The Authority’s Board Decision No. (47) of 2012 concerning the Regulations as to Lending
and Borrowing Securities
The Chairman of the Board of Directors of the Securities and Commodities Authority,
having considered,
The Federal Law No. (4) of 2000 concerning the Emirates Securities and Commodities Authority
and Market, as amended;
The Federal Decree No. (18) of 2009 concerning the Formation of the Council of Ministers of the
United Arab Emirates;
The Council of Ministers' Resolution No. (108 /7 and /5) of 2010 concerning the Restructuring of
the Board of Directors of the Securities and Commodities Authority;
The Authority’s Board Decision No. (1) of 2000 concerning the Regulations as to Brokers, as
amended;
The Authority’s Board Decision No. (2) of 2001 concerning the Regulations as to Trading,
Clearing, Settlement, Transfer of Ownership and Custody of Securities, as amended;
The Authority’s Board Decision No. (3) of 2001 concerning the Regulations as to the Market
Functioning, as amended;
The Authority’s Board Decision No. (29 / r) of 2009 concerning the Regulation as to Safe
Custody of Securities;
The Authority’s Board Decision No. (17) of 2011 concerning the Regulations as to the Settlement
System on the Basis of Delivery Versus Payment (DVP), as amended;
The Authority’s Board Decision No. (46) of 2012 concerning the Regulation as to Market
Makers;
Based on the approval of the Board of Directors at its 13th meeting of the Fourth Term held on
02/08/2012, and
After consultation and coordination with the Markets, and as required for the public interest,
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Has decided as follows:
Article (1)
Definitions
The following words and expressions shall have the meanings given to them below unless the
context indicates otherwise:
State / UAE:
United Arab Emirates.
Authority:
The Emirates Securities and Commodities Authority.
Board:
The Board of Directors of the Authority.
Market:
A securities and commodities market licensed in the State by the
Authority.
Clearing House:
The entity conducting settlement operations and issuing orders for the
payment of funds due to clients in the Market.
Securities:
Shares, bonds and notes issued by joint stock companies, and bonds
and notes issued by the Federal Government or local governments,
public authorities and public institutions in the State, as well as any
other domestic or non-domestic financial instruments so designated by
the Authority.
Market Making:
The activity mainly comprising of the provision of continuous prices
for the purchase and sale of certain Securities to increase the liquidity
of such Securities in accordance with the Market Maker regulations.
Market Maker:
The corporate person licensed to engage in Market Making or the
foreign Market Maker registered with the Market.
Securities Lending
and Borrowing :
A contract under which the ownership of Securities is temporarily
transferred from one party (the lender) to another (the borrower). The
borrower commits to return the Securities at any time during the agreed
period at the request of the lender or at the end of the agreed period
unless otherwise agreed.
Lending and
Borrowing Agent:
A corporate person authorized by the Authority to conduct Securities
Lending and Borrowing transactions for himself or on behalf of others.
Lending Agent:
A Lending and Borrowing Agent authorized to conduct Securities
lending transactions on behalf of others.
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A Lending and Borrowing Agent authorized to conduct Securities
borrowing transactions on behalf of others.
Borrowing Agent:
Article (2)
Obtaining the Authority’s Approval
Other than the following, no person may act as an agent for Securities Lending and Borrowing
transactions prior to obtaining the Authority’s approval, which shall be subject to an annual
renewal:
1. Clearing House.
2. Brokers for the purposes of settling their clients’ transactions in accordance with the
Delivery Versus Payment (DVP) procedures.
3. Cases of executing lending and borrowing agreements entered into between foreign
institutions and companies in accordance with the method specified by the Market.”
Article (3)
Conditions for the Lending and Borrowing Agent
(I)
A Clearing House entity may carry out the functions of the Lending and Borrowing Agent
in accordance with the provisions of these Regulations.
(II)
It is permissible for the following corporate persons to act as Lending and Borrowing
Agents following the approval of the Authority in accordance with the conditions set forth
in item (III) of this Article:
1. A custodian licensed by the Authority.
2. Local banks, branches of foreign banks and investment companies licensed by the
UAE Central Bank.
3. Companies that operate in the field of Securities in accordance with the controls set by
the Authority in relation to preventing conflicts in the activities.
(III)
In order to obtain the Authority’s approval to conduct Securities Lending and Borrowing,
a Lending and Borrowing Agent must submit the following documents to the Authority:
*.Article (2) has been amended according to Decision No. (18) of 2014
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1.
Evidence demonstrating the availability of human, technical, and organizational
resources needed for the activity, as well as risk management procedures.
2. Evidence of adequate capital.
3. Evidence of the technical system to process information, and evidence of the existence
of electronic links between the company and the Market for follow-up and control.
4. Evidence of a record and book keeping system containing the names of clients and
transactions executed, contracts signed, commissions and fees collected.
5. Evidence of the basis and systems of internal controls and financial auditing,
including a certificate from the company’s auditor confirming that the accounting
system applied thereby ensures compliance with the requirements of the required
operations.
Article (4)
Approval Procedures to Practice as a Lending and Borrowing Agent
1. An application shall be submitted to the Authority to obtain prior approval for practicing the
activities of a Lending and Borrowing Agent according to the form prescribed for this
purpose, and enclosing the documents, data and information that support the application. The
Authority may request any other clarifications, information and documents if it deems
necessary.
2. The applicant shall pay the fees prescribed by the Authority.
3. The Authority shall decide on the application within (30) days from the date of submitting a
complete application.
4. A register shall be kept with the Authority in which the Lending and Borrowing Agents
approved by the Authority are recorded.
5. The approval shall be valid for a period of one year ending at the end of December of each
year. The period of the first approval shall be from the date of granting the approval until the
end of December of the same year. The fee payable for such first approval shall be charged as
a respective proportion of that year, with any part of a month calculated as a full month.
6. The approval shall be renewed by an application submitted before the end of November of
each year with the renewal fee prescribed by the Authority. The renewal application shall be
considered by the Authority based on the performance of the Lending and Borrowing Agent
and its compliance with the provisions of applicable laws, regulations and rules.
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Article (5)
Methods of Lending and Borrowing Securities
(I)
Securities Lending and Borrowing shall be made by one of the following methods:
1. The Clearing House is the second party to the Securities Lending and Borrowing
operations.
2. Through Lending and Borrowing Agents for both the lender and the borrower.
(II)
The Market shall set the terms, procedures and controls to regulate each method of
Securities Lending and Borrowing and may use one or both methods.
Article (6)
Article (7)
Securities Subject of Lending and Borrowing
1. The Market shall determine the Securities that are allowed for Securities Lending and
Borrowing.
2. Subject to clause (1) herein, it is not permissible to lend Securities under mortgage in
accordance with the procedures of the Market, Securities subject to a lien in accordance with
the laws and regulations in force in the State, or Securities purchased by margin trading, and
in any other case as determined by the Market.
Article (8)
Lending and Borrowing Agreement
(I)
Subject to the provision of clause (I. 1) of Article (5) of these Regulations, an agreement
for Securities Lending and Borrowing shall be signed between the lender and the
borrower and shall at least include the following:
-
The name of the lender and his Lending Agent (if applicable).
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The name of the borrower and his Borrowing Agent (if applicable).
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The name and symbol of the Securities to be lent.
*Article (6) has been omitted according to Decision No. (18) of 2014
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(II)
-
The value of the Security/Securities to be lent.
-
Securities lending period, and the right of the lender to reclaim the Securities during
that period and the method thereof.
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Determination of the type and amount of collateral in accordance with the provisions
of these Regulations.
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Determination of the fees and commissions payable to the Lending Agent and
Borrowing Agent.
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The acceptable limits for the reduction in the collateral amount that shall not exceed
(5%).
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The necessary procedures to replace or increase the collateral and clearly indicating
the rights of the parties involved.
-
The necessary procedures to reclaim the Securities if the required Securities cannot be
delivered.
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Identifying cases of breaching obligations, rights and counterparty’s liabilities.
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The necessary procedures to deliver or enforce a collateral, and the necessary
procedures to maintain the margin when the daily re-assessment shows a substantial
change in value.
-
The method of distributing dividends and other material rights related to borrowed
Securities and collateral.
Notwithstanding clause (I) herein, a general agreement between the lender and the
borrower may be signed to govern Securities Lending and Borrowing transactions
between them without including the detail of such transactions, provided that each
transaction is separately executed under orders including the detailed information.
Article (9)
Collateral Provisions
(I)
The collateral provided to borrow Securities shall be in any of the following methods:
1. Cash collateral of no less than (105%) of the value of the borrowed Securities.
2. Unconditional bank guarantee issued by a bank and payable on demand of at least
(105%) of the value of the borrowed Securities. If the lender is a natural person and
resides in the State, the bank guarantee must be issued by one of the banks operating
in the State.
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3. Securities owned by the borrower with a market with a value not less than (110%) of
the value of the Securities borrowed. If the lender is a natural person and resides in the
State, the Securities must be listed on a Market.
(II)
A cash collateral shall be retained by the Lending Agent. The Securities provided as
collateral shall be kept with Clearing House.
(III)
The Lending Agent shall re-calculate the value of the collateral on a daily basis as per the
market value of the Securities (closing price).
(IV)
The Lending Agent shall request an increase of the collateral from the Borrowing Agent if
it falls below the percentage specified in the agreement so that this percentage will be
reached. The collateral shall be increased no later than two business days from the date of
such request.
(V)
The Lending Agent or a Clearing House, as the case may be, shall enforce the collateral if
the Borrowing Agent fails to increase the collateral in a timely manner, provided that
enforcement shall be made on the day following the expiry of the period specified in item
(IV) herein.
(VI)
The Lending Agent shall notify Clearing upon enforcing the collateral.
Article (10)
Obligations of the Lending and Borrowing Agents
The Lending and Borrowing Agent shall comply with the following:
1. Prior to executing a transaction, to have an authorization from the client allowing him to
perform the Securities Lending and Borrowing transactions.
2. To record the Securities Lending and Borrowing operations of its clients and their
instructions, as well as the volume of transactions made, collateral provided, and all
commissions and fees.
3. To issue a written or electronic confirmation to the client to notify him of the transactions that
have been executed on that same day.
4. To send regular reports to clients, and upon request of a client, to explain the Securities
Lending and Borrowing transactions that have been executed, and information regarding the
follow-up on collateral value.
5. To retain records related to Securities Lending and Borrowing transactions for a minimum
period of (10) years, and keep back-up copies of such records for the same period.
6. To provide the Authority and the Market with any reports they request within two working
days from the date of the request.
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7. To inform its clients on the risks of Securities Lending and Borrowing and obtain the client’s
acknowledgment thereof.
To exert the skill of a prudent person while performing his tasks.
Article (11)
General Provisions
1. The lender is entitled to all the material rights relating to the Securities to be lent, unless
otherwise agreed with the borrower.
2. The lender may sell the Securities he has lent before reclaiming them; the Market shall set the
internal rules and technical regulations for that.
3. The safe custodians of both parties must be notified (if they are not parties to the transaction)
of any Securities Lending and Borrowing transaction in order to carry out their duties
accordingly.
4. The Market shall ensure that the process of Securities Lending and Borrowing will not result
in exceeding the percentage of foreign ownership.
5. The transfer of ownership of Securities related to Securities Lending and Borrowing
transactions shall be made by the Clearing House notwithstanding Article (3) of the
Authority’s Board Decision No. (2) of 2001 concerning the Regulations as to Trading,
Clearing, Settlement, Transfer of Ownership and Safe Custody of Securities.
Article (12)
Market Bylaws
Subject to the Authority’s approval, the Market shall set internal bylaws that include the
procedures and controls for organizing Securities Lending and Borrowing transactions.
Article (13)
Fees and Commissions
The Market shall develop a proposal on the fees and commissions for Securities Lending and
Borrowing transactions and how to collect them for the Authority, Market and Clearing House,
provided that such proposal is approved by the Authority.
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Article (14)
Oversight over the Lending and Borrowing Agents
1. The Authority may, without prior notice, periodically supervise and inspect parties practicing
Securities Lending and Borrowing in order to ensure their compliance with the Authority
laws and regulations and the Market bylaws.
2. The Market shall ensure compliance by the Lending or Borrowing Agent with the provisions
of these Regulations and notify the Authority of any irregularities occurring in this regard.
3. The Market may impose sanctions on violations of its internal bylaws. The sanctioned parties
may appeal to the Authority against any decision issued by the Market within (30) days from
the date of notification thereof.
Article (15)
Arrangements Consistent with Islamic Sharia
These Regulations shall apply to any agreement or arrangement that is consistent with the
principles of Islamic Sharia and permits the temporary transfer of ownership of Securities from
one person to another.
Article (16)
Violations and Penalties
1. The Authority may, at its own discretion or upon request from the concerned Market, initiate
an investigation of the Lending Agent or Borrowing Agent in any of the following
circumstances:
a. Acting in breach of the provisions of the Law, or the regulations, decisions or instructions
issued in implementation thereof.
b. Diverting from the standards of professional conduct.
c. Abusing the borrowing of Securities in contravention to the purposes of these Regulations
with the intention of circumventing the applicable laws and regulations.
2. If the Lending Agent or Borrowing Agent is proved to have committed the violation
attributed to him, the Authority may impose one of the following sanctions:
a. Give a warning to the Lending Agent or Borrowing Agent and compel him to correct the
violation within the period specified by the Authority.
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b. Impose a fine of no more than the maximum limit provided for in the Law and the
regulations issued pursuant thereto.
Article (17)
Suspension and Cancellation of Approval
1. The Authority may suspend the Lending and Borrowing Agent from practicing as a Lending
and Borrowing Agent or may cancel their approval in any of the following cases:
a. Ceasing to meet any of the conditions of the approval set forth in these Regulations.
b. Serious breach of any of the duties or obligations contained in the Law, bylaws,
regulations, decisions or instructions issued in implementation thereof.
c. Failure to pay the renewal fee of the approval or to pay the imposed fines.
d. The passing of a final court judgment declaring the company bankrupt.
e. Winding-up or liquidation of the company.
2. In the event of suspension or cancellation of an approval, the existing Securities Lending and
Borrowing operations and legal positions shall be addressed in accordance with the controls
set by the Authority.
3. The decision to cancel the approval shall be published in two daily newspapers issued in the
State with at least one in the Arabic language at the company’s expense. The company shall
be removed from the register of Lending and Borrowing Agents prepared by the Authority.
4. The Lending and Borrowing Agent may appeal the Authority’s decision to suspend or cancel
its license issued by the Authority before the competent court within thirty (30) days from the
date of notification thereof.
Article (18)
This Decision shall be published in the Official Gazette and shall come into effect from the next
day from the date of its publication.
Engineer Sultan Bin Saeed Al Mansouri
Chairman of the Board of Directors
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Issued in Abu Dhabi on:12/8/2012
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