Taming the monster: UAE regulator to tighten supervision of financial markets over Arabtec's debacle
The financial market regulator of the UAE said it would tighten supervision of the stock exchanges, after wild trading in Dubai-listed construction firm Arabtec helped to trigger a market crash.
Regulations on bank lending against shares will be reviewed and amended if needed, the Securities and Commodities Authority said in a statement after its chief executive met with heads of the central bank, the economy ministry and the Dubai and Abu Dhabi stock exchanges.
The SCA said it would also set up a technical committee with the central bank and the exchanges to ensure the soundness and integrity of share trading, and to prevent any manipulation of stock prices.
The statements of corporate CEOs and securities analysts will be monitored to make sure they’re truthful, while the committee will review sharp market movements and submit recommendations, the SCA added.
Shares in Arabtec, the Dubai market’s most heavily traded stock, more than tripled earlier this year to levels far above fair value estimates by fund managers, then lost more than two-thirds of their value as the bubble burst.
This helped to trigger a crash of the overall market as investors scrambled to cover their losses on Arabtec; about $30 billion of market value was destroyed in eight weeks, although the market has partly recovered in the last few days.
The violence of the rise and fall of Arabtec shares was partly due to the fact that some buyers leveraged themselves through bank loans or other means, traders said.
Bullish comments about Arabtec and its shares by then-chief executive Hasan Ismaik, who resigned in June, helped to fuel investor interest in the stock.
The SCA has not so far taken any action against Arabtec or its executives over the swings in the stock; the regulator said in a statement last week that it had taken all necessary steps to ensure proper disclosure and good corporate governance by Arabtec.
The Arabtec debacle came at an awkward time for the UAE because it had just been upgraded at the end of May to emerging market status by international index compiler MSCI, a step which drew more foreign portfolio investors to the country.
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