Dubai Financial Market to Permit Short Selling to Boost Liquidity

Dubai Financial Market (DFM), the Arab Gulf's only listed stock exchange, said that it will allow short-selling on the UAE’s bourse within the “coming month”, a move that may attract further interest in local equities from foreign institutions.

To unlock the Asian market, register now to the iFX EXPO in Hong Kong

"DFM is planning implementation of regulated short-selling on a selected list of eligible securities in accordance with international recommendations under local market conditions in the coming months, subject to regulatory approvals of its rules," the exchange said in a statement.

Short-selling is currently not permitted in the UAE’s two markets and analysts have speculated that this is one of the reasons for falling trading volumes in recent years. In 2012, the UAE’s financial regulator followed the lead of Kuwait, the oldest established stock exchange in the region, by authorising stock lending and short selling, but restricted their adoption by limiting them to licensed market makers.

The DFM’s announcement comes shortly after the Abu Dhabi Securities Exchange (ADX) announced plans to launch limited short selling early this year.

The UAE's market regulator, the Securities and Commodities Authority (SCA), has been liberalising securities rules in recent years, partly to secure an upgrade in its status to 'advanced' from 'emerging' market by equity benchmark provider MSCI.

Abdullah Al-Blooshi, CEO of ADX, said that the initial tests would be conducted in a restricted and gradual manner to boost Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term and attract more foreign investors. Some brokerages in the UAE have been forced to shut down as turnover on the DFM and the Abu Dhabi bourse slumped to several year lows, while Nasdaq Dubai was trading less than $3 million daily.

Short selling – which allows investors to make gains in a falling market by borrowing a security they don’t own, selling it and agreeing to buy it back at a lower price – plays an important role in developed capital markets since it makes price discovery more efficient and smooths volatility whilst providing investors with a host of Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term tools.

Meanwhile, the exchange explained that due to the characteristics of such instruments, the price of a sold stock will be above the price of last deal price, at least one unit higher. In addition, the short selling mechanism will be ceased on any given day, and until the next session, should the stock price falls 5 percent during this day.