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Sun 18 May 2008 11:10 AM

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New regulations aim to quell market volatility

UAE market regulator approves regulations on margin trading on Gulf state's bourses.

UAE stock market regulator the Emirates Securities and Commodities Authority (Esca)on Saturdayapproved regulations pertaining to margin trading on the Gulf state's bourses in a move it says is aimed at luring more investments.The approval comes with slight amendments to the existing percentages of margin trading allowed on both the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX), Esca said.

Under the old regulations, traders were able to obtain leverage of up to three and four times capital holding intraday, with high net worth individuals (HNWI) allowed to carry larger ratios over longer periods of time.

The new regulations seek to cap the percentage of leverage in an effort to stave off the volatile swings the UAE markets have witnessed so far this year and provide a more stable environment to invite new investments.

It is hoped that by reducing the amount of margin trading in the marketplace, the new regulations will also compress the vast sums of liquidity which in turn can lead to overpriced stocks.

“This step would win more of the dealers' trust in the market and attract more investments,” Abdullah Al-Turaifi, Esca director, said in the statement.

Stability in the markets also invites larger allocations from many foreign funds which may have been wary of dramatically fluctuating stock prices.

The new regulations are due to come into effect four months after they are published in the official gazette, Esca said.