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Mon 7 Jul 2014 02:23 PM

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UAE regulator to tighten stock market supervision after Arabtec

Securities and Commodities Authority says rules on bank lending against shares will be reviewed and amended if needed

UAE regulator to tighten stock market supervision after Arabtec

The financial market regulator of the United Arab Emirates said it would tighten supervision of the stock exchanges, after wild trading in Dubai-listed construction firm Arabtec helped to trigger a market crash.

Regulations on bank lending against shares will be reviewed and amended if needed, the Securities and Commodities Authority said in a statement on Monday after its chief executive met with heads of the central bank, the economy ministry and the Dubai and Abu Dhabi stock exchanges.

The SCA said it would also set up a technical committee with the central bank and the exchanges to ensure the soundness and integrity of share trading, and to prevent any manipulation of stock prices.

The statements of corporate CEOs and securities analysts will be monitored to make sure they're truthful, while the committee will review sharp market movements and submit recommendations, the SCA added without elaborating.

Shares in Arabtec, the Dubai market's most heavily traded stock, more than tripled earlier this year to levels far above fair value estimates by fund managers, then lost more than two-thirds of their value as the bubble burst.

This helped to trigger a crash of the overall market as investors scrambled to cover their losses on Arabtec; about $30bn of market value was destroyed in eight weeks, although the market has partly recovered in the last few days.

The violence of the rise and fall of Arabtec shares was partly due to the fact that some buyers leveraged themselves through bank loans or other means, traders said.

Bullish comments about Arabtec and its shares by then-chief executive Hasan Ismaik, who resigned in June, helped to fuel investor interest in the stock.

The SCA has not so far taken any action against Arabtec or its executives over the swings in the stock; the regulator said in a statement last week that it had taken all necessary steps to ensure proper disclosure and good corporate governance by Arabtec.

The Arabtec debacle came at an awkward time for the UAE because it had just been upgraded at the end of May to emerging market status by international index compiler MSCI, a step which drew more foreign portfolio investors to the country.

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Nitin 5 years ago

Wonder why the regulator isn't looking at company disclosure instead?

Prince of Arabia 5 years ago

So what investigation is esca doing with Ismaik, why aren't we hearing news about that? Aside from the over optimistic comments made by him, why hasn't there been any disclosure when his stake jumped to 28%... As per esca rules, when a senior executive change his stake holding a disclosure is made!

Simon 5 years ago

It brings into to question who is exactly running the regulator...and their qualifications to run a Bourse of listed companies. I say this because the regulator has been found very 'wanting' in the Arabtec debacle...sound to speak.

It is just not good enough when Dubai has worked so hard to build itself up internationally that one of the most important 'spokes' in that wheel hasn't been doing its job.

The fact they were asleep in the very first months of regulation in Dubai's first few months of Upgrade in the world markets is unbelievably disappointing...and should not be overlooked.

Chris J 5 years ago

Perhaps the insider trading rules need to be adjusted also. There are people who sit in groups using internal information to trade the shares to move up and down. This is market manipulation of the worst kind and does not add any value to the market.

Sugandh 5 years ago

Dear investors, keep dreaming, you will never know the real truth.

My guess is that the dispute between Ismaik and Aabar is due to the Egypt project. Aabar probably doesn't care much about profits on this deal and most probably would have asked Ismail to execute the project at zero profit or very low margins which would drain the company resources and also his energy!

Ismaik must have refused and so he got fired.

This project probably so SOLELY to help Egypt DUE TO POLITICAL REASONS.

And about tightening of regulations, there will be no such thing ... The regulator might make some examples of small fish to show the market that they are taking action, but the big boys will be untouched!