DUBAI (Reuters) – The United Arab Emirates stocks regulator warned investors on Sunday against short-selling that has pushed down global markets but said no regulatory framework exists to curb the practice in the Gulf Arab commercial hub.
“In the absence of a legal framework it is difficult to regulate short-selling as it requires some elements such as the implementation of margin trading regulations for a certain period of time,” Abdullah al-Turifi, Chief Executive of the Securities & Commodities Authority (SCA) said in a statement.
“But we will monitor it closely along in coordination with the stock markets and the Central Bank.”
Regulators around the world have introduced curbs on the short-selling of financial stocks in recent days, in a move kick-started by the UK’s Financial Services Authority, amid concerns that short sellers were crushing the stocks of major financial names and driving global stock markets down.
Short-selling involves an investor selling stock in anticipation that the price will fall — in which case the investor can buy back the stock at a lower price.
The practice has been blamed for contributing to the demise of Lehman Brothers LEHMQ.PK and threatening to bring down Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) this week.
The emergency ban on the short-selling of 800 financial stocks in the United States this week sent a chill through the U.S. options market because it would hurt market makers’ ability to provide liquidity when investors need a safety valve to weather the financial crisis.
But Gulf stock markets remain both less sophisticated than Western bourses and their regulations are less developed.
Dubai Financial Market, the country’s main bourse, said short-selling was not in keeping with the spirit of its regulations and urged all parties operating in the market to stick to the rules.
“The market would also like to point out that what is being circulated that some international financial institutions are conducting short-selling transactions, is not in keeping with regulatory rules,” it said in a statement.
DFM urged “all parties to abide with established regulator rules and refrain from practices which are not yet codified in local markets.”