Stepping up service

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UAE securities brokerage firms need to ensure ethical conduct and quality of service if they are to offer margin trading, advice and analysis. Daniel Stanton takes stock of the situation.

The decision by the Emirates Securities and Commodities Authority (ESCA) last month to allow margin trading could be just the tip of the iceberg.

It seems that the regulator could also be poised to allow firms to produce their own research, which will create opportunities, as well as a new set of challenges.

The new measures seek to regulate margin trading, a service which was previously being offered by some securities brokerage firms which allowed trades to be made with other customers' money.

Firms must now segregate money deposited by their clients and must limit borrowing to 50% of a client's assets.

"This will stimulate the market, and help investors to be more rational and move in safe areas," says Sabir Al Waidh, operations manager at Al Ain Centre for Securities Brokerage.

Hassan Ali Choucri, general manager of Al-Futtaim HC Securities (AFHC), adds: "In the short run it may affect liquidity a bit, but it will definitely make the market less volatile."

ESCA is also believed to be planning to allow firms to offer analysis and possibly portfolio management services to their clients, which are not permitted at present.

Al Waidh says that his firm and others like it currently provide clients with publicly available announcements and press releases about listed companies.

Currently, other brokerage firms that are linked to investment banks may be able to offer clients access to new research reports through other parts of the parent company.

If new regulations come into effect, UAE brokerage firms that wish to offer research services are likely to need to increase their paid-up capital.

ESCA would not respond to enquiries, but in the past two years it has dramatically increased the level of capital that securities brokerage firms must hold, in an attempt to raise standards and the financial strength of market participants.

"The one thing that we need to find out is if firms do the capital increase, will the brokers of those firms be allowed also to give recommendations to their clients, or is it only that the firms will be allowed to publish documents that have buy and sell recommendations on them?" asks AFHC's Choucri. "This part is still unclear."

Al-Futtaim HC Securities is a joint venture between Al Futtaim Group and HC from Egypt.

HC has been issuing research on the Egyptian market for years and now offers reports on some UAE equities. It is planning to expand its coverage to other Gulf markets.

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