Abu Dhabi bourse to allow short-selling from early 2017

Abu Dhabi Securities Exchange (ADX) on Monday said it plans to introduce technical short-selling from early next year, as it looks to boost liquidity and attract more foreign investors.

Abdullah Al-Blooshi, chief executive of ADX, said the aim is to diversify investment instruments in order to increase the level of liquidity to match global markets. “This will enable us to attract foreign investors accustomed to these instruments,” he said.

Short-selling allows investors to make profits in a falling market by borrowing a security they don’t own, selling it and agreeing to buy it back at a lower price.

At present, short-selling is not allowed in the United Arab Emirates’ financial markets.

“The accounts allowed for short selling are only margin trading accounts and investors who obtained ADX acceptance to trade technical short selling, in addition to investment funds, institutional investors, custodian clients, and market makers,” Al-Blooshi said.

According to the ADX, due to the characteristics of such instruments, the price of a sold stock must be higher than the price of last deal price – or one unit higher. In case, the price falls 5 percent during a trading session, the automatic short selling mechanism will be ceased for that day and the following session.

“Brokerage companies must be committed that the technical short selling is a (minus) purchase in order to be fully disclosed,” Abdullah al-Nuaimi, head of the market operations and surveillance department, said.

“Also in the brokers’ books, a 20 percent of the deal will be added as a guarantee. By the end of the day the brokers as well as the custodian will evaluate the stocks that were short-sold in accordance to its market value, and against the guarantee presented by the client. If the price is not equal to the market value, the clients will be informed to increase their guarantee. Otherwise the broker has the right to purchase the stocks,” Al-Nuaimi added.