Dubai rolls out short selling

The Dubai Financial Market has introduced regulated short selling which it hopes will boost liquidity. (Reuters)

LONDON: The Dubai Financial Market (DFM) is set to offer regulated short selling, with seven brokerage firms having already applied for licenses.
But experts predict the sector will grow slowly, in line with subdued take-up in Abu Dhabi and Saudi Arabia.
The move — intended to boost liquidity in the stock market — will see investors able to sell stocks they do not own, profiting if prices drop rather than increase.
DFM follows the Abu Dhabi Securities Exchange and the Saudi stock market, Tadawul, in offering regulated short selling.
Nadi Bargouti, head of asset management at Emirates Investment Bank, told Arab News that so far there had been limited interest in short-selling in both Abu Dhabi and Saudi Arabia.
In a statement, DFM said it had “successfully completed an extensive preparation stage over the past few months” to prepare the ground for regulated short selling, consulting with market participants on the operating model and making “necessary technical enhancements in order to ensure the full readiness of DFM’s systems and regulation.”
According to Bargouti, this is all crucial for short selling to work in Dubai, but he added that more needs to be done: “I don’t think the investor base is ready. I don’t think the technology is ready. There needs to be some more investment in technology and in expertise. It will come. Most brokers and banks have been talking about this for years now, and always they blame the regulator for not allowing this. Now the regulator is saying, you can do this; show me how you can do this, so now the burden is on the brokers and banks to show they will be investing in technology, in people, to do this the way it is supposed to be done.”
Short selling carries complex risk requiring understanding by traders and investors. Bargouti explained: “First, you need to attract investors from abroad to take part in this, but for those investors to be participating in this they need to be comfortable first of all in knowing that the market is ready, and second, that the regulator is actually regulating it properly; third, that brokers who are offering this are capable of offering it efficiently.
“For regional investors, you need to educate them as to what short selling actually means, so what it entails, and the risks involved, and how it’s done mechanically, so there’s several aspects.”
Seeing the change as part of “a broader strategy to upgrade the market infrastructure in the UAE in order to bring it in line with international standards,” Bassel Khatoun, chief investment officer of MENA Equities at Franklin Templeton Investments (ME), said; “It is likely to generate greater liquidity and more efficient security pricing in the market.”