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Abu Dhabi, UAEMonday 10 December 2018

Abu Dhabi bourse introduces technical short-selling

The move is aimed at shoring up liquidity, attracting more foreign investors

The ADX had announced plans in December to introduce short-selling -  the practice of selling borrowed shares in the hope of buying them back later at a lower price - by the end of March. Ben Job / Reuters
The ADX had announced plans in December to introduce short-selling -  the practice of selling borrowed shares in the hope of buying them back later at a lower price - by the end of March. Ben Job / Reuters

Abu Dhabi Securities Exchange (ADX), which has a market capitalisation exceeding Dh400 billion, said on Tuesday it had launched technical short-selling (TSS) services as part of efforts to boost waning liquidity and attract more foreign investors.

The ADX had announced plans in December to introduce short-selling - the practice of selling borrowed shares in the hope of buying them back later at a lower price - by the end of March. The Dubai Financial Market announced in January plans to introduce covered short-selling but has yet to set a firm date for implementation.

“The launch of this new service falls in line with ADX’s strategy to increase liquidity levels as well as diversify investment and hedging instruments in order to better attract specialised foreign investors,” said the exchange. “The TSS service allows the investor to sell stocks that they don’t own, but can afford within the applicable settlement period (T+2), in order to achieve profit buying the stock back if the value goes down.”

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To regulate short-selling, the bourse will suspend trade in a given stock if its reference price falls 5 per cent in a day or if the short sold securities reach 10 per cent of total capital issued, limitations which could put off investors and will make it harder for the service to gain traction, brokers said. The exchange did not specify which stocks will benefit from short-selling services.

“This service comes within the framework of Abu Dhabi Securities Exchange’s strategy to enhance the investment environment in the emirate and attract more foreign investment, in line with Abu Dhabi's 2030 Economic Vision," said Rashed Al Blooshi, the chief executive of ADX.

Al Safwa Mubasher Financial Services will be the first brokerage to offer this service.

Brokers had mixed reactions to the launch of short-selling in the UAE.

Menacorp is in the process of introducing the service and is awaiting regulatory approval but hopes to start providing short-selling services before the end of the year, said Nabil Al Rantisi, the managing director of the brokerage at Menacorp.

“While investors might be against allowing short-selling - it was cited as a cause of the 2008 crisis in some developed countries - it will eventually, in my opinion, increase market sophistication and bring matured investors to the table,” said Tariq Qaqish, the managing director of asset management at Menacorp. “We do expect to see more interest from foreign investors supported by their experience in their countries as it has been developed for years now and has plenty of active hedge fund strategies.”

NBAD Securities is currently not considering offering short-selling services and will wait to see how the market reacts to its introduction, said Mohammed Yasin, the managing director of the brokerage.

“ADX took this step to get brokers and investors used to the idea of short-selling but it is very limited in its current implementation and it is very limited in its effects on the market,” said Mr Yasin.