ABU DHABI // The Federal National Council called on the stock market regulator to review financing after individual investors in the UAE lost millions of dirhams in the recent turmoil.
Members urged Sultan bin Saeed Al Mansouri, chairman at the Securities and Commodities Authority (SCA) and Minister of Economy, to implement regulations requiring banks to comply as brokerages do with regards to lending against shares.
Stockbrokers regulated by the authority cannot exceed the one-to-one ratio on margin accounts. Banks regulated by the Central Bank that are not under the umbrella of the SCA provide overdrafts that can provide higher exposure than brokerages.
Mr Al Mansouri said a new law was in the works that would increase fines on brokerage firms that exceed the limits allowable. Fines are currently Dh100,000. The proposal would raise them to a maximum of Dh10 million. The regulations would further cover breaches on corporate governance and potentially publicly reveal the identities of investors – individuals or entities – who have broken the law.
FNC members criticised the SCA after banks provided up to 10 times leverage on the initial public offering of Dubai Parks & Resorts and unexpectedly changed the allocation of shares from the prospectus.
“Some people lost Dh2m, Dh3m and Dh4m when they only owned Dh1m,” said Dr Yaqoub al Naqbi (Sharjah).
“The leverage offered on Dubai Parks was up to 10 times. I know a Syrian individual who took his hard-earned money of 20 years, which was about Dh1 million, and subscribed to the IPO. But when the company changed the percentage allocated for retail investors, foreign and institutional investors, his holdings were diluted incredibly and the bank forced him to sell. One old man came to me, crying. I asked him what can I do? Go to the SCA.”
Media reports have recently focused on margin calls, when banks force highly exposed clients to sell their shares instantly when they drop below a certain threshold.
Brokerage firms, on the other hand, are required to review margin transaction accounts at the end of each working day and notify the client to cover the account within two working days. If they fail, then the broker enforces the sale of shares.
Ahmed Al Ahli (Dubai) called for the introduction of short selling, the practice of selling borrowed shares in the hope of buying them back at a lower price, returning them to the original owner and keeping the difference.
Brokers last month said foreign investment banks were making short sales on local stocks.
“We all know this, and we should admit we have a problem here,” Mr Al Ahli said. “I don’t understand why we don’t want to admit this. When the market crashes for a select number of entities at the expense of many ... some people lost money, investors, traders because this tool is not available to everyone. We need to find a solution, otherwise our market will go up and down in a crazy way.”
Mr Al Mansouri reiterated that short selling was illegal.
“Despite the regulations introduced by the watchdog, only market makers are allowed to short sell,” he said. “NBAD, the licensed market maker, has yet to assume these practices.”
Mr Al Ahli urged the minister to look at Arabtec, whose stock price plummeted after its chief executive, Hasan Ismaik, stepped down and hundreds of people were made redundant.
Arabtec’s turmoil prompted the SCA to create a committee to track statements by executives and their impact on the stock price as Mr Ismaik was seen to be increasing the stock price and accumulating shares in Arabtec.
Investors were concerned that Arabtec’s main shareholder, Aabar, would take Arabtec private, as Ipic, Aabar’s main shareholder, did with Aabar.
“We know some people are untouchable,” Mr Al Ahli said. “Some people say Arabtec is Aabar, tomorrow they can delist us from the market.”
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