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SCA Issues New Rules to Ensure Transparency

ABU DHABI - The Securities and Commodities Authority, or SCA, on Monday approved new draft rules to regulate the custody services of securities and allow brokerage firms to trade shares on their 
own account.

SCA board of directors met here on Monday and approved new rules to ensure transparency in stock transactions in local markets. The UAE Minister of Economy Sultan bin Saeed Al Mansouri chaired the meeting.

The decision on the custody of securities defines the required conditions for such an activity, procedures for obtaining a licence, mission and obligations and disciplinary actions in case of violation, according to a Press statement. SCA has given a deadline of January 3, 2010 to brokerage firms in this regard. The requirements include among others, a term stipulating that the applicant should obtain a licence from the Central Bank of the UAE, have a paid-up capital of not less than Dh50 million. The provider should also sign a depository participant services agreement with the client.

The applicant should also submit a non-conditional, banking guarantee to SCA valuing not less than Dh20 million. A custodian typically settles trades, invests cash balances as directed, collects income, processes corporate actions, prices securities positions, and provides record-keeping and reporting services. It offers securities lending to its customers to make additional income on its custody assets by loaning its securities to approved borrowers on a short-term basis.

Wael Abu Mhasein, the Operations Manager at Al Ansari Financial Services in the capital, said that the custody services of securities can introduce many new features to investors and help encourage foreign investment.

He welcomed the permission allowed to share brokerage firms to buy/sell shares in their name, calling it a step that will bring greater transparency to their business.

Mhasein said that all brokerage firms take positions on the market illegally. Now their positions will be in the knowledge of regulators.

He said that many traders recommend to their clients a share to buy while they sell the same to dispose off their holding. Vanessa Abernethy, a corporate partner at Simmons & Simmons, termed the new rule an impressive move ensuring consistency in the local markets, improving the levels of trust that international investors can place in securities trading here. “The SCA is working hard to improve regulation in all areas within its jurisdiction and the new standards proposed for custody and brokerage should instill more confidence in the local securities markets,” said Abernethy.

Dr Qaiser Anis, a financial consultant, said it would certainly boost investors’ confidence. “It is a good move towards organising capital market encouraging investments to the stock markets,” he said.

haseebhaider@khaleejtimes.com