Fifty billion dollars may be enough to trigger major changes to regulation of the Arab world's second biggest stock market.
That sum is the value wiped off the Dubai and Abu Dhabi stock exchanges since May by the bursting of a bubble that was inflated by wild speculation among individual investors.
Regulators in the United Arab Emirates promising to tighten supervision of the market look set to focus on two factors: heavy borrowing by investors to fund leveraged share purchases, and erratic disclosure of information by listed companies.
Fund managers believe new rules may come by year-end, although some are sceptical that reforms will tameDubai's stock market, one of the world's most volatile emerging markets and a magnet for speculative money from around the Middle East.
"It is a positive move to come out with new and stricter regulations to ensure orderliness and control - but the issue is to enforce the regulations," said Tariq Qaqish, head of asset management at Dubai-based Al Mal Capital.
But the costs of the market crash to angry retail investors, many of whom are UAE citizens, may be enough to prompt a shift.
Some fund managers see a parallel with recent efforts to tighten regulation in other areas. Last year, for example, the UAE central bank imposed caps on mortgage lending in an effort to avoid another boom-bust cycle in its property market.
Past stock market turmoil in the Middle East has prompted regulatory changes in other markets, such as Saudi Arabia, the region's biggest, where the capital market authority cracked down on illicit trade following crashes in 2006 and 2008.
Tighter regulation could attract more foreign investment to the UAE. The country was upgraded to emerging market status by index compiler MSCI in May but non-Arab foreign investors own no more than an estimated 15 percent of the market.
"It's good to have regulators looking at these issues. We like free markets, but we don't want a jungle out there," said Slim Feriani, executive chairman at London-based investment management firm Advance Emerging Capital.
Regulators have a way to go to win investors' trust. A Reuters survey of the perceptions of a dozen fund managers in February ranked the UAE well behind Egypt and Saudi Arabia in implementing regulations against improper or illicit trade.
The recent crash in the UAE was triggered by huge swings in the shares of Dubai-listed construction firmArabtec, the emirate's most heavily traded stock. It more than tripled earlier this year, then lost over two-thirds of its value before partially rebounding.
Many purchases of Arabtec shares were leveraged, with investors who took out margin loans with brokerages pushing the stock far above fair-value estimates. When its slide began they were asked to put up part of that money as security, which triggered panic selling across the whole market.
Many suspect Securities and Commodity Authority (SCA) rules on margin lending - limiting its size to the value of an investor's portfolio, for example - were bent or circumvented.
"The market needs to get a grip on margin lending. We're not at the 15 times leverage that we were in 2008, but we're not as low as the regulations say we should be. Maybe we're at two to three times," one Dubai fund manager told Reuters.
The manager, who declined to be named because of the sensitivity of the issue, said brokers had found ways around the lending rules when the market was soaring and risks seemed low.
"For example, some brokers would give 500 percent leverage, restricting that to intra-day trade. SCA just needs to be more aware of these tactics."
The SCA declined to comment on details of reforms but said last week a new "technical committee" involving the central bank and stock exchanges would ensure the soundness and integrity of share trading and prevent any manipulation of stock prices.
In particular, it said the committee would review rules on bank lending against shares and amend them if needed.
Central bank rules say banks can only lend 80 percent of the value of shares pledged against a loan, but as with margin lending, the rules appear to have been bypassed in some cases.
"Some banks were offering 2.5 or three to one," said a senior UAE fund manager.
The manager said some local and foreign banks were lending tens of millions of dollars to stock investors. Some were caught out when Arabtec shares started plunging in May; on many days in June, the shares tumbled by their 10 percent daily limit.
"There were offers at limit-down from the market's open to the close ... That is not how brokers or investors exit markets. It was more banks' risk officers liquidating portfolios."
But limiting the amount of money speculators can get may not prevent stock bubbles if investors continue to operate in a fog of rumours and unreliable disclosures of information.
In February's Reuters survey of fund managers, the UAE ranked fourth out of five Middle East stock markets for timely and transparent corporate announcements, beating only Kuwait.
Bullish public comments by Arabtec officials about the stock price, expansion plans, acquisitions and possible spin-offs may have helped fuel frenzied buying of its shares.
Many of the plans have been shelved since chief executive Hasan Ismaik quit last month, after ties between him and big state shareholder Aabar Investments soured. Ismaik publicly denied any rift with Aabar just two days before he resigned.
The SCA said last week it would monitor the statements of CEOs and securities analysts, to make sure they were truthful.
But with many big companies and controlling investors in the UAE owned by the state, it may be hard for the regulator to force disclosure of information they view as inconvenient.
The SCA has so far not taken any action against Arabtec or its executives over the swings in the stock, insisting it took all necessary steps to ensure good corporate governance.
And other causes of the UAE's stock market bubbles are not being addressed. The country is awash in oil money but its currency peg to the dollar has stopped the central bank from raising interest rates, driving speculative money into stocks.
Also, the stock market is narrow in relation to the economy. Big corporate assets in oil, aviation and other sectors are not listed, leaving relatively few choices for investors, who end up concentrating in firms such as Arabtec.
Nevertheless, many fund managers think the SCA now faces heavy pressure to deliver on promises of tighter regulation.
"The regulator needs to become more proactive and I think they are," said the Dubai manager. "Because there are so many retail investors that got hurt, SCA is being forced to act."
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