ABU DHABI: Abu Dhabi Securities Exchange (ADX) has started the technical short selling service by conducting meetings with brokerage companies in Abu Dhabi and Dubai, in order to begin the official introduction early next year.
“This service is part of continuing efforts to modernize, enlarge and upgrade the market. It also aims at diversifying investment instruments in order to increase the level of liquidity to match global markets. This will enable us to attract foreign investors accustomed to these instruments,” said Abdullah Al-Blooshi, ADX chief executive officer.
Technical short selling allows the investors to sell stocks that they don’t own, yet theyare committed to afford during the settlement period. The aim is to gain profits from the price difference if the stock value goes down.
According to Al-Blooshi, brokerage companies will benefit from this service on behalf of their customers, the market maker, as well as any side that ADX finds fit for this service. It was empowered in a gradual application system, hence the market discloses the stocks listed that will be allowed for short selling.
“Since ADX became a digital market, it adopted a policy of guarantying these disclosures for every concerned side, with the ability to achieve continuous evaluation of stocks allowed for short selling, which will be done every six months. And in case the situation has changed, the market will request the short accounts to hand over sold stocks in settlement days,” added Al-Blooshi.
According to Al-Blooshi, ADX pays attention to surveillance and transparency procedures, which enabled the market to join emerging markets list.
“The accounts allowed for short selling are only margin trading accounts and investors who obtained ADX acceptance to trade technical sort selling, in addition to investment funds, institutional investors, custodian clients, and market makers. Bearing in mind that the door will be open for others who we ensure his/her financial and investing situation,” added Al-Blooshi.
Given the nature of this instrument, ADX stipulates that the price of sold stock must be higher than the price of last deal price – or one unit higher. And in case the price slumps %5 during the same trading session, the automatic short selling mechanism will be ceased during the same day as well as during the following trading day.
“This efficient system guarantees instant disclosure for all stocks open for short selling, the daily volume, the dates of trading as well as the automatic time of these sales,” said ADX chief executive officer.
Meanwhile, Abdullah al-Nuaimi, head of market operations & surveillance department, said that licensed companies must guarantee strict accounting commitments with investors and clients, in accordance with ADX conditions.
“Brokerage companies must be committed that the technical short selling is a (minus) purchase in order to be fully disclosed. Also in the brokers’ books, a 20% of the deal will be added as a guarantee. By the end of the day the brokers as well as the custodian will evaluate the stocks that were short-sold in accordance to its market value, and against the guarantee presented by the client. If the price is not equal to the market value, the clients will be informed to increase their guarantee. Otherwise the broker has the right to purchase the stocks,” added Al-Nuaimi.
“Short selling in an advanced step, not only as a hedging instrument, but also as a way increase the level of liquidity. The stock lender is usually a long-term investor, and the short selling will lead to further deals for these borrowed stocks,” added the head of market operations & surveillance department.
