The Securities and Commodities Authority’s Board of Directors adopts the general clearing member activity regulations

Meeting headed by H.E. Sultan Al Mansoori

The Securities and Commodities Authority’s Board of Directors adopts the general clearing member activity regulations

Amendments to four regulations including "the financial reports requirements for licensed activities", definition of "qualified investor", and "material information"

Adopting a system to enhance the protection of investors' rights in securities

Approval of application of procedures related to the listed companies that have accumulated losses of 20% or more on the trading platforms in markets

Reviewing the financial analysis report of the listed companies and sectors in ADX and DFM for the second quarter of the year

The Board of Directors of the Securities and Commodities Authority (SCA) held its eleventh meeting (of the sixth session of the Board) in SCA’s headquarters in Dubai, under the chairmanship of H.E. Eng. Sultan Bin Saeed Al Mansoori, Minister of Economy and Chairman of the Board of Directors. 

The meeting discussed several initiatives that aim at developing financial activities and services related to the securities sector in the UAE to be consistent with the best international standards and practices. Furthermore, the meeting discussed several important matters and issues related to the securities

sector, as detailed below: 

General clearing member activity regulations

As part of SCA’s role to prepare and review pieces of legislation and follow up on their application in the markets and to complete such role to develop the legislative system, including the Authority's Board of Directors' Decision No. (2) of 2001 Concerning the Regulations As To Trading, Clearing, Settlement, Transfer of Ownership, and Custody of Securities and the regulations stated therein concerning clearing members in Article (30)bis of the above mentioned regulation stating that: 

  1. "With the exception of local banks or branches of foreign banks licensed to operate as custodians of securities, practicing clearing activities should not be conducted unless an approval was obtained from the Authority. This approval is annually renewable after the payment of an annual fee and complying with any controls deemed necessary by the Authority. 
  2.  A Clearing Member shall conclude an agreement with the Brokers to settle the accounts of their clients or the accounts of the Brokers. The agreement shall regulate the relationship between the Clearing Member and the Broker, the rights and obligations of each party, and how to divide the commission between them."

As SCA aims to develop the mechanism by which clearing members shall perform their tasks through issuing integrated regulations in accordance with the practices followed in this regard, the board approved the issuance of special regulations for this activity. The most prominent features of the regulations include the following:

  1. Regulation of the licensing conditions as a financial activity. 
  2. Regulation of the provisions of guarantee and the liquidation mechanism thereof. 
  3. Developing an internal system for the license applicant to guarantee the rights of the contracting parties and the investors. 
  4. Specifying the obligations of the license applicant towards SCA and the contracting parties, clearly and expressly. 
  5. Specifying the penalties imposed on the license applicant if he breaches the regulations. 

The regulations consist of 16 articles including: definitions, application scope, license conditions, license request, license term and renewal thereof, license cancellation, liquidation or usage of the guarantee, the internal system of the general clearing member, obligations of the general clearing member towards SCA, obligations of the general clearing member towards the contracting party and its customers, control and inspection, complaints, and penalties. 

Amendments on SCA’s Regulations 

Out of SCA’s keenness to develop the legislation regulating the financial markets in the country and as SCA regularly reviews the regulations and legislation regulating the trading of securities to ensure that these regulations keep up with the development levels in global markets, the board of directors approved the amendment of 4 regulations as follows:

First regulations: Financial reporting requirements for activities licensed by SCA:

Amendment was made out of SCA’s keenness to standardize the financial reports required from the licensed companies for all financial activities licensed by SCA for the purpose of facilitating the control and supervision of these activities and for taking into account the requests submitted to SCA’s management from banks concerning exempting them from meeting some financial reporting requirements. 

Accordingly, the financial reporting requirements provided by the licensed companies were standardized. Moreover, relevant  amendments were made to 12 regulations. The amended regulations are related to the activities included within the scope of SCA’s control and supervision as follows: listing and trading of commodities and commodity contracts, financial consultations and financial analyses, safe custody of securities, investment management, brokerage in securities, clearing in commodities market, regulating central counterparties, regulating promotion and introduction, administrative services of investment funds, regulating licenses of credit rating agencies, regulating central depository activity, and investment funds. 

Second regulations: Definition of qualified investor: 

The amendment that was made in line with the best global practices included updating the categories included within the concept of "the qualified investor" to grant these categories a greater flexibility when making their investment decisions being qualified investors with great financial experience or solvency.

The standardization of the definition of the qualified investor shall result in making amendments to 3 regulations that contain the "qualified investor" definition, namely investment fund regulations, regulations concerning offering and issuing shares of public joint stock companies, and promotion and introduction decision. 

A qualified investor, according to the new definition, is the person who is able to manage his investments by himself as per the five conditions stipulated under the new definition of the corporate personality and the three conditions specified for the natural person, in addition to the natural person approved by SCA or by a similar supervisory authority for the purpose of practicing any of the tasks related to the activities and financial services. 

Third regulations: Definition of material information: 

The Board agreed to amend the definition of "material information" and to make some additional amendments to some cases that are deemed as material information in several SCA’s regulations, in addition to amendment of some of the regulations issued by SCA to be consistent with the new definition (i.e. regulations concerning disclosure and transparency; regulations concerning brokerage in securities; institutional discipline standards and the governance of public joint stock companies; and the regulations as to trading, clearing, ownership transfer, and custody of securities. 

Fourth regulations: Amendment of the Authority's Board of Directors' Decision no. (2) of 2001 Concerning the Regulations As To Trading, Clearing, Settlement, Transfer of Ownership and Custody of Securities: 

Out of SCA’s desire to maintain the integration of the legislation issued regarding the unification of the terms and integration of the provisions, the Board approved the amendment of the Authority's Board of Directors' Decision no. (2) of 2001 Concerning the Regulations As To Trading, Clearing, Settlement, Transfer of Ownership and Custody of Securities (by omission, addition, and amendment of the text and the wording) in order to be consistent with the suggested amendments to the definition of the material information mentioned above and the general clearing project that was adopted at the beginning of this meeting. 

The system for enhancing the protection of investor rights in securities 

Out of SCA’s desire to safeguard investor rights in securities and address the problem of insolvent companies, SCA’s board adopted a proposed system for supporting investor rights in securities as it shall be summarized in three main pillars: First: Adding a set of conditions and restrictions to regulate the request of listing new matters in the agenda of the general meeting by shareholders representing (10%) of the company by amending article (28) of the Authority's Board of Directors Chairman Decision No. (7/Chairman) of 2016 Concerning the Standards of Institutional Discipline and Governance of PublicJoint Stock Companies.

As such, the Board approved the amendment of article (28) of the Authority's Board of Directors Chairman Decision No. (7/Chairman) of 2016 Concerning the Standards of Institutional Discipline and Governance of Public Joint Stock Companies in light of the conclusion reached under the study submitted to the board by adding the following conditions and restrictions to the request of listing a new item to the agenda of the general meeting: 

  1.  Before holding the general meeting
    • The shareholders shall be notified of the request of adding the new item by the same way in which the invitation was sent for attending the general meeting or any other mechanism that SCA deems appropriate. Moreover, the request and documents related to the notification shall be attached. 
    • The Board of directors shall approve the request otherwise the shareholders shall be entitled to file a request to SCA to add the new item and it may make the decision it deems appropriate in this regard. 
  2. During the general meeting
    • Prohibition of listing any new item that requires, for being adopted, the passage of a special resolution by the general meeting. 
    • Prohibition of listing new item concerning removal of board members. 

Second: Adopting the proposal to appoint a representative for minority shareholders to attend the general meeting by amending Article (23) of the Authority's Board of Directors Chairman Decision No. (7/Chairman) of 2016 Concerning the Standards of Institutional Discipline and Governance of Public Joint

Stock Companies

Third: Development of the procedures of making two sections affiliated to Market Supervision Department concerning insolvent companies: the Disclosure Section (concerning following up on the remarks and reservations of auditors of local listed public joint stock companies; following up the media declarations of listed public companies concerning their performance, profits, expectations, and future projects; and matching the press news with the company's disclosures in the market before the date of the pre-opening session). Moreover, Governance and Auditor Accreditation Section (developing the work plan to conduct field visits to audit companies and the mechanism that will be relied on to choose the companies and the work plan). Moreover, the Board reviewed the suggested procedures and praised the development made to the working system and the procedures of each section. 

SCA’s initiative on financial inclusion

 In financial markets

Out of SCA’s keenness to deliver services and financial products to the public and to facilitate the methods of accessing these services and products in a manner that shall enable to expand the investors base, increase the trading volume, and enhance the capital market activity, the Board reviewed a study on the global practices concerning the strategies of financial markets authorities with respect to financial inclusion and a proposed road map for implementation of financial inclusion strategy in financial markets in the UAE in coordination with a number of various authorities in the country. Furthermore, the Board approved the project as a pioneering initiative by SCA and it ordered to start coordinating with other authorities in the country in this regard. 

Procedures of companies having accumulated losses of 20% or more of the capital 

On the other hand, the Board decided to approve the application of procedures related to public joint stock companies that are listed in the market and that have accumulated losses of 20% or more of the capital (including putting special mark on them by the market on the trading screen) by the end of the third quarter of this year. 

The Board has reviewed a live show of the trading screen of both of the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) when the procedures have been applied. Moreover, it ordered to prepare the decision regulating the mechanism of dealing with those companies so that it includes additional disclosure requirements for each of them according to the level of the losses incurred by them, the analysis of the losses and their causes, and the procedures that will be taken for handling them. The decision shall also include other procedures that may be taken against the company in coordination between SCA and the financial market based on the level of the realized losses. 

Market maker 

Pursuant with the directives of SCA’s board of directors at the meeting with markets and licensed market makers to identify the challenges and obstacles facing market makers and to find solutions that may enhance the market maker role, the Board reviewed a report on the procedures taken for the purpose of giving more momentum to the market maker activity in the financial markets in the country. Furthermore, the Board reviewed the reached suggestions and recommendations and it ordered to hold a meeting with financial markets as they are the party responsible for providing facilities for brokers and other financial institutions for applying the market maker activity, taking their procedures in this regard, and identifying the effect of application of these procedures and suggestions on the industry and providing SCA with the results. 

Legislation and Policies Guide

The Board reviewed SCA’s Legislation and Policies Guide as that guide clarifies the methodology and cycle of preparation of legislation and policies before and after issuance and the mechanism of measurement of their effect. The guide was approved after being reviewed. 

The Board also reviewed a memorandum prepared by SCA’s management concerning the percentage of Emiratization in the public joint stock companies and it ordered to conduct an analytical study on the current percentages of Emiratization in those companies and setting targets for Emiratization of some jobs according to approved standards and percentages. 

Report of financial analysis of listed companies and sectors on financial statements of the second quarter of this year

As a follow up by the Board of the conditions of the local listed public joint stock companies in order to ensure financial stability of these companies and pursuant to the provisions of the Commercial Companies Law No. 2 of 2015, the Board reviewed a report on the financial analysis of the listed public joint stock companies and the sectors in ADX and DFM for the second quarter of 2019. Furthermore, the Board ordered to follow up on the conditions of the companies and to take the necessary procedures concerning the companies that incurred losses in accordance with the law and regulations. 

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