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Financial Markets Advisory Council Discusses Enhancing and Promoting the Role of Market Makers

The meeting was opened by H.E. Dr. Obaid Al Zaabi, CEO of SCA, who noted, in his speech, SCA’s initiatives and priorities for the coming years and the procedures implemented for the issuance of its new law in line with the best international practices. Partners in the securities industry have been already informed of the law and their feedback was taken into consideration prior to its approval by the concerned authorities.

Dr. Al Zaabi also said that SCA is working closely with financial markets to meet the requirements for the upgrade to developed-market status and that it has come a long way to do so. It introduced a wide range of initiatives that included the implementation of the self-regulatory model in the UAE-based financial markets. As a consequence, SCA vested in these markets a number of powers relating to margin trading, direct market access, online trading, and market making. 

The meeting concluded with a number of recommendations, including the need for coordination to enable market makers to select securities for market making while achieving balance between liquid and less liquid securities. Also among the recommendations were organizing workshops aimed at raising awareness of the role of market makers as liquidity providers, drafting regulations relating to consolidated accounts, increasing free float to increase market liquidity, the importance of a clearing company consistent with the requirements for market upgrade, and making fixed income instruments—such as bonds—available to retail investors.

Participants in the meeting reviewed a presentation on enhancing and promoting the role of market makers and that of institutions offering comprehensive and integrated services. They also reviewed a road map for launching derivatives as new financial products in the UAE-based capital markets.

As to maximizing the role played by market makers, participants were briefed on SCA’s efforts to have the market operational rules approved through meetings and communications with market makers to identify and counter the challenges and obstacles faced.

As to consolidated accounts, participants were briefed on the discussions held with the markets to draft regulations for this type of accounts and to develop solutions to handle relevant caveats. They were also briefed on the efforts made in coordination with these markets to draft operational requirements for consolidated accounts, according to an agreed-upon legal framework.

Dr. Al Zaabi stressed that SCA’s plan for transforming brokerage companies into integrated financial services companies— thus enabling them to diversify their activities and increase their revenue sources—is intended to create a competitive environment for financial services companies to ensure the highest standards of excellence. This, in turn, will allow investors to opt for the most distinct and committed financial services providers that deliver “decent” and “transparent” services. It will also ensure record levels of institutional maturity that enable financial services companies to compete with their counterparts in developed markets. This will help to keep pace with the remarkable progress witnessed by the UAE-based markets towards the upgrade to developed-market status. It will diversify income sources, reduce reliance on oil revenues, diversify operational risks, and match governance requirements with systemic risks and disclosures relating to money laundering and terrorism financing.

Dr. Al Zaabi said that the discussions held with representatives from brokerage companies dealt with the diversification of income sources such that they are not limited to commissions earned from the buying and selling of shares but go beyond that to the profits these companies make from account management fees, investment consultancy fees, portfolio management fees, proceeds from the sale of data and information, fees and costs of financing margin trading, underwriting fees, trading commissions, and fees from other transactions.
 
As to the fourth item on the meeting’s agenda concerning the launch of derivatives in the markets operating in the country, the presentation indicated that SCA has already issued derivatives regulations in 2018. It demonstrated SCA’s efforts aimed at improving derivatives markets and regulating OTC participants.

Dr. Al Zaabi reviewed the fifth item on governance, taking into consideration that the UAE is among the ten best countries in the world on the minority shareholder protection index in the World Bank’s global competitiveness reports. SCA introduced some development initiatives, including sending invitations to investors to attend general meetings via short text messages and emails. It created a webpage dedicated for young investors by enhancing their awareness of their rights and responsibilities. SCA is currently working to update governance controls and bringing them in line with the best international practices by adopting current practices, such as those concerning integrated reports; sustainability; environmental, social, and governance criteria; and women’s representation on corporate boards. Dr. Al Zaabi stressed that as usualSCA will publish the draft regulations for industry feedback before having them approved. 

In response to directives from SCA’s board to conduct ongoing coordination with the financial industry partners and related parties to implement plans associated with SCA’s priorities that were approved by the board earlier, the key priorities associated with SCA’s projects and initiatives were reviewed.

The priorities included upgrading the markets to developed-market status and to sustainable financial markets, finding a leading Islamic capital market and an advanced governance system that is in line with the best international practices, regulating financial technology and initial coin offerings (ICOs), developing innovative solutions for regulating and supervising capital markets, providing unconventional resources for small- and medium-sized enterprises, maintaining the UAE status as one of the ten best countries in competitiveness (minority shareholder protection index). The initiatives also include launching joint initiatives with financial markets to increase market liquidity and liquidity volume.  

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