DFM to allow short-selling this year

‘Delivery versus Payment’ to begin by end-March

Dubai Financial Market (DFM) is getting geared up for the introduction of ‘Short-Selling’ and ‘Securities Borrowing and Lending’ later this year, a statement said.

DFM also announced on Monday its full readiness to introduce the new settlement mechanism ‘Delivery versus Payment’ (DvP) before the end of March.

DFM has completed all the technical requirements to apply DvP in co-ordination with custodians and brokerage firms. The exchange is poised to be at the forefront of regional markets to adopt DvP before the end of the first quarter 2011, the statement said. This development is phase one of DFM’s drive to implement international best practices, whilst continuing to respond to the UAE Securities and Commodities Authority (SCA) future regulations and closely cooperating with SCA in its efforts to develop the financial markets in the UAE, the statement added.

Phase two will include getting DFM geared up for the introduction of ‘Short Selling’ and ‘Securities Borrowing and Lending’ later this year, the statement said.

The internationally acclaimed settlement mechanism is a low risk and more efficient system, which is widely used by the international exchanges such as the New York Stock Exchange, London Stock Exchange and Hong Kong Stock Exchange.

It is noteworthy that having DvP in place is one of the key requirements for a potential promotion of the UAE stock markets from ‘Frontier Markets’ to ‘Emerging Markets’ within the MSCI Emerging Markets Global Index. The international index company is expected to review the status of the UAE markets in June 2011, the statement said.

Essa Kazim, Managing Director and CEO, Dubai Financial Market said: “The DvP mechanism is an international best practice recommended by the International Organization of Securities Commissions (IOSCO) in its document “Recommendations for Securities Settlement System” published in November 2001. DFM has engaged recently in the preparation of a series of progressive plans to enhance the market regulatory infrastructure, anticipate UAE Securities and Commodities Authority (SCA) future regulations and continue to closely collaborate with SCA in its efforts to develop the financial markets in the UAE through the introduction of DvP followed by ‘Short Selling’ and ‘Securities Borrowing and Lending.”

“This announcement is a significant development for the UAE markets and takes a crucial step forward in elevating the UAE markets to “Emerging Markets” status by the MSCI, who previously cited the absence of DvP as one of the main reasons for not promoting our markets in their 2010 review. Undoubtedly, this will further promote our markets amongst a larger number of international investment funds,” Kazim added. 

“There are two main benefits of adopting DvP; risk reduction and enhanced efficiency. DvP enables a market to eliminate principal risk associated with transactions and ensures the transfer of ownership of securities from the seller to the buyer concurrently with the transfer of the transaction’s value from the buyer to the seller.

"This mechanism will also further enhance the interaction between custodians and their clients in relation to the settlement process. It is noteworthy that the DvP mechanism addresses the settlement procedures of transferring ownership and transaction’s value and does not change the time frame of the settlement, hence the DFM is continuing with its current settlement cycle of T Plus 2,” Maryam Fikri, Senior Vice President, Clearing, Settlement and Depository Division Head, DFM said.

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