The Financial Market Advisory Committee recommends the establishment of a unified central clearing entity in the State.
Formation of a joint working group consisting of SCA, markets and industry representatives to develop a roadmap for supporting the market maker.
The meeting discusses the market maker, self-regulatory institutions, financial inclusion and education and benefiting from pension funds
The Capital Markets Advisory Committee held its meeting chaired by His Excellency Dr. Obaid Saif Al Zaabi, the SCA CEO, to discuss number of subjects related to the regulation of the securities sector and the promotion of state markets on global indicators.
The meeting held in Abu Dhabi was attended by members of the committee, representatives of the financial markets in the State, Dubai Gold & Commodities Exchange and the corresponding authorities in free zones, brokers, representatives of investment funds and public joint-stock companies, and the SCA's team
The meeting discussed number of important themes related to aspects of central clearing, market maker, self-regulatory institutions, financial inclusion and education, benefiting from pension funds as well as development of the asset management industry. The discussions that took place at the meeting resulted in a set of directions and recommendations aimed at developing the system of financial activities and services to match the best international standards and practices.
SCA Leading Initiatives
At the beginning of the meeting, the most important projects and initiatives, which the SCA is working thereon, and projects and regulations under issuance, were highlighted. Regarding brokerage companies, Dr. Al-Zaabi indicated that SCA is working on a pilot project to transform them into companies providing integrated investment services ((Full-fledge), in order to keep pace with the great development in the State markets in the context of promotion to advanced markets. This will also enable them to diversify their activities and increase their sources of revenue, in addition to create a competitive environment between financial services companies, to ensure the highest standards of excellence.
Al-Zaabi added that the SCA launched an integrated strategy to develop the Islamic capital market. The strategy is being implemented in coordination with the financial markets in the State and Dubai Islamic Economy Development Center. The SCA is currently working - in cooperation with the relevant authorities - to issue a set of regulations that will enhance the growth of this sector in the State including, Islamic bonds, Islamic-Sharia compliant investment funds, preferred shares, as well as crowdfunding.
As for the troubled and suspended companies, the CEO has confirmed that the SCA, in cooperation with the financial markets, continues to work actively to study the status of companies on the Watch List for constantly monitoring them until they meet the requirements and conditions for listing again. As for the governance, he emphasized that the SCA is currently working on developing rules according to the international best practices in line with the concepts of sustainability, the representation of women in the board of directors and integrated reports, and they will be presented to the SCA's Board of Directors for approval before the end of this year.
With respect to promoting markets on the global indicators to advanced markets, his Excellency explained that the SCA, in coordination with financial markets, is working on a plan to meet the requirements of providers of global indicators. This plan includes working on a cash settlement, issuing a regulation and adopting derivatives rules for Dubai market and establishing an independent central clearing company and an independent central depository. All requirements are expected to be completed under the jurisdiction of SCA and the markets during 2020.
Central Clearing
The Advisory Committee of Capital Markets has discussed, during the meeting, subject of Central Clearing, and recommended working on finding a unified central clearing entity at the State level for the two markets, as it is less costly and more efficient than having an independent company for each market separately. In addition, linking central clearing operations with the central bank for the cash settlement will reduce the effort and increase the efficiency of operations, a matter that supports the transformation into horizontal markets and meets the requirements for promotion on the global indicators.
Regulation of Market Maker
In another theme and with the aim of developing and strengthening the role of market makers, the committee directed the need for granting the market maker set of incentives, such as returning part of the commissions (Rebate), similar to the global practices followed in this field. It also directed the necessity of holding workshops in the presence of all relevant parties, including market makers, representatives of exporting companies, the SCA and markets, to explain the importance of the role that the market maker plays in achieving balance in financial markets. The committee also emphasized the importance of discussing global market makers to know their views and the factors that can be presented to them to attract them to work in the local markets.
The committee indicated the importance of supporting the role of market makers, removing challenges facing them and urging them to work in all types of shares, including that of high liquidity and law liquidity. This matter leads to stimulating the presence of a greater number of market makers and creating a competitive environment in a way that impacts positively on the financial markets in the State in terms of providing the necessary liquidity and increasing the trading volume.
Participants in the meeting agreed to form a joint working group consisting of a group of advisors and experts representing both the SCA, financial markets and financial services companies, so that the group will develop a clear road map and study on the work mechanisms of market makers to motivate them and remove obstacles that hinder the exercise of this activity
Financial Inclusion and Pension Funds
With respect to the theme of financial inclusion and benefiting from pension funds, Al-Zaabi said that the SCA has launched an integrated strategy in this regard to attract new categories of investors and expand the scope of beneficiaries of capital market services, and the SCA will coordinate with the relevant authorities in this regard.
It emphasized the importance of using the financial technology to support the financial inclusion strategy, in addition to the role that the financial products that take into account sustainability projects and principles such as bonds and green instruments play in attracting new segments of investors supporting these principles.
The committee also discussed ways and mechanisms to motivate pension funds to enter the capital markets in the State and their role in supporting institutional investment, and discussed set of solutions to enable limited liability companies to access the capital markets.
In this context, during the meeting, a proposal in form of a short video clip prepared by a brokerage company in the State financial market was displayed, wherein the focus was placed on the benefits that can accrue to the financial market and society as a result of investing end-of-service benefits of company employees that appear as obligations on these companies. These large amounts will be invested by investment managers, specialists with a high degree of professionalism, in investment funds in the securities market or pension funds. This matter will strengthen liquidity in the financial markets, use these amounts in projects contributing to production increase, and employ more workers, which will in turn support the national economy and benefit companies and their employees.
In addition, the committee presented set of proposals and solutions that would contribute significantly to achieving the objectives of the financial inclusion strategy. It discussed the importance of strengthening the role of entrepreneurs and motivating them to contribute to supporting the national economy, in addition to coordinating with service providers to develop solutions that suit different investors categories, hold workshops and disseminate the awareness necessary for small investors on the one hand and companies on the other hand about the mechanisms or market functioning, in addition to using innovative methods to attract new segments of individual investors and small and medium-sized enterprises (SMEs). It discussed the importance of developing the markets infrastructure to accommodate new investors, and coordinating with banks to conduct joint awareness programs to remove any psychological barriers to individuals' investment in capital markets.
Asset Management Industry Development
During the meeting, a presentation prepared by one of the world’s leading asset management companies in the region was also displayed, which included a number of important themes related to the development of asset management industry. The presentation indicated the importance of transparency regarding the fees of investment managers, and the importance of disclosing them clearly to investors. It also emphasized that asset managers must, at the same time, make appropriate profits on investments to justify these fees, and the need to build an appropriate level of understanding and regulation of business and practices between the asset management industry and the insurance industry.
The presentation emphasized that despite the importance of technological development, it does not eliminate the human element but rather integrates therewith, and contributes directly to developing technical solutions that are appropriate for all investors. It reviewed the importance of effective communication with the industry and the unification of legislation among regulatory authorities in developing markets and eliminating gaps. It also emphasized the great importance of entering into mutual recognition agreements (Passporting) to develop the asset management industry and enhance its spread.