The TSS service allows the investor to sell stocks that they don’t own, but can afford within the applicable settlement period (T + 2), in order to achieve profit buying the stock back if the value goes down.
When traders enter a sell order on the stock, the order is processed via the trading and clearing system. First, it goes through an account dedicated to the technical short selling service, where sale orders entered by brokers will be accepted even if the shares being sold are not available, on the provision that the client deposits an initial margin equivalent to 50% of the market value of the security short selling service. The order of sale is then entered into the record of order, according to the applicable priorities with an indicator signifying that the order has been made under the technical short selling service. Upon completion of the transaction, the shares are added to the buyer as a beneficiary and credited negatively in the seller’s account. The broker may also close the transaction by re-buying (reversing the technically short sold stocks) if the margin is low. The client will settle the transaction on the date specified, by transferring the value to the seller’s broker, and changing the title from beneficiary to owner.
Mr. Rashed Al Blooshi, Chief Executive of ADX, confirmed the adoption of an integrated regulatory network and structure to help protect against fraudulent practice, and ensure a fair and secure trading environment in accordance with best international practices. Al Blooshi said: “Abu Dhabi Securities Exchange (ADX) is keen to define a set of clear laws, rights and obligations governing transactions under the technical short sale service for brokers and investors alike. We are committed to transparency, with an absolute commitment to publish all information related to the service on a daily basis via our website. This will give investors the confidence to invest their savings in the new service, knowing it sits within an advanced legal framework characterised by trust, fairness and open disclosure.”
As part of efforts to strengthen its legal, economic and legislative environment, the Abu Dhabi Securities Exchange (ADX) has implemented measures to regulate the short sell service including, trade suspensions for a 5% drop in the reference price of a given stock or if short sold securities reach 10% of the total capital issued. The Exchange has also implemented a clear framework under which trades should take place, which specifies the obligation of the broker to disclose short dated trades, this comes in addition to the existing approval frameworks utilized by both the lending and borrowing agent.
Mr. Al Blooshi added: “The technical short selling service benefits brokerage companies, their customers, market makers and any entity deemed efficient by ADX to use this service. ADX has adopted a flexible implementation mechanisms for the TSS. This service comes within the framework of Abu Dhabi Securities Exchange’s strategy to enhance the investment environment in the Emirate and attract more foreign investment, in line with Abu Dhabi’s 2030 Economic Vision.”
ADX had previously launched an awareness campaign on TSS services in Abu Dhabi, Fujairah, Sharjah, Ras Al Khaimah and Al Ain. The campaign was designed to educate investors, consumers, and brokers about the new service and its potential returns, in order to educate them on how to use it within the highest regulatory and control standards adopted by ADX. The Abu Dhabi Securities Exchange (ADX) has also held training sessions for brokerage firms, market makers, and local funds to supply the technical short selling service to their customers, understand its positive returns on consumers and market liquidity, as well as its contribution to enhance long term investment savings.