CMA Amends Secured Financing  Directives

To  enhance investment environment and to boost trading in MSM, HE Yahyah Said Al Jabri, Chairman of the Capital Market Authority  has issued Decision No. 4/2016  amending Secured Financing Directives after evaluation of the directives and their appropriateness to the developments and practices in the local and international arenas to upgrade the regulatory environment for more flexibility in the trading operations.

HE Abdullah Salim Al Salmi, Executive President of CMA said the new amendments  were made in line with CMA’s policy in reviewing  the regulations to enhance their efficiency to cope with the developments in the stock markets to deal with the shortcomings to protect the market participants taking into account the flexibility and options for investors to  achieve their investment objects beside the benefits to brokers due to increased trading volumes.

HE added that  the directives aim to expanding the base of the licensed companies to  deal in accordance with the secured financing to include the companies in the regular and parallel markets not only the companies listed in the market index which would  allow more options and opportunities to increase trading volumes further to increasing the  amounts the companies can provide to the customers to be 10% of the total assets and increasing the amounts to be given to a single clients to be 15% of the funds appropriated for secured financing   at not more than RO 500,000 to allow the greatest number of  clients to benefit from investment opportunities.

HE said the  efforts made to enact and amend the regulations of the capital market aim to enhancing the investment environment for building investment portfolios to attract local and foreign capital and to boost confidence which would contribute to creating  investment  initiatives benefiting from  long term financing  in big and promising projects boosting the national economy and increasing production base so as the capital market can be a real and active partner in this respect.

The new amendments included increasing the  maintenance margin in 5 trading days instead of 3 so as to allow the broker to meet the margin maintenance ratio from the client. The licensed companies were allowed to deal with the securities listed on the regular and parallel markets based on standards set out by  the companies.

Where the actual margin falls below the agreed maintenance  margin the legislator  obligates the broker to inform the  client  immediately  after the trading session  by any of the communication means to top up the actual margin to the level of the agreed maintenance margin in not more than 5 days from the trading date on which the fall had occurred so as the broker can meet the margin maintenance level because transferring cash from the client to the broker’s account will take longer than the previously allowed term.

On the other hand the amendments allowed the company licensed  for secured financing  to give financial facilities for trading purposes  provided the client pay the facilities in not more than 3 months from the date of the transaction. The company can give the financing from the company’s total assets not the net assets provided the financing shall not exceed 50% and the risks will be controlled through  capital adequacy requirements.

The amount the company is allowed to grant as financing has been increased to RO 500,000 from RO 250,000  provided the sum will be more than 15% of the funds the licensed company provides for such activity.

To regulate the relationship between the  client and the broker the amendments added certain rules obligating the client to acknowledge the other secured financing accounts  held with other companies and to undertake to report any future accounts.

Article 130 of the Executive Regulation of the Capital Market Law provides the company licensed for margin financing (secured financing) may provide financing for investment in securities collateralized by securities held in the name of the licensed company pursuant to the rules issued by CMA, and Article 125 of the same Regulation provides the licensed company may carry out secured financing provided its capital is not less than RO 1 million.