The Securities and Commodities Authority, SCA, approved on Friday, July 11, new regulations for brokers to open up the industry to broader international competition.
The regulation, which is still pending government approval, will namely lower the capital needed for brokerage firms to operate. Prior to the financial crisis, regulators had upped the required limit from AED20 million to AED30m, in an attempt to consolidate the sector.
If given the go-ahead, the new regulation will differentiate trading brokerages, which will require only AED3m in paid-up capital, from trading and clearance brokerages, which will need AED10m in funds in order to operate.
This will, undoubtedly, invite unwanted competition to the local stockbroker industry, which is expected to lobby government representatives into reversing the SCA’s ruling. The primary fear for local brokerages is that regional and international banks will take advantage and impact the local markets. In essence, these financial institutions will be able to bypass local brokers and trade on behalf of their clients directly.
Such measures have been promised in recent weeks in an attempt to tighten volatility experienced across the Dubai Financial Market (DFM), following the turmoil experienced at Arabtec in late June. Much blame has been attributed to the regulatory authorities for allowing such controversial management activity to take place within the construction giants.
Consequently, the SCA announced last week that it has created a committee including representatives from the Central Bank, as well as the DFM and Abu Dhabi Securities Exchange, who will monitor actions and statements by CEOs, whose contributions often result in a significant impact on stock price.