Companies that have their initial public offerings oversubscribed must return deposits with profit within 15 days of the closure to people who are not allotted shares, says a new decision issued by Emirates Securities and Commodities Authority (SCA).

The Ministerial Decree No206 of 2010 is aimed at stimulating investors and companies, said Mariam Al Suwaidi, Deputy CEO for Legal and Research Affairs of SCA. Under this decree, banks overseeing the subscription process will have to calculate revenues on money deposited by subscribers in accordance with banking regulations. The profits will be calculated from the closing date of the IPO till the day before paying back excess funds to subscribers, she said.

Those allotted shares would also be entitled to profits, but in their case, the dividend yield would be deposited in the account of the company issuing the IPO.

"The move ensures preparations for expansion of the financial markets in the country and for an increase in the number of firms turning into public joint stock companies," she added.

The new rule will encourage investors to subscribe to shares, as they will be guaranteed some profit – should the IPO take off well – even if they are not eventually allotted shares, said Al Suwaidi. Therefore, the demand for IPOs will increase, and companies would be able to raise finance through the primary market, she added.

Welcoming the decision, Rami Al Thaqafi, Senior Director at Emirates NBD, told Emirates Business that the specified period of 15 days "ensures transparency in the markets and encourages institutional investors especially to subscribe to IPOs".

He noted that institutional investors, who form a strong segment of the market, have been staying away from IPOs due to the long time taken for share allocation and return of surplus funds, a period that reached three months in some cases. In such cases, these institutional investors made no profits from their locked-up funds, he said. In the current situation, where IPOs have all but disappeared from the market and the stock market is shaky, the new SCA ruling would ensure transparency rather than allow for any actual profitability, said Al Thaqafi.

"However, legislations in this regard are needed to ensure transparency, maintain investor welfare and encourage companies to turn into public shareholding [firms]."

Saif Eddin Atassi, Joint Venture Partner and Managing Director of Energis International, said the decision is "very timely" as it will encourage investors to subscribe to IPOs.

He, too, felt that apart from the downturn, what has held people back from investing in shares is the inordinate delay in repayment of funds in case shares are not allotted. "In one case, a bank overseeing an IPO delayed paying back Dh1.5 billion for one-and-a-half years. Subscribers had their money frozen in the bank without any returns," said Atassi. The new move will prevent the recurrence of such a thing.

SCA signs MoU with Quebec's AMF

The Emirates Securities and Commodities Authority (SCA) has signed a memorandum of understanding with Quebec's Autorité des marchés financiers (AMF) to boost co-operation between them in the Canadian province. Sultan bin Saeed Al Mansouri, Minister of Economy and SCA Board Chairman, and Jean St-Gelais, President and Chief Executive Officer of the AMF, signed the MoU.