The Dubai Financial Services Authority (DFSA) announced on Wednesday that enforcement sanctions have been issued against Shuaa Capital relating to alleged market manipulation earlier this year.
The announcement follows an extensive and complex investigation by the DFSA into suspicious trading in the shares of DP World Limited on the Dubai International Financial Exchange (DIFX) at the end of March 2008. The trading was carried out by Shuaa Capital International Limited (a firm licensed by the DFSA) at the direction of its parent firm Shuaa Capital P.S.C. (collectively called Shuaa Capital). The trading was referred to the DFSA by the DIFX in April 2008.
The DFSA has determined that Shuaa Capital intentionally set about to raise the closing price of DP World shares on March 31, 2008 so that it could mark up the book value of its proprietary portfolio in those shares for accounting purposes. It did so by standing in the market during the closing minutes of trading with bid prices well above those at which DP World shares had been trading in the ordinary course of business. The DFSA has also determined that Shuaa Capital obstructed its investigation.
Shuaa Capital, one of the most established brokerages in the Gulf region, was one of four lead managers for Dubai port operator DP World's USD5bn initial public offering on the DIFX in 2007. The sanctions against the firm include financial penalties totaling USD950,000 together with other remedial actions agreed to by Shuaa Capital pursuant to an Enforceable Undertaking made with the DFSA.
DFSA’s Chief Executive Mr. David Knott, said: “The manipulation of markets for ulterior motives is a classic form of market abuse that is outlawed in all well regulated exchange traded markets. Such practices run contrary to the maintenance of orderly markets and efficient price discovery in traded securities. In this case Shuaa Capital artificially inflated the price of DP World shares and generated a false market in those shares."
Knott went on to assure investors in Dubai that both the DFSA and the DIFX are "totally committed to ensuring that investors on the exchange can have confidence in the integrity of the market."
Knott continued: "The seriousness of this offence was exacerbated by Shuaa Capital’s obstruction of the DFSA’s investigation. This conduct has prolonged resolution of the investigation and is inconsistent with the standards of behaviour that DFSA expects from regulated firms within the DIFC.
"The DFSA emphasises that DP World is entirely blameless in this matter and is not implicated in any part of the misconduct.”
In a statement issued on Wednesday, Shuaa Capital said that it "regrets the lapse in its internal control systems" and will take measures to ensure that this will not be repeated in the future.
The statement went on to stress that: "The trade in question was an isolated incident and does not reflect Shuaa’s values or history of being at the forefront of corporate governance and transparency in the region."
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