Abu Dhabi Securities Exchange said on Thursday that investment and brokerage firm Al Ramz Capital performed the first covered short selling using the stock lending and borrowing facility on the bourse.
Short-selling is the practice of selling borrowed shares in the hope of buying them back later at a lower price. Stock lending and borrowing is a system in which traders borrow shares that they do not already own, or lend the stocks that they own but do not intend to sell immediately. It allows investors to enhance the yield of long-term holdings by lending securities to borrowers for an annualised fee while retaining all the rights of holding the securities.
“The launch of the CSS service is part of the exchange’s strategy to support the diversification of investment tools and provide investors with a broader range of hedging mechanisms,” said Mohammed Al Shorafa, chairman of ADX.
“By doing so, it will attract a new segment of specialised and experienced investors, driving both liquidity and trading volumes.”
Exchanges across the region are going through structural and regulatory reforms to become more accessible to a broader range of investors. Over the last few years, they have aggressively expanded product offerings to draw more foreign direct investment.
The Arab world’s second largest bourse by market capitalisation had launched technical short-selling services in 2017 as part of efforts to boost liquidity and attract more foreign investors.
“This is an important step forward in the development of regional capital markets,” Dhafer Sahmi Al-Ahbabi, chairman of Al Ramz, said.
“Stock lending and borrowing provides investors the opportunity to enhance the return on long-term holdings while simultaneously providing other market participants hedging and shorting solutions.”
Al Ramz Capital is a subsidiary of Al Ramz, a Dubai Financial Market-listed company that offers a variety of financial products and services including asset management, corporate finance, market making, liquidity providing, brokerage, IPO management and research.