DIFX pushes ahead with short-selling plan

PUSHING AHEAD: The DIFX will push ahead with plans to allow short-selling and derivatives trading. (Getty Images)

The Dubai International Financial Exchange (DIFX) will push ahead with plans to allow short-selling and derivatives trading, despite rising international concern over the dangers of the practice on the world’s stock markets.

CEO Jeffrey Singer told Arabian Business that the exchange will go through with a soft launch before the end of November. Moreover, he confirmed that short-selling is - and will be - permitted by the Dubai Financial Services Authority (DFSA) and DIFX.

"We received regulatory approval in July, signed our market maker shortly thereafter, and now we're setting up the trading members," he said.

"Our next step will be to set up the products and make them available to the market, and we're very close to having this completed."

The DIFX announced in July that it would become the first Gulf bourse to launch derivatives trading later this year.

However, in the wake of the US financial meltdown, global markets are witnessing a backlash against the practice of short-selling, where traders aim to profit from falling prices by borrowing shares and selling them in the hope of buying them back for less.

Critics claim that the practice has pushed down global markets - and could do the same in the Gulf.

"These steps are not aimed at the market makers and those who short stock as the normal part of creating a liquid market," said Singer.

"The DIFX is an international market and we're regulated by the DFSA. We have no financial institutions listed on our market - our companies are not being targeted by short-sellers."

According to the Bank for International Settlements, the global over-the-counter derivatives market increased 15 percent to $596 trillion in the second half of 2007, while the equity derivatives market shrank 1 percent to $8.5 trillion.

Short-selling has been blamed for driving down the stock of Lehman Brothers prior to its collapse earlier this month.

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