Abu Dhabi’s stock market plans to introduce covered short-selling in the first quarter of 2017, its chief executive said on Monday, as it seeks to boost liquidity and attract more foreign investors.
In covered short-selling, investors borrow shares and sell them in the expectation of repurchasing them later at a lower price.
Regulators in the Gulf have until now shied away from allowing the practice because of concern that it could destabilise markets, though some countries including Saudi Arabia and Qatar have said they plan to introduce it.
The Abu Dhabi Securities Exchange (ADX) said on Monday it had held meetings with brokerages in Abu Dhabi and Dubai ahead of the launch of a short-selling service.
ADX chief executive Abdullah al-Blooshi told Reuters the exchange was acting after the UAE market regulator, the Securities and Commodities Authority, approved rules on short-selling.
Dubai Financial Market, the UAE’s other big exchange, did not respond to an emailed request to comment on whether it too might eventually launch short-selling.
Blooshi said the ADX aimed “to diversify 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”.
ADX’s short-selling service will be open to investors with margin trading accounts, investment funds, institutional investors, custodian clients and market makers, said Blooshi, noting that the “door will be open” to other investors if they obtain approval from the exchange.
In a statement, the ADX described several rules to reduce risks surrounding short-selling. For example, the price of a stock sold short must be higher than the last deal price involving the stock, while brokers’ clients will have to provide guarantees when selling short.