SCA finalises rules on covered warrants

The Securities and Commodities Authority yesterday announced that it had finalised regulations for the issuance and trading of covered warrants.

The regulations, which were finalised at an SCA board meeting last week, will come into effect when they are published in the country’s Official Gazette. That is expected to occur within a month.

The federal regulator’s chairman, Sultan bin Saeed Al Mansoori, praised the move as adding depth to the financial services sector by increasing the tools available to investors.

Covered warrants are a form of listed security issued by financial institutions that are subsequently made available for trading on stock markets.

The warrant gives the holder the right, but not the obligation, to buy or sell an underlying asset at an agreed price on or before a set date.

Yesterday’s move is seen as a precursor to the introduction of regulations for other more complicated instruments such as options and futures.

An SCA spokesman declined to comment on whether regulations for futures and options were being prepared.

Institutions wishing to issue covered warrants must receive a licence from the SCA, which the regulator said would be renewable on an annual basis.

The covered warrants may be issued by local and foreign investment and commercial banks, together with non-financial institutions that have been licensed by the SCA “to operate in the securities sector”.

Issuers must have a minimum capital of Dh100 million. Once issued, the covered warrants can be traded on local stock markets.