DUBAI Jan 5 The UAE stock market regulator has
introduced new margin lending rules and vowed to crack down on
unlicensed lending, it said in a statement on its website.
Margin lending - borrowing with cash or share holdings as
security, has been in high demand as investors sought to
maximise gains from a UAE market surge, with Dubai and
Abu Dhabi's bourses jumping 108 percent and 63.1 percent
respectively last year.
Limits on such lending were introduced in 2008, but many
brokers ignored these and faced few repercussions. Now, on the
request of brokers, the Securities and Commodities Authority
(SCA) has made changes to what firms can lend customers.
Previously, firms could lend each client 10 percent of the
capital they set aside for margin lending, but they can now lend
three times that amount. The new rules are to take immediate
Firms must abide by the new regulations or face fines of
100,000 dirhams ($27,200). Repeat offenders may lose their
licences in a promised crackdown on illicit margin lending.
"The SCA is doing something important, which is to lower the
risk to smaller companies giving unlimited margin and limit
downward volatility," said Mohammed Ali Yasin, managing director
of Abu Dhabi Financial Services.
The new rules may increase margin lending in the long term
as brokerage firms boost their base capital to provide more
margin lending, but in the short term trading volumes may fall
as brokers comply with previously-ignored lending limits.
"Brokers have to adjust positions to bring margin levels
down," said Hisham Khairy, head of trading for institutional
desk at MENA Corp brokerage firm, adding trading volumes could
drop by 30 percent initially.
($1 = 3.6730 UAE dirhams)
(Editing by Matt Smith and Keiron Henderson)