Investors in the UAE have been cautioned against short-selling,which has been blamed for pushed down global markets.The UAE stock market regulator on Sunday warned parties not to short sell, but said no regulatory framework exists to curb the practice in the Gulf state.
“In the absence of a legal framework it is difficult to regulate short-selling as it requires some elements such as the implementation of margin trading regulations for a certain period of time,” Abdullah Al-Turifi, CEO of the Securities & Commodities Authority (SCA) said in a statement.
“But we will monitor it closely along in coordination with the stock markets and the central bank.”
The SCA was quoted by UAE daily Gulf News on Saturday as saying it was looking at taking action against parties involved in the practice, without being more specific.
Short-selling refers to the practice of selling securities the seller does not own in the hope of repurchasing them later at a lower price – attempting to profit from an expected decline in the value of a security.
Often the seller will “borrow” or “rent” the items to be sold, and later repurchase identical items for a return to the lender.
The practice contrasts with ordinary investment practice, where an investor “goes long” by purchasing a security in the hope the price will rise.
Dubai’s main bourse said on Sunday short-selling was not in keeping with regulatory rules and urged all parties operating in the market to abide by regulations.
“The market would also like to point out that what is being circulated that some international financial institutions are conducting short selling transactions, is not in keeping with regulatory rules,” the Dubai Financial Market (DFM) said in a statement.
DFM urged “all parties to abide with established regulator rules and refrain from practices which are not yet codified in local markets”.
The statement comes day after DFM Chairman Eisa Kazim said short-selling needed to be stopped “as it inflicts serious damage to our markets”.
Short-selling has been blamed in part for the demise of US investment firm Lehman Brothers and other big companies by fuelling the drop in their stock market value.
Regulators in the US and UK placed restrictions on short-selling last week in an attempt to bring stability to markets.
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