Dubai Financial Market, or DFM, the world’s second best performing stock exchange in 2013, on Thursday took another key step in its efforts to further boost its profile by issuing Securities Lending and Borrowing (SLB) rules.
The exchange said the move was in line with its constant efforts to enhance market infrastructure as per international best practices.
SLB is a system in which traders borrow shares that they do not already own, or lend the stocks that they own but do not intend to sell immediately. Just like in a loan, SLB transaction happens at a rate of interest and tenure that is fixed by the two parties entering the transaction.
DFM said the operational implementation of the SLB rules is targeted by the first quarter of 2014 and contingent on the readiness of market participants.
As per the DFM SLB model, foreign securities lenders and borrowers may arrange loans based on international practices but will have to instruct local approved Lending/Borrowing Agents to move loaned securities, whereas local lending and borrowing business will be undertaken by approved Lending/Borrowing Agents, which can either be local brokers, local custodians or any entities as may be approved by the Securities and Commodities Authority (SCA), DFM said in a statement.
In the initial phase, securities lending and borrowing activities will be limited for market making activities and for settlement of failed securities delivery for DVP trades.
Maryam Fekri, executive vice-president and chief operation officer, at DFM said SLB is a key market infrastructure for the development of other market products, including ETFs, that will help diversify the range of products to be offered.
Over the past years, DFM has taken numerous initiatives and implemented various market enhancements.
“Certainly, these developments were highly recognised by local and international investors alike and played a pivotal role in the UAE market classification as “Emerging Markets” status by MSCI as well as S&P Dow Jones amongst other international index companies which reflect international investors’ confidence in our markets and their satisfaction with what we have accomplished.”