX exchanges.
Allen Sandeep, the head of research at Egypt-based brokerage Naeem Holding, told Zawya in an emailed statement that the creation of such futures indexes were 'long due' and were a positive development. "We are waiting to see the dynamics/mechanisms of this," said Sandeep.
Nasdaq Dubai initially began offering futures contracts on seven individual UAE stocks in September 2017. This has since grown to 13 stocks. According to the DFM statement issued on Sunday, the volume of futures contracts has risen by 80 percent from 874,000 during the first six months of trading to 1,574,000 in the most recent six months to August 31.
Sandeep also said that the initial tight controls that have accompanied short-selling on Abu Dhabi's exchange "could be eased later on".
"This should all broaden trading activity," he said.
Further reading:
The Dubai Financial Market has confirmed it is set to follow in the footsteps of the Abu Dhabi Securities Exchange by introducing "regulated" short-selling.
In a press release announcing an agreement with Nasdaq Dubai to allow for the creation of a new futures index based on the Dubai Financial Market's (DFM) General Index, DFM said it "will introduce regulated short-selling in [the] coming period". It did not say when this period would be, however, and declined to comment further on the matter when contacted by Zawya.
.
"This move will support increased liquidity in both equities and equity futures," the statement said.
DFM's move follows an announcement by Abu Dhabi's Securities Exchange (ADX) last Tuesday (October 17) to allow 'technical' short-selling of stocks, which it also said was aimed at boosting liquidity of traded stocks and diversifying trading instruments to make the market more attractive to specialist foreign investors.
ADX said it was the first Gulf market to allow 'technical' short-selling, where traders sell a stock that they don't own with a view to buying it back at a later date, in a bid to profit from a potential price fall. In the case of the Abu Dhabi Securities Exchange, the trade is conditional on the party short-selling being able to be settled within two days.
However, investors need to pay a margin equivalent to 50 percent of the market value of the trade. ADX also said it had put in measures to regulate shorting. For instance, if a share loses more than 5 percent of its value, or if short positions exceed 10 percent of a firm's share capital, trading in the company's stock will be suspended.
Rashed Al Blooshi, the chief executive of ADX, said in the press release it was "keen to define a set of clear laws, rights and obligations governing transactions under the technical short sale service for brokers and investors alike".
"We are committed to transparency, with an absolute commitment to publish all information related to the service on a daily basis via our website," he said.
In a telephone interview with Zawya, Kunal Damle, an institutional broker at Bahrain-based Securities & Investment Company, described the measure by ADX as "a step in the right direction", but added that he did not think it would have a major impact on improving the liquidity of stocks based on the market.
He said that the 50 percent margin required to make a short trade was considerably higher than the 10-15 percent margin required in many other, international exchanges.
"Plus, you can borrow stock for between 1.5-2 percent (interest) a month. Then, you can short stock for a month. This is an intra-day short with a 50 percent margin. It's a step in the right direction, but is it going to move stock [significantly]? I don't think so."
The announcement that a futures index based on the Dubai Financial Market will trade on Nasdaq Dubai on Sunday follows on from an agreement signed by Nasdaq Dubai last week with MSCI – a U.S. company that creates market indices used by passive global investment funds. It will lead to a futures market being created based on MSCI's UAE Index, which is an index based on UAE stocks listed both on the DFM and ADX exchanges.
Allen Sandeep, the head of research at Egypt-based brokerage Naeem Holding, told Zawya in an emailed statement that the creation of such futures indexes were 'long due' and were a positive development. "We are waiting to see the dynamics/mechanisms of this," said Sandeep.
Nasdaq Dubai initially began offering futures contracts on seven individual UAE stocks in September 2017. This has since grown to 13 stocks. According to the DFM statement issued on Sunday, the volume of futures contracts has risen by 80 percent from 874,000 during the first six months of trading to 1,574,000 in the most recent six months to August 31.
Sandeep also said that the initial tight controls that have accompanied short-selling on Abu Dhabi's exchange "could be eased later on".
"This should all broaden trading activity," he said.
Further reading:
- Abu Dhabi Securities Exchange concludes awareness campaign on technical short selling
- Nasdaq Dubai signs licence agreement with MSCI for development of regional index derivatives
- Emirati women own billions in ADX shares
- Dubai Financial Market launches platform to trade ETFs
- Nasdaq Dubai and Bourse de Tunis sign MoU
