Abu Dhabi Securities Exchange (ADX) is launching its new “Covered Short Selling” (CSS) investment service to support the exchange’s investment diversification strategy and provide investors with a wider range of hedging mechanisms.
This initiative is intended to attract a new segment of skilled and experienced investors, which will lead to higher liquidity and trading volumes.
The introduction of CSS comes after ADX’s covered short-selling guidelines were approved by the Securities and Commodities Authority (SCA) that allow investors to sell borrowed securities or financial securities pledged for return to lenders.
Covered short selling involves investors selling shares in a particular business that they do not own at the moment, but that they consider is over-valued, establishing an option to purchase them in the future. This can be achieved by borrowing from a brokerage firm the stock they plan to sell and then selling them directly to the market in expectation of a decline in the share price. If the share price eventually falls, the seller will buy back the stock at a price below the sale price and then return the stock to the lender (a mechanism known as short selling coverage), thus making the process a capital gain.
Short selling would increase long-term investment presence and limit speculation. Expanding liquidity by growing trading prices is one of the most significant advantages, as the lender of shares is typically a long-term investor who does not trade regularly. The mechanism also enhances the visibility of investment and the openness of the trade.
The goal of short selling is to reduce losses resulting from a potential decrease in the value of the stock that was originally held in the portfolio.
“ADX is founded on an integrated legislative structure, to ensure that all relevant parties comply with covered short-selling guidelines. This ensures a fair and secure trading environment following international best practice, making it more attractive to a broader range of investors. We need to have in place clear laws, rights and obligations to govern transactions both for brokers and investors, to allow investors to invest their savings in an advanced legal environment that is underpinned by fair and transparent disclosure regulations.”
ADX has also amended its securities lending and borrowing guidelines in the sense of the related development, whereby the ownership of shares can easily be temporarily shifted from one party (the lender) to another (the borrower). The new guidelines put the duty on the borrower to return the shares at the request of the lender at any point during the period unless otherwise agreed.
These amendments were made after consultation with all the market members of ADX. They also comply with other relevant guidelines and procedures that help the efforts of the exchange to review and develop its processes and controls on an ongoing basis to comply with best practices. ADX is improving the efficacy of Abu Dhabi’s capital markets by providing revised guidelines for lending and borrowing securities and encouraging investors to follow various investment strategies.
Abu Dhabi Securities Exchange is a stock exchange established on 2000 November 15. The Law No. (3) Of 2000 grants ADX the supervisory and executive powers required to perform its functions. “ADX was changed from a” public entity “to a” Public Joint Stock Company PJSC “under Law No. (8) of 2020 on 17 March 2020. ADX is part of ADQ, one of the largest holding companies in the country, with a diverse portfolio of major companies covering key sectors of the diversified economy of Abu Dhabi.
ADX is a securities trading market, Including shares issued by public joint-stock companies, bonds issued by governments or entities, exchange-traded funds, and all other financial instruments permitted by the UAE Securities and Commodities Authority (SCA).
ADX is the second-largest market in the Arab region, and its strategy to provide stable financial results with diversified revenue sources is consistent with the guiding principles of the “Towards the Next 50” agenda of the UAE.