ADX to introduce short-selling next year


Abu Dhabi’s stock exchange ADX, recently announced that it plans to introduce short-selling where investors will be borrowing shares and selling them in the expectation of repurchasing later at a low price to boost liquidity and attract more foreign customers.

“This service is part of continuing efforts to modernise, enlarge and upgrade the market,” said Rashed Al Baloushi, the chief executive of ADX, in a statement. “It also aims at diversifying investment instruments to increase the level of liquidity to match global markets. This will enable us to attract foreign investors accustomed to these instruments.” 

The term Short selling is a concept of selling borrowed shares in hopes of buying them back later at a lower price, returning them to the original owner and keeping the difference.

Trading regulations

The Securities and Commodities Authority (SCA) regulates trading on the ADX and Dubai Financial Market (DFM), allowing short selling for market ­makers only.

As of now, Gulf Regulators have debunked this practice because of concern that it could destabilise markets, though some countries including Saudi Arabia and Qatar have said they plan to introduce it.

The Abu Dhabi Securities Exchange (ADX) also held meetings with brokerages in Abu Dhabi and Dubai ahead of the launch of a short-selling service.

Al Blooshi told Reuters that the exchange was acting after the United Arab Emirates market regulator, the Securities and Commodities Authority, approved rules on short-selling.

Introducing short selling on ADX will allow the start of equity futures trading on Nasdaq Dubai in September, coming amid increasing efforts to deepen markets at a time when volumes traded have been diminishing.

The introduction of short selling on the ADX is a positive step and a sign that the market is maturing, said Mohammed Yasin, the head of NBAD Securities in Abu ­Dhabi.

Foreign institutional investors are unlikely to rush to adopt the practice.

Probably what we will see is that some of the local more experienced investors, they may like to try it out and see how it goes,” said Mr Yasin. “Once this becomes more a widespread kind of practice in the market, it will create certain balances, and it will create liquidity in times when markets are not moving and in times when markets are not moving.”

In a statement, the ADX described several rules to reduce risks surrounding short-selling. For example, the price of stock sold short must be higher than the last deal price involving the stock, while brokers’ clients will have to provide guarantees when selling short.

ADX’s short-selling service will be open to investors with margin trading accounts, investment funds, institutional investors, custodian clients and market makers, said Blooshi, noting that the “door will be open” to other investors if they obtain approval from the exchange.

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