UAE Exchanges Need More Stringent Regulation

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

09 September 2005

Following the recent discovery that market manipulation had taken place in connection with shares in the Dubai Islamic Bank, brokers and analysts have argued that the UAE's bourses need to be more strictly regulated.

In late August, the Dubai Stock Exchange cancelled about AED9.4 billion (US$2.56 billion) in trades in the Dubai Islamic Bank after finding evidence that record volumes on the bourse were fuelled by market manipulation.

More than 268 million DIB shares changed hands in 7,844 deals on Sunday 28th August, topping the previous day's record 43.7 million DIB shares sold in 6,292 deals, as investors flocked to the bank's stock in the hope that DIB was preparing to raise capital.

The frenzied trading sent volumes on the exchange soaring to a record AED11.1 billion. This compares to an aggregate turnover of AED51.1 billion for the whole of 2004 and AED4 billion during 2003. In the previous week, DIB's share price had risen by almost 25%, and the bank's stock is up 250% for the year.

However, Emirates Securities and Commodities Authority (ESCA) and the management of the Dubai Financial Market (DFM) canceled all deals involving DIB shares that were executed on the Sunday after allegations of fake deals and price manipulation.

"The DFM management studied the unusual trading movement on Dubai Islamic Bank's shares on Aug. 28, 2005 and came to the conclusion that the majority of trades on the shares of the said bank were made by two investors, who concluded corresponding and fake deals in huge quantities to affect the bank's share price upward and downward in a bid to make fast profits," a DFM statement explained.

The two investors who concluded bogus deals were later named as Rashid Bin Zayed Bin Aweidha Al Qubaisi, a minor UAE national (under the guardianship of his father Zayed Bin Aweidha Al Qubaisi) and Khalid Ahmad Majran Al Kindi, a UAE national.

Speaking to Gulf News this week, an unnamed stock analyst with a leading Abu Dhabi bank suggested that:

"If there was a proper, efficient system in place, the DIB share manipulation could have been averted."

Senior capital markets analyst with the Zawya news service, Lama Abou Ghali suggested that the swift action of the regulators against the investors involved in the manipulation shows a desire to protect other investors in the region, but added that:

"It seems like a case of too little too late. In the last 10 days, there were rumours and various names were heard which is very bad for the market. There are not enough regulations for brokers, not stringent enough. Also, what is a minor doing in the market? There has to be the 'know your client' policy as in other markets."

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