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UAE’s SCA issues new brokerage rules, cuts brokerage firms’ capital

UAE’s SCA issues new brokerage rules, cuts brokerage firms’ capital
The United Arab Emirates’ (UAE) Securities and Commodities Authority (SCA) has approved new rules and regulations that will shake up the UAE’s brokerage sector, reported The National, adding that this step will open the industry to greater international competition and will tighten oversight on lending to clients.

SCA has introduced two new classifications for brokerage firms in an effort to reduce capital requirements. Accordingly, brokerages will be classified into two groups: “those which engage in trading only while the clearance and settlement operations are conducted through clearance members” and “those which engage in trading clearance and settlement operations for their clients”, revealed SCA.

The regulator noted that trading brokerages now require a paid-up capital of AED three million, whereas trading and clearance brokerages will need AED 10 million, added the National.

This relatively low capital requirement will be used to beef up liquidity on the markets and increment in the value of bank guarantee to safeguard the rights of clients, reported Gulf News, adding that the new rules also include that no company shall engage in brokerage activity without acquiring the SCA licence which must be renewed annually. Moreover, all firms must also be registered in SCA record book for brokers.

It is worth noting that SCA had said that it had plans to scrutinise bank lending on shares. The market regulator said last week that it will “review and amend regulations regarding lending by banks operating in the UAE against shares if found necessary”.