abu dhabi securities exchange rules for securities lending
TRANSCRIPT
Public
1
Abu Dhabi Securities Exchange Rules for Securities Lending and
Borrowing
Abu Dhabi Securities Exchange Board of Directors,
Having reviewed Federal Law No (4) of 2000 concerning the Emirates Securities
and Commodities Authority and Market, as mended;
Decision No (2/R) of 2000 by The Authority’s Board concerning the Regulations
of Market Membership;
Decision No (2/R) of 2001 by the of the Authority’s Board concerning the
regulations as to trading, clearing, settlement, transfer of ownership and custody
of securities, as amended;
Decision No (3\R) of 2001 concerning the Regulations as to the Functioning of the
Market, as amended;
Decision No (47) of 2012 concerning the Regulations as to Lending and
Borrowing Securities;
Decision of the Authority’s Board of Directors No (27) of 2014 Concerning
Brokerage in Securities, as amended;
Decision of the Chairman of the Board of Directors of Securities and
Commodities Authority (SCA) No (26/R.M) of 2016 concerning the Regulation of
Some Financial Services Activities and the Trading Process as well as ADX
decisions and instructions;
The Local Law of Emirate of Abu Dhabi No (8) of 2020 Concerning Abu Dhabi
Securities Exchange Company (Public Joint Stok Company) and its amendment;
and
The controls, decisions and instructions issued by ADX Board of Directors,
Decides the following:
Article (1)
Definitions
The following words and expressions shall have the meaning assigned below,
unless the context indicates otherwise:
Public
2
State: United Arab Emirates;
Commercial
Companies:
Federal Law No (2) Of 2015 On Commercial
Companies, as amended;
Authority: Securities and Commodities Authority (SCA);
Market: Abu Dhabi Securities Exchange (ADX);
Clearing House: the authority that sets off and settles all orders
performed in the Market in accordance with the
regulations and the regulatory decisions thereof;
Securities: Shares, bonds and financial notes issued by joint stock
companies as well as the bonds and notes issued by the
federal government or the local governments and the
public agencies and organizations in the State and any
other local or non-local financial instruments accepted
by the Authority;
Brokerage
Companies:
A brokerage company licensed by the Authority to
carry on financial brokerage
Custodian: A legal person licensed by the Authority to undertake
the activity of the securities custodian
Market Maker: A legal person licensed by the Authority to undertake
the activity of market making or the foreign market
maker registered with the Market;
Securities Lending and
Borrowing:
A contract by which the title to Securities shall be
temporarily transferred from a party (lender) to
another (borrower), making the borrower obliged to
give them back on demand of the lender at any time
within or at the expiration of the agreed period, unless
otherwise agreed;
Lender: The Clearing House or any investor having an
investor number at the Market and wishes to lend
Securities to a borrower according to the provisions of
the present Controls;
Borrower: Clearing House or any investor having an
investor number at the Market and wishes to borrow
Securities from the lender according to the provisions
of the present Controls;
Lending Agent: A person having the approval of the Market for
lending securities from his own account or by his
customer in accordance with the provisions of these
Controls and the Clearing House procedures.
Guarantee: Financial sums or Securities deposited by a Borrower
to a Lender against the borrowed Securities at the
approved rates of the borrowed Securities in
accordance with the provisions hereof.
Qualified Investor: Federal government, local governments, governmental
organizations and agencies, companies entirely owned
Public
3
by any of them, international agencies and
organizations or a person licensed for carrying out a
business, provided that the investment shall be one of
its commercial activities.
Article (2)
General Provisions
1. Any Lending and Borrowing of the listed Securities may be carried out
only in accordance with the provisions of these Controls.
2. Securities may be lent only by a Lending Agent in the Market. Securities
borrowed by retail investors must be conducted only through a
Brokerage Company.
3. With the exception of Clause (2) of this Article, Securities Lending and
Borrowing may be made outside the Market between Qualified Investors;
provided that the transaction shall be immediately registered with the
Clearing House by the Lender and the Borrower through a Lending
Agent.
4. With the exception of Clause (2) of this Article, Securities may be lent by
a Brokerage Company as follows:
a. When lending its customers from its own account, provided that it
shall abide by the duties and obligations of Lending Agent herein.
b. When it lends or borrows Securities to settle the trading’s of its
customers according to the procedures of Delivery Versus
Payment (DVP).
5. A Borrower may not transfer the borrowed Securities or impose any right
or restriction thereon, such as pledge or freeze, or do any act thereon
except by short selling or for the purposes set by the Clearing House,
excluding Brokerage Companies which may lend its borrowed Securities
only to its customers.
6. Lending and Borrowing transactions on listed Securities performed by
registered owners on behalf of beneficiary owners, must be reported to
the Clearing House.
7. The Clearing House may lend or borrow Securities in accordance with
the procedures developed thereby in this regard.
8. The Clearing House shall determine the Securities to be lent and
borrowed, on condition that there shall not be any restriction on the
ownership or trading in such Securities, such as pledge or freeze, in
accordance with the Clearing House procedures and the applicable
statutes. It is conditional that such Securities were not purchased by the
margin trading system.
Public
4
9. Lending and Borrowing may not result in exceeding the percentage of
foreign ownership.
10. The Market has the power to suspend SLB eligibility market-wise and/or
security-wise if it deems necessary for the functioning of the market.
Article (3)
The Conditions and Application for the Tasks of a Lending Agent
To perform the tasks of a Lending Agent, it is required that an approval is
received from the Market in coordination with the Clearing House according to
the following:
First: an applicant shall take one the following forms:
1. A Custodian licensed by the Authority;
2. A brokerage Company licensed by the Authority and a member of the
Market;
3. A Market Maker;
4. Local banks, branches of foreign banks and investment companies
licensed by the Central Bank of the UAE;
5. Foreign establishments authorized as Lending Agents by similar
regulatory authorities abroad, after taking out a license from the
competent authority in accordance with the Commercial Companies Law.
Second: an application for approval shall be made to the Market according to
the intended form supplemented with the supporting information and documents
of the application, particularly:
1. The available technical and administrative capabilities and potentials
necessary for carrying out the tasks and managing the relevant accounts;
2. The available solvency required for carrying out the tasks, according to
the standards issued by the Authority in this regard;
3. The availability of a system to maintain the documents of the Securities
Lending and Borrowing, including the names of customers, executed
operations, signed contracts, guarantees, notices, commissions and
collected fees;
4. The availability of an appropriate technical system for identifying the
orders of Securities Lending and Borrowing, including a feature to issue a
message to the customer with the content of the issued order;
5. A report indicating the technical systems and the processing systems to
manage the Securities Lending and Borrowing accounts and the e-
connection between Clearing House and the applicant;
Public
5
6. A report detailing the rules and principles of the internal control,
auditing of lending and borrowing operations and a certificate issued
from the auditor of the company indicating that the accounting system
applied thereto ensures compliance with the requirements of the
operations required to be performed;
7. A report detailing the policies of risk management, operational
procedures and adequate systems to fulfil the regulatory obligations to
practice the activity of Securities Lending and Borrowing;
8. A Customer Agreement Form, including a minimum:
a. A description of the concept of the Securities Lending and
Borrowing and the risks which a customer may face;
b. A detailed statement of rights and liabilities imposed on each of the
customer and the Lending Agent; and
c. Customer’s obligations towards the Authority, the Market and the
Clearing House in accordance with the issued controls and
procedures; and
9. A full separation of the tasks of a Lending Agent and any other activities,
for which the applicant has an approval or license.
Third: An applicant shall, on a continuing basis, fulfil all conditions of approval.
The Market may cancel the approval if any of the conditions herein are not
fulfilled.
Fourth: An applicant may not have committed substantial violations to the
solvency standards or the controls on account separation as approved by the
Authority within six months prior to the date of submitting the application.
Fifth: The fee, as determined by the Market in coordination with the Clearing
House shall be paid.
The Market may impose further requirements or conditions, or may exempt the
applicant from any requirements or conditions according to the market activities
input or as required for the public interest.
Article (4)
Market Decision
1. The Market shall make a decision approving or disapproving the
application within (30) business days as of the date of submitting the
application, which fulfils the conditions herein. The Market may request
any clarifications, information or other documents, as deemed necessary
thereby for its approval.
Public
6
2. The term of the approval shall be one year ending at the end of December
of each year. The first approval shall be made as of the date of grant it
until the end of December of the same year.
3. The approval shall be renewed by virtue of an application to the Market
prior to the end of its term after verifying the continued compliance with
the provisions hereof and paying of the annual renewal fee, as determined
by the Market in coordination with the Clearing House.
4. A Lending Agent should register and renew the registration with the
Authority in accordance with its terms within (5) business days as of the
date of the Market first approval or any subsequent renewal.
5. The Market shall keep and maintain a record of the authorized Lending
Agents.
Article (5)
The Liabilities of a Lending Agent
A Lending Agent shall:
1. Limit lending only to the Securities determined by the Clearing House
and to the purposes specified thereby.
2. Register the Securities Lending transaction of any of its customers with
the Clearing House in accordance with the procedures thereof.
3. Ensure that the customer has an investor account as a Lender or
Borrower held with Clearing House.
4. Conclude a Securities Lending and Borrowing Agreement with each
customer desiring to use this mechanism in accordance with the
requirements of the Market and Clearing House in this regard.
5. Ensure that the Securities Lending and Borrowing Agreement between
the Lender and the Borrower and its procedures are in full conformity
with the legislations in effect and the applicable procedures of the
Clearing House.
6. Provide a copy of the Securities Lending and Borrowing Agreement
between the Lender and Borrower to Clearing House in accordance with
its procedures.
7. Open a special account for the customer with the Clearing House
electronic System to carry out the operations of Securities Lending and
Borrowing.
8. Comply with any undertaking or confirmation made by the Agent or its
customers regarding the Securities lending.
9. Ensure that the Lender has a sufficient stock of Securities at the start of
the lending and borrowing operation to complete the lending operation.
Public
7
10. Ensure that the Borrower has the required Guarantee to complete the call
or the request for redeeming the borrowed Securities in accordance with
the provisions hereof.
11. Obtain an order or authorization from the customer regarding any
application related to Securities lending and Borrowing prior to
submitting the application to the Clearing House.
12. Issue a confirmation notifying the customer of the transactions executed
on the same day.
13. Record the lending operations of its customers, the instructions received,
the volume of the performed transactions, the provided guarantees and
all commissions and fees.
14. Send regular reports to the customer, and whenever requested by the
customer, to clarify the actual lending and borrowing operations and any
changes to the value of the Guarantee.
15. Register with the Clearing House the Securities Lending and Borrowing
carried out by any of its customers of the qualified investors in
accordance with the procedures, and provide the Clearing House with a
copy of the Securities Lending and Borrowing Agreement.
16. Keep the records of the lending and borrowing transactions, including the
agreements, instructions, documents and others for a term not less than
(10) years and keep copies of such records (Backup) for the same term.
17. Obtain a prior approval of the Market for any subsequent amendment to
the OMS and submit a technical report on the Clearing House
requirements fulfilled by the amended system.
18. Maintain the solvency of the company in accordance with the solvency
standards issued by the Authority.
19. Provide the Authority and the Market with any reports requested within
two business days as of the date of the request. The Market and/or
Authority may extend the timeframe in case of complex reports.
20. Exercise the due diligence upon performing the tasks.
Article (6)
Securities Lending and Borrowing Agreement
1. A Securities Lending and Borrowing Agreement should be made between
the Lender and the Borrower either in accordance with the approved
form as well as the controls, conditions and requirements issued by the
Market in coordination with the Clearing House or according to the
standard international agreements such as GMSLA, OSLA, MSLA or
USMSLA. In this case, the agreement must include one or more
Public
8
provisions amending the Agreement clauses in accordance with the UAE
applicable laws and regulations.
2. The Lending Agent or the Brokerage Company must ensure that the
provisions of agreements concluded in any way do not contradict the
present regulation.
3. A Lender shall have all material rights of the Securities in the lending
agreement, unless otherwise agreed upon in the agreement between the
Lender and the Borrower.
4. The Lender and Borrower shall be fully liable for all obligations and
conditions in the Agreement signed and concluded by and between them
as well as any risks related thereto. The Market shall accept no liability
for these agreements or the obligations or rights therein, except within its
application and implementation in accordance with the provisions thereof
to the extent that it does not contradict with the applicable law or the
provisions hereof.
5. The Lender and Borrower or their Agents shall inform the Clearing
House of any operation of Securities Lending and Borrowing, and shall
provide the Authority, Market or Clearing House with any reports,
information or documents immediately or within the period specified by
any of them.
6. The Market is not obligated to review the relevant SLB Agreement or
verify its contents.
7. The Market may prohibit any potential party to SLB transaction,
whether as an agent or principal, from entering into SLB transaction
where in its view the terms of the SLB Agreement do not meet the
requirements set out in these procedures.
Article (7)
Guarantee Provisions
1. A Guarantee for Securities borrowing shall be provided according to any
of the following forms:
a. Cash guarantee not less than (105%) of the value of the borrowed
Securities
b. Unconditional bank guarantee issued by any bank and payable on
demand by no less than (105%) of the value of borrowed
Securities. If the Lender is a natural person resident in the UAE,
the bank guarantee shall be issued by a bank operating in the
UAE.
c. Listed Securities owned by the Borrower at a market value not less
than (110%) of the value of the borrowed Securities.
Public
9
d. Unlisted Securities owned by the Borrower, provided that they
shall meet the standards and conditions set out by the Market in
coordination with Clearing House.
2. A Brokerage Company, in the event that it lends its customer from its
own account, or as a Lending Agent, may fulfil either the Guarantee set
out in clause (1) hereof or the Guarantee set out by the Controls of short
selling issued by the Market, as it deems appropriate.
3. The Guarantee shall be kept as follows:
a. The cash guarantee or bank guarantee shall be kept with the
Lending Agent or the Lender (If it is a Brokerage Company).
b. The unlisted Securities shall be deposited in customized account
with the Lending Agent or the Lender (If it is a Brokerage
Company).
c. The listed Securities submitted as a Guarantee shall be deposited
with the Clearing House.
4. The Lending Agent or the Lender (If it is a Brokerage Company) shall
recalculate the value of the Securities on a daily basis based on the market
value of the Securities (closing price).
5. The Lending Agent or the Lender (If it is a Brokerage Company) shall
request for increasing the Guarantee submitted by the Borrower if it falls
below the percentage specified in the Lending and Borrowing Agreement
making the Guarantee up to this percentage. The Guarantee shall be
increased by no more than two business days as of the date of the request.
6. The Lending Agent, the Lender, or the Clearing House, as the case may
be, shall liquidate the submitted Guarantee, in the event that the
Borrower fails to increase the Guarantee on time; provided that such
liquidation shall be made on the day following the expiry of the specified
time in the previous clause hereof.
7. The Lending Agent or the Lender (If it is a Brokerage Company) shall
notify the Clearing House upon liquidating the Guarantee.
Article (8)
Procedures
All applications below shall be made to the Market at the risk of the applicant,
after ensuring that the application is valid and not in contravention with the
terms and conditions of the Agreement between the Parties and the applicable
legislations. The applicant shall be solely liable for any violation, as follows:
First: The Lender shall apply for lending its Securities to the Lending Agent just
to express its desire to lend its Securities.
Public
10
Second: The Borrower shall apply for borrowing Securities to the Brokerage
Company. The latter shall either lend its customer directly from its own account,
borrow Securities under its name from a Lending Agent and, then, lend the
Securities to its customers, borrow Securities on behalf of its customers from a
Lending Agent, or lend its customer as a Lending Agent.
Third: The Lending Agent or Brokerage Company shall make the applications
below to the Clearing House in accordance with the forms and requirements
issued by the Clearing House in this regard, as follows:
1. Securities Borrowing: The Brokerage Company shall apply for
Borrowing Securities to the Clearing House in accordance with the
intended form of the Clearing House accompanied with the Agreement
signed by the Parties (Lender and Borrower). Upon fulfilling the required
terms, the Clearing House shall transfer the borrowed Securities from the
account of the Lender to the account of the Borrower as per the Clearing
House procedures and after ensuring that the required guarantees are
fulfilled.
2. Submitting Securities as a Guarantee: if the Guarantee is Listed
Securities, the Brokerage Company shall apply to the Clearing House in
accordance with the intended form for transferring the Listed Securities
submitted as a Guarantee from the account of the Borrower to the
Clearing House.
3. Lender’s Redemption of Borrowed Securities (As a whole or in Part): The
Lending Agent shall apply to the Clearing House in accordance with the
intended form for transferring the borrowed Securities from the account
of the Borrower to the account of the Lender as per the Clearing House
procedures, and for transferring the Listed Securities submitted as a
Guarantee and deposited with the Clearing House to the account of the
Borrower as per the Clearing House procedures.
4. Borrower's Redemption of Borrowed Securities (As a Whole or in Part):
The Brokerage Company shall apply to the Clearing House in accordance
with the intended form for transferring the borrowed Securities from the
account of the Borrower to the account of the Lender as per the Clearing
House procedures, and for transferring the Securities submitted as a
Guarantee and deposited with the Clearing House to the account of the
Borrower as per the Clearing House procedures.
5. Termination of a Securities Lending and Borrowing: The Lending Agent
and/ or the Brokerage Company shall apply to the Clearing House in
accordance with the intended form in this regard to the effect that the
transaction is terminated. The Clearing House shall transfer the
borrowed Securities from the account of the Borrower to the account of
the Lender. In addition, the Clearing House shall transfer the Listed
Public
11
Securities submitted as a Guarantee and deposited with it to the account
of the Borrower as per the Clearing House procedures.
6. Realization (Sale) of Securities Submitted as a Guarantee: The Lending
Agent or the Lender, if it is a Brokerage Company, shall submit apply to
the Clearing House in accordance with the intended form in this regard
for transferring the Securities submitted as a Guarantee and deposited
with the Clearing House to the account of the Lender, so that they can be
sold thereby.
7. Replacement of Guarantee: The Brokerage Company shall apply to the
Clearing House in accordance with the intended form in this regard for
replacing the Guarantee submitted by the Borrower.
8. Any other applications deemed to be necessary by the Clearing House.
Article (9)
The Cancellation of A Securities Lending and Borrowing Transaction
Without prejudice to third parties, the Clearing House in good faith may not
implement or may cancel a Securities Lending and Borrowing Transaction,
redeem the borrowed Securities and make the Borrower obliged to return the
borrowed Securities, in the event of failing to comply with the present Controls
or the Clearing House applicable procedures, fraud, deception or manipulation,
or based on a final judgment or judicial orders. In case the Securities were not
sufficient, the Clearing House shall set out the appropriate actions for each case
respectively.
Article (10)
Arrangements in Compliance with Islamic Sharia
The present Controls shall apply to any agreement or transaction in compliance
with Islamic Sharia principles and shall allow for a temporary transfer of the
Securities from a Lender to a Borrower.
Article (11)
Fees and Commissions
The Market shall determine the due fees and commissions for the Securities
Lending and Borrowing Transactions. The fees and commissions shall be met in
accordance with the procedures set out by the Market.
Public
12
Article (12)
Control and Inspection
The Authority and Market shall control and inspect the Lending Agent or the
Brokerage Company concerning any transactions related to Securities Lending
and Borrowing to ensure the extent of adhering to the Law of the Authority, the
regulations and decisions issued thereunder and the provisions hereof. The
Market shall notify the Authority about any violation thereof or any penalties to
be taken against the offender. The Market may request any additional
information it deems necessary for the functioning of the market.
Article (13)
Penalties
The Market may, in case of violating the present Controls, take any of the
following actions:
1. Warning;
2. Suspending or cancelling the approval granted to the Lending Agent;
3. Imposing a financial fine on the Brokerage Company or Lending Agent
not exceeding the maximum fine under the Law of the Authority and the
regulations thereunder;
4. Applying penalties and other violations, as specified by the regulations of
the Market without contradicting with the Law and the regulations of the
Authority; and
5. Referring any offender to the Authority to consider its offence and apply
the suitable penalty.
6. The Market can waive the penalty if it deems appropriate.
Article (14)
Collateral and Fails Management
1. Collateral management activities for SLB (including marking-to-market)
are conducted bilaterally. The Market is not to be accountable for any
risks.
2. In the case of failure to return securities, ADX is not responsible for any
fails management as it will be handled completely between Borrower and
Lender through their agents.
Public
13
Article (15)
Limit of Liability
1. Without prejudice to the provisions of the Law, SCA’s Regulations and
ADX Rules and Procedures, ADX shall not be held liable for any losses or
damages incurred by any participant, their clients or any other person
who deals with ADX which may arise directly or indirectly as a result of:
a. any procedures, orders or transactions that are subject to these
procedures;
b. the partial or complete suspension or prohibition of SLB
transactions, or the interruption of activities and services provided
by ADX;
c. the exercise by ADX of any of their relevant powers under these
procedures, the Law, Authority Regulations and Decisions and
ADX Rules and Regulations;
d. any service failure attributable to ADX by reason of an event
outside of its control.
2. Without prejudice to the provisions of the Law, ADX shall have no
liability in respect of the accuracy, timeliness or completeness of SLB
transaction reports or any other information published on its website
from time to time.
Article (16)
Waivers
ADX may, after obtaining Chief Executive approval if required, waive any
requirement mentioned in these procedures either based on a request from the
relevant person or on its own initiative.
Article (17)
The rules of Securities Lending and Borrowing issued by the Market Board on
27 May 2014 as well as any circulars, controls or decisions issued accordingly
shall be cancelled.