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ADSM Unveils New Insider Trading Rules

by Lorys Charalambous, for, Cyprus

22 December 2006

The Abu Dhabi Securities Market (ADSM) on Wednesday announced that it is bringing in a number of far-reaching reforms to its rules and regulations that will enhance disclosure, improve transparency and heighten investors’ risk awareness.

The rules also aim to increase further levels of professionalism among brokers operating in Abu Dhabi’s financial market.

Speaking at a news conference in Abu Dhabi, Rashed Al Baloushi, Acting Director General of ADSM explained that:

“The new regulations, standards and guidelines ADSM will implement over the next month are considered to be the most extensive since our market was established six years ago."

He explained in detail the impact that the reforms would have on brokers, listed companies and investors, and suggested that ultimately, they would ensure the long-term sustainability, transparency and integrity of the market.

Mr Al Baloushi announced that ADSM will be implementing new disclosure requirements before the end of the year.

The exchange will publish on its website the names of all company insiders - Board of Directors, Executives and employees – who intend to trade in or actually trade in their own company stock. ADSM will publish the insider’s request and name, and the trade details as soon as the insider’s order matches.

Under the new rules, the insider’s restriction or ‘closed period’, which is the time they are not allowed to trade their own company stock, will be extended to two weeks prior to the end of each quarter until the company’s financial report is distributed according to ADSM’s requirements.

Currently, insiders can trade up to two weeks after the end of the quarter. This change will further minimise the possibility of insiders benefiting unfairly from undisclosed information.

Another unprecedented initiative to enhance transparency and improve disclosure will be to publish the name of any shareholder who owns 3% or more of a company based on the number of electronic (dematerialised) shares. It is therefore, the responsibility of the shareholder to declare ownership of that amount to 3% or more including those certificated shares.

The new disclosure rules will also require the publication of any buying or selling of 1% over the 3% threshold.

“The new disclosures will make ADSM one of the most transparent markets in the Middle East," announced Mr Al Baloushi, adding that: “Violation of these rules will not be tolerated.”

He continued:

“Alongside transparency; education and awareness for those investing and operating in Abu Dhabi’s securities market are also priorities. ADSM will therefore implement new professional standards and training programmes for brokers, new requirements for investors who are opening accounts with brokerage firms, and strict disciplinary procedures for non-compliance.”

Work is already reportedly underway at ADSM to implement these changes. There will be amendments to account opening forms and an additional clause regarding risk disclosure. Brokers will be obliged to question investors about their investment objectives and strategy. Brokers must also give all new account holders a copy of ADSM’s investor guide.

“The requirements for new account holders are designed to protect investors,” Mr Al Baloushi explained. “It is important they are made aware of the risks involved in stock market trading as well as the opportunities and obligations. We see it as our responsibility to ensure they have as much information as possible.”

With regard to increasing levels of broker qualifications, the acting ADSM Director General announced that:

“Educating those who work in our markets is as important as informing those who invest in them. I am pleased to announce that ADSM will be devising an education plan for all brokerage firm employees.”

He explained that this plan will involve different exam levels for different employees and these must then be taken every two to three years to maintain the highest standards of professionalism. Employees who do not pass exams or complete their training will be suspended.

“These amendments to our rules are being implemented not only to protect investors’ rights, but also the integrity of our market. Therefore any brokerage firm that does not comply with our new professional standards or requirements for new account holders will be disciplined by the violation committee," he warned.

Since the end of 2001 the number of listed companies traded on ADSM has grown fourfold; there are now nearly six times as many brokerage firms; the aggregate market capitalisation of companies traded on the exchange is 20 times higher; there are 50 times as many shareholders registered. ADSM also holds itself up as a model emiratisation employer, with UAE nationals making up about 74% of staff.

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