Introduction

Securities’ is a commonly known term in today’s corporate world, where a vast majority of the corporate population understands, if not knows, the concept of how securities work. In general terms, securities are ‘fungible and tradable’ financial instruments that are used to raise capital in the public and private markets[1]. Securities would include equity, debt, derivative and hybrids. An example for equity would be traded shares. They generally provide ownership rights to the holders in exchange for their share of capital. A debt, as its name suggests, is a loan from the market that is repaid through dividends. A derivative is an instrument that derives its value from the underlying asset. Hybrid, a form of security that is getting more and more prevalent in the recent days, is a combination of any of the above three.

Around the world, the ubiquity of the securities has propelled the countries to bring about laws that effectively govern and regulate the markets in order to avoid fraudulent behaviour or general mismanagement. The securities market is highly regulated and any infraction in the rules and regulations usually lead to heavy penalties to the person (natural/judicial) concerned.

In the United Arab Emirates (“UAE”), the UAE Securities and Commodities Authority (hereinafter referred to as “SCA”), is the authority which governs the securities market. The Dubai Financial Market, which has been trading since mid-2000, was the Emirates’ first stock exchange, and subsequently, a stock exchange was established in Abu Dhabi also. As the markets became active, the need for regulations and licensing arose, leading to the enactment of the UAE Securities & Commodities Authority Law also known as the Federal Law No. 4 of 2000 as amended (hereinafter referred to as the “Federal Law”) and the regulations framed thereunder.

[1] www.investopedia.com ‘securities’

Federal Law

The Federal law, which was enacted in 28/01/2000 and active from 02/07/2000, in addition to putting forth several rules for the management of each market, transparency, disclosure and regulations for brokers and similar agents, also established the SCA and authorised it to regulate and govern the securities and commodities market in the UAE. The provisions of a few relevant Articles of the Federal Law are set out below:

As set out in Article 2 of Federal Law, SCA was established as a public authority with separate legal personality and financial and administrative independence in addition to supervisory and executive powers necessary to perform its functions.

The general powers of the SCA are set out in Article 4 such as the powers to

• propose regulations to the council of ministers;
• regulate, license and monitor the market;
• to make regulations concerning listing or suspending securities, the functioning of the market, brokers, membership, transparency and disclosure, arbitration of related disputes, etc.

Article 25 restricts the transactions in the securities listed in the Market to licensed brokers only.

Article 33 calls for disclosure and transparency as the SCA may compel any person having a connection with activities in Securities, whether a natural or a juristic person, to make public or private disclosure, and to submit any information related to their activity.

Article 35 requires publication of “any clarifying information relating to (listed company) circumstances, activities or anything that would guarantee the integrity of the transactions and confidence of the investors whenever requested to do so”.

Supplementing the Federal Law, the SCA undertook its regulatory functions through various cabinet resolutions, the relevant provisions of which are discussed in brief hereinbelow.

The Council of Ministers’ Decision No. (11) Of 2000 concerning the Regulations as To Market Licensing and Supervision (“Licensing Regulations”):

The Licensing Regulations, regulates the licensing and supervision of the securities in the market and inter alia:

•  lays down the documents required for obtaining a license from the SCA,
• the processing method for such application and the time limit for accepting or rejecting such application,
• limits the time period available to the SCA for scrutinising the application to 15 days from the date of submitting the application,
• the board of SCA (“Board”) has a period of 30 days from the date of submitting the completed application to make the decision on the application,
• in case of rejection, reasons must be given and a chance to re-submit the application must also be given to the applicant, and
• gives the Board the power to freeze, suspend or bring back into force any rules or regulations relating to the Market or any of its operations.

Decision No (12) Of 2000 Concerning the Regulations as to The Listing of Securities and Commodities (“Listing Regulations”):

The Listing Regulations regulate, in particular, the listing requirements and restrictions in regard to the securities in the market.

As provided under Article 4 of the Listing Regulations, listing shall be restricted to the following Securities:

• Shares in joint stock companies incorporated in the State, or those whose head office is located in the State.
• Shares of companies not holding the nationality of the State which are approved for listing by the Board.
• Bonds and debt instruments which the Board resolves to list.
• Any other Securities approved for listing by the Board.

It also lists out the documents necessary for a listing to be submitted and the authority authorized to approve the listing.

Article 9 of the Listing Regulations imposes liability on members of the Board of Directors (and applicants for listing) as to the completeness and accuracy of the information submitted to the SCA Article 17 prohibits insider trading of securities and the regulations further vests the SCA with the power to suspend the listing in the circumstances set out in Article 20.

Decision No (13) Of 2000 Concerning the Regulations as to the Functioning of the Securities & Commodities Authority (“SCA Functioning Regulations”):

The SCA Functioning Regulations deal primarily with the internal functioning of the SCA, its objectives, powers, organs, board, chairman etc. This would warrant a separate article to discuss in detail the related regulations.

In addition to these decisions from the cabinet providing for the regulations set out above, the SCA through its Board of Directors and Chairman issued various decisions for specific instances to effectively regulate the market. The most recent of such regulations would be the “The Chairman of the Authority’s Board of Directors’ Decision No. (23/R. Mٌ) of 2020 Concerning Crypto Assets Activities Regulation” issued on 31/10/2020 and in force from 15/12/2020. The decision defines crypto currency and related terms and sets out the regulations for the same.

This is a brief and non-exhaustive collation of the most relevant provisions of the laws and regulations that would be applicable to the securities and commodities market in the UAE. The regulations are ever so dynamic and vigilant in order to curb any inordinate activities, financial scams and to achieve the SCA’s objective of a sustainable, fair and an international financial market in the UAE.