SCA suspends licence of some brokerage firms

A number of brokerage firms have had their membership of the Dubai Gold and Commodities Exchange (DGCX) suspended after they failed to comply with new minimum capital requirements and other rules.

The action was taken by the Security and Commodities Authority (SCA).

The regulations that were broken were introduced to boost the professional standards of brokerage firms and improve investor protection.

More than 40 brokerage firms are listed as "inactive" in the exchange's membership records. Some firms are trying to reinstate their membership by increasing their capital and bank guarantee levels.

SCA sources said the membership of several firms has been made inactive because they failed to comply with the SCA deadline to increase their capital base by Dh20 million from Dh10m to Dh30m and the value of bank guarantees from Dh10m to Dh20m.

The new regulations introduced by the SCA at the end of 2006 instructed brokerage firms to employ professionally qualified personnel in the financial and commodity markets. SCA spokesman Essam Abdul Hadi said the authority had reminded brokerage companies several times to comply with the new requirements but some had failed to do so.

But the SCA declined to comment officially on the suspensions. And the exchange did not respond to inquiries about the large number of inactive members listed on its website.

The inactive firms include VIP Jewellers and Goldsmith DMMC, whose spokesman Abdul Rauf Naushahi said: "When we started operations the minimum capital required to start a brokerage firm was only Dh10m.

"The new guidelines came as a big blow to small companies like ours because we have to invest at least Dh30m more to retain the brokerage licence. In addition we are asked to recruit new qualified staff who have to be paid better salaries.

"Initially there was no big volume of business on the commodity market to warrant such huge investment for a small brokerage firm and even now the business volume is not very high. For small companies there is no way to continue in business and hence our membership is not active now.

"After the new rules were introduced several brokerage firms surrendered their membership cards and did not renew their brokerage licences because the volume of business was negligible."

Khalid Al Rayes, of HNW Commodities DMCC, said: "We have been working closely with SCA officials to fully comply with the guidelines. We have recruited trained staff and are implementing other measures."

 

The regulations

An initial suspension lasts for one month, during which time the companies affected cannot conduct purchasing operations.

The brokers will be allowed to handle selling orders for clients holding accounts at the suspension date. If, at the end of the month, a suspended company is found to be still not complying with the regulations, the licence will be cancelled and the firm will be deleted from the list of brokerage companies.

 

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