Abu Dhabi bourse approves new rules on stock suspensions

Abu Dhabi Securities Exchange brings in rules to introduce suspensions for stocks that fall by 5%
Abu Dhabi bourse approves new rules on stock suspensions
By Reuters
Sun 14 Dec 2014 05:39 PM

The Abu Dhabi Securities Exchange (ADX) will temporarily suspend stocks that fall by 5 percent under new rules effective from Sunday as slumping oil prices continue to hit markets across the Gulf.

Investors have been dumping Gulf shares on fears that oil's more-than 45 percent collapse since June amid a supply glut will choke off growth in the region's hydrocarbon-based economies.

The ADX, which closed down 3.6 percent on Sunday, is the first Gulf bourse to try and stem the declines. It said in a statement on Sunday that the five-minute suspensions would allow investors to review their trades and assess what was causing the stock to fall.

Under existing rules, share prices could rise by a maximum of 15 percent and decline at most by 10 percent in one day, but there were no other restrictions on intraday price movements.

"We see some investors making trades without studying them enough and without enough knowledge," ADX Chief Executive Rashed al-Baloushi told Reuters.

"We had been studying this for a while and we were going to implement the decision at the right time but, of course, we saw that now is the right time to do it."

Such restrictions, known as circuit breakers, are common in many developed markets. They are intended to prevent wild swings in share prices, often due to panic selling or trader error, such as 'fat finger' trades where an incorrect number is accidentally inputted.

But Teymour El Derini, director of MENA sales and trading at Naeem brokerage in Cairo, questioned whether Abu Dhabi's new rules would work.

"Moves like these just give investors the wrong signals," he said. "Such a constraint does not give investors confidence. If stocks are going to go down, they will go down."

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