Holding a meeting chaired by His Excellency Sultan Al Mansoori
The Securities and Commodities Authority’s Board adopts a decision regulating the central depository activity
The Board approves the regulation of offering and issuance of Islamic securities and reviews the financial results of listed companies for the last quarter of 2017
The Securities and Commodities Authority’s Board of Directors held its second meeting (from its sixth session) at the Authority headquarters in Dubai under the chairmanship of Eng. Sultan bin Saeed Al Mansoori, Minister of Economy\ Authority’s Board of Directors Chairman.
The meeting discussed a number of initiatives aimed at developing the regulation of financial activities and services related to the securities sector in the State to match the best international standards and practices. The meeting addressed a number of important subjects and issues related to the securities sector, as detailed below:
Organization of Central Depository Activity
In the framework of the Authority's efforts to develop and promote the supervisory and monitoring regulation to match the best international standards and practices for developing and organizing the securities sector in the State, and in light of the initiatives of the strategic and operational plan of the Authority, the Authority Board adopted the Securities Depository Center (SDC) licensing Regulation. This aims at shifting from a vertical market to a horizontal market, which in turn will contribute to the promotion of the State markets to advanced markets on the global indices, especially the Morgan Stanley Capital International (MSCI).
The regulation has been developed in accordance with the best global practices that have shown that this activity is carried out by centers or companies independent from the financial markets. This aims to increase the operational efficiency of the markets so that their role in this regard is limited to the implementation of transactions only (in accordance with the requirements of International Organization of Securities Commissions (IOSCO)), as well as reducing the risks that may result from the existence of execution, depositary, clearance and settlement in one entity.
In accordance with the Authority’s procedures and in application of global best practices, the regulation was presented to industry partners and financial markets as well as on the Authority's website. Their observations and views were taken into consideration when drafting the version presented to the Board. The draft regulation includes licensing requirements for depository centers, their working mechanisms, obligations, monitoring and supervision, complaints and grievances.
The regulation includes 17 articles. The article (1) contains definitions, and the article (2) states that the central depository activity in the State may be practiced only through the Depository Center, after obtaining a license from the Authority.
Article (3) deals with determining the conditions of obtaining the license for practicing the central depository activity. Here are some of these conditions:- The applicant must be a company incorporated within the State in accordance with the provisions of the Commercial Companies Law, with its main object to conduct the Central Depository activity. The Memorandum of Association of the Company must be drafted in Arabic and duly attested by the official authorities. The paid-up capital of the company may not be less than Ten (10) Million UAE Dirhams. Payment of the licensing fees. Provision of the adequate technical and administrative staff required to engage in the business in accordance with the regulations for the financial activities and services issued by the Authority. Provision of a suitable headquarters and software compatible with the software used in the Market, the Central Clearing Party, and the technical systems required to engage in the activity. Provision of an internal monitoring system that ensures the sound application of the law and the regulations, decisions and circulars issued thereunder; Provision of a risk management operational guide. The Authority must approve the founders and holders of the controlling shares. and one-third of the members of the Board of Directors, if any, but not less than two (2) members, must be independent members who have adequate experience in the field.
Depository Center Functions
Article (4) deals with the specifications and conditions of the license application. Article (5) deals with consideration of the application for license. Article (6) deals with the license term, which shall be one year commencing from the date of license issue, and shall be renewed upon an application to be submitted to the Authority at least one month before the license expiry date and after the payment of the annual renewal fees. Article (7) deals with license cancellation. Article (8) deals with the Depository Centre functions, procedures and mechanisms. The most prominent of functions are: - Open accounts for the investors to deposit their securities and settle the same by transferring the ownership of such securities as per the instructions of the CCP set forth in the Settlement Report, or as per the instructions issued by the Authority, the Market or any judicial authority in the State. The issuer of such securities shall take actions to amend and update its records accordingly. Register all transactions performed on the securities registered in its records. Any transaction on the securities listed on the Market and not registered in accordance with the provisions of this Decision shall be deemed null and void. Keep the documents and records that prove the ownership of the securities by each investor and register and maintain such ownerships. Register any pledges or liens on the ownership of securities pursuant to the procedures adopted by the Depository Centre. Ensure that the final settlement shall be performed in accordance with the Authority’s Law and the regulations, and rules issued by the Market. Distribute the cash dividends and bonus shares. Maintain the details of the bank accounts of the investors. Review and update the records and transactions on securities deposited therewith. Determine the information, data and records which are considered confidential and the persons authorized to access the same, as well as those which must be disclosed by the Depository Centre and which the public may access or receive copies thereof. The Depository Centre may grant its customers access to its systems and software pursuant to the functioning rules applicable therein.
Depository Center Obligations
Article (9) deals with ownership transfers. Article (10) deals with depository center obligations. In accordance with this article the Depository Centre shall take all necessary actions to exercise the business pursuant to the provisions of this decision, and in particular the following: - Set the rules and procedures for the membership of the depository agent, subject to the controls stipulated in this decision. Enable all entities listed in the market and their registrants to access the register of owners; approve the working rules and procedures and any amendments thereto made by the Authority prior to the implementation thereof. Comply with the principles of the International Organization of Securities Commissions (IOSCO) in relation to its business without conflict with the applicable laws in the State. Regular review and continuous update of the internal control system and the risk management operational guide in accordance with the norms applicable in this area. Such reviews shall be forwarded to the Board of Directors and made available to the Authority. Develop a professional code of conduct for its staff, supervise the staff, and organize and monitor their personal transactions in the Market. No member of its Board of Directors or Executive Management may be a partner or a member of the Board of Directors, Management Board, Executive Management, employee, or a representative of a company or an entity licensed by the Authority. Immediately notify the Authority if any members of its Board of Directors serves as a member of the Board of Directors of any public joint stock company; or of any potential conflict of interest. Not to remove the internal auditor without a decision issued by the Board of Directors; The Authority and internal auditor must be notified of such removal at least thirty days prior to the date of removal. The notice of removal shall state the reasons and justifications of the removal.
In accordance with the same article, the Centre shall provide the Authority with the following data:
• The minutes of the meeting of the Board of Directors and the committees affiliated thereto.
• Quarterly financial reports, reviewed by the Company’s external auditor within a period of no longer than thirty (30) days from the end of the quarter, and signed by the Board of Directors or the Director-General, as the case may be.
• An annual financial report audited by the company’s external auditor within a period of no longer than ninety (90) days after the end of the fiscal year, and signed by the Board of Directors. This report must include the final statements and the annual balance sheet.
• A periodical and updated report on the equity percentages of the shareholders who hold more than (5%) of the capital of the Depository Centre.
• Any other financial reports, statements or information as required by the Authority.
In accordance with the same article, the center shall obtain the Authority's prior approval before taking any of the following actions:
• Amendment of the Memorandum or Articles of Association of the company, or selling a share to a strategic partner.
• Addition of an activity to the trade license, or removal or amendment of an activity.
• Increase or decrease of the company capital.
• Effecting any mergers or acquisitions.
• Changing the partners or founders or amending of the equity percentages thereof.
It shall notify the Authority with the following:
• Any cases or procedures that result in considering the Depository Member in default of its obligations.
• The occurrence of any material changes or developments, or any deficit that affects its financial position.
• Any change in the information or data provided when the application for license is submitted.
• Any change to the members of the Board of Directors, if any.
• Any lien or pledge on its assets, and any lawsuits where the Depository Centre is a party thereto, as well as any judgments issued on such lawsuits which would influence its financial position.
• Any violations committed by its approved employees against the laws, regulations, by-laws or decisions applicable at the Authority and the Markets.
Article (10) deals with keeping the books and records or using computers and other modern technological equipment as per the international accounting standards accepted by the Authority. Maintaining all records, documents and financial and technical statements related to engagement in its business, permanently and continuously throughout the license term. keeping backup of the electronic copies of such statements and documents throughout the license term, and ensure that none of them are exposed to damage. Enabling the Authority to receive a copy of such documentation and access to all materials related thereto upon request and fully and correctly hand over the same to the entity that will assume the functions of the Depository Centre as per the Authority’s instructions once the license is terminated for any reason.
The same article requires exercising the licensed business with due diligence as per the provisions of the law and its implementing regulations as well as the conditions and rules governing the issue of the license, and according to the trade norms in this respect, and the principles of honesty, integrity, justice, equality, confidentiality of data and information, prevention of conflict of interests in the exercise of the business.
Article (11) deals with general provisions related to the regulation. Article (12) contains four clauses. First clause states obligations of the issuers and second clause states obligations of Depository Center. Article (13) deals with monitoring and supervision. Article (14) deals with complaints and grievances. Article (15) deals with liquidation and bankruptcy. Article (16) deals with Penalties.
The Board of Directors also approved a draft regulation prepared by the Authority concerning the offering or issuance of Islamic securities. It includes the terms and conditions of their offering and issuance within the State and the other requirements relating to subsequent disclosures on offering and issuance.
As part of the continuous follow-up of the conditions of listed local public joint stock companies to ensure the financial stability of these companies and in application of the provisions of the Commercial Companies Law No. 2 of 2015, the Board of Directors reviewed, during the meeting, a report on the disclosures of the listed local public joint stock companies, which included a summary of the results of the listed local joint stock companies, in accordance with the preliminary financial statements and the audited financial statements for the last quarter of 2017.