Dubai bourse follows Abu Dhabi market’s move on short-selling

The DFM’s announcement comes a week after the Abu Dhabi Securities Exchange announced plans to launch limited short-selling early this year.

Dubai Financial Market executive vice president Hassan Al Serkal expects two new listings before the end of the year. Jasper Juinen / Bloomberg

Dubai’s stock exchange said on Tuesday that it plans to introduce covered short selling for selected securities within months, a move that may attract further interest in local equities from foreign institutions.

“DFM [Dubai Financial Market] is planning [the] implementation of regulated short selling (RSS) on a selected list of eligible securities, in accordance with international recommendations under local market conditions, in the coming months,” the exchange said in a statement.

A spokesman for the exchange told The National it was working on enhancements to its internal regulations for short selling – the practice of selling borrowed shares in the hope of buying them back later at a lower price – and would introduce the practice following approval by market regulator, the Securities and Commodities Authority (SCA).

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

The ADX chief executive, Rashid Al Baloushi, said the move was aimed at “diversifying investment instruments in order to increase the level of liquidity to match global markets”.

Neither exchange has given details as to which securities the practice will apply to.

Traders have welcomed the introduction of short selling as part of the further maturing of local markets.

“We know this has been on the DFM’s agenda for a while now,” said Hani Konquar, the team leader for Mena equity sales and trading at Mubasher Financial Services in Dubai.

“It could have a positive impact on the development of the markets, especially on other products that were recently introduced,” he said, referring to Nasdaq Dubai’s introduction in September of futures contracts for local stocks.

Mr Konquar said short selling was likely to appeal to most foreign institutional investors, together with local institutions.

Short selling, while illegal across the Arabian Gulf (with the exception of Kuwait), has been practised by institutions throughout the region, and has been blamed for stock market routs.

SCA introduced regulations enabling short selling in 2012 for licensed market makers, with other institutions requiring permission from the regulator and the relevant exchange.

A market maker is a broker and dealer that balances supply and demand for shares by matching buyers and sellers.

It also stands ready to buy or sell shares when there are no public buy or sell orders, thus creating a market.

The Abu Dhabi bourse licensed Al Ramz Securities as a market maker in September. The DFM has yet to award any such licence.

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