Abu Dhabi Securities Exchange enhances trading system

The Abu Dhabi Securities Exchange has made a significant move towards its aim of achieving emerging market status by enhancing its trading system.

The Abu Dhabi Securities Exchange is enhancing its trading system. Delores Johnson / The National
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The Abu Dhabi Securities Exchange (ADX) said yesterday that it had made enhancements to its trading system, the improvement of which is a key factor in achieving emerging market status.

The UAE's stock markets - the ADX, Dubai Financial Market and Nasdaq Dubai - are still classified as frontier by MSCI after the index provider decided against an upgrade last summer, citing concerns "regarding specific market accessibility issues related to custody and clearing and settlement".

The new procedure, which will take effect next month, means that a buying investor will be paid cash compensation in the event of securities being unavailable for delivery to the buying investor on settlement date, the ADX said yesterday.

This is called a buyer cash compensation (BCC) settlement procedure and relates to delivery versus payment mechanisms.

"With the implementation of BCC, ADX not only seeks to reinforce the current implemented DVP [delivery versus payment] model, but also to keep in adherence with international standards for financial markets infrastructure," it said.

Rashed Al Baloushi, the ADX chief executive, said "applying this … will assist us in utilising the necessary measures to strengthen our overall frameworks, minimise operational risk, and streamline processes for effective day-to-day operations which will be vital as we continue to enhance services we provide to our stakeholders".

ADX said it would be conducting briefing sessions for its market participants to explain the many aspects of the new procedure.

An upgrading by MSCI to emerging market status is expected to bring greater liquidity to local markets and mark a key moment in the development of regional capital markets. Qatar is seeking a similar upgrade.

Criteria for index inclusion includes economic development, size and liquidity requirements as well as market accessibility factors.

The latter category includes foreign ownership limits, clearing and settlement and DVP mechanisms.

The UAE in November 2011 introduced a DVP system, where cash is paid at the same time when securities are delivered. However, traders have complained of glitches in the system.

Local equities have performed strongly this year, showing an increase in volumes and renewed interest in property and banking stocks.

The MSCI UAE index was one of the top frontier market performers in the first quarter, showing a return of almost 25 per cent.

Emerging market indexes traded lower for the most part during the first three months of the year.