UAE to start delivery versus payment system

United Arab Emirates bourses will start the so-called delivery-versus-payment system (DVP) on April 28 as they join Qatar’s exchange in seeking to boost chances for an upgrade at MSCI Inc (MSCI)

"We hope the new development would contribute in uplifting our markets to emerging market status, which will help attract more international mutual funds," Dubai Financial Market (DFM) PJSC Chief Executive Officer Essa Kazim said in a statement from the Emirates Securities and Commodities Authority.

The Qatar Exchange started the DVP system today and will implement further changes in May.

MSCI indexes are tracked by investors with an estimated $5.2 trillion in assets, according to a May report by Shinhan Investment Corp.

Dubai plans to introduce short-selling as well as securities borrowing and lending, also MSCI requirements, later this year, the DFM said in January.

The index provider will in June revalue its assessment of the markets by examining, among others, economic development, trading volumes and market accessibility.

Dubai’s benchmark stock index reversed a loss of as much as 1.1 per cent after the announcement, gaining 0.2 per cent to the highest since February 16 at the 2 pm close. Abu Dhabi’s measure rose 0.4 per cent and Qatar’s gauge advanced 1 per cent.

A promotion at MSCI would “generate demand for Dubai and Abu Dhabi stocks,” said Nabil Farhat, partner at Abu Dhabi- based Al Fajer Securities. “It would improve the volume of activity, which is good news for brokerages.”

MSCI classifies six of the Gulf’s seven bourses, including those in the UAE and Qatar, as frontier markets, a designation that typically applies to economies and financial markets that are less developed.

Saudi Arabia’s market is not categorised. MSCI cited a dual account structure as one of the reasons for the frontier market status of the UAE and Qatar.

"We have set the market on the right track and it’s left to the market participants to react,’’ DFM’s Kazim said in a phone interview today. "MSCI makes its judgment based on that feedback.’’

Foreign ownership limits are related to the company law and short-selling, borrowing and lending are part of a second phase of changes, Kazim said.

The UAE Economy Minister Sultan al-Mansouri said in February the country’s new company law is awaiting approval by the cabinet.

Under existing law, foreign companies must have UAE nationals as their sponsors and are limited to a maximum 49 per cent ownership of businesses, except in free zones.

"DVP does not change the DFM settlement duration of T Plus 2 system, nor does it revoke the need for early cross-check to ensure that the securities being offered for sale are available in the client’s trading account,’’ according to the regulator’s statement today.

Delivery versus payment is a securities industry procedure in which payment for a security must be made when the security is delivered.

Usually, the payment is made to a bank, which in turn pays for the security. Short sellers borrow and sell an asset, hoping to profit by buying it back later for less.