By Santhosh V Perumal
Qatar is allowing margin trading in its booming capital markets as the emerging market Doha march towards modern financial infrastructure.
The Qatar Financial Market Authority (QFMA) has issued several new regulatory legislations, including that on margin trading and the issue offering and listing of securities on the junior bourse Venture Market for small and medium enterprises (SMEs).
Margin trading means transaction or transactions, whereby a financial services company funds a percentage of the securities’ market value purchased for its client, pursuant to the agreement governing the relation between them, a spokesman of the regulatory body said.
Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it but it also exposes them to the potential for higher losses. It is essentially a leveraging mechanism that enables investors to take exposure in the market over and above what is possible with own resources.
The move would help facilitate greater transaction volume and diversity, which could influence price formation in the market. This, in turn, has the potential to improve liquidity and further facilitate fair and smooth price discovery, market sources said.
The move by the financial regulator is seen as a precursor to the advent of derivatives trading such as futures and options. The move also comes in the backdrop of Qatar being upgraded to ‘emerging’ market by both global index compiler Morgan Stanley Composite Index and Standard and Poor’s-Dow Jones.
The QFMA — chaired by Sheikh Saoud bin Abdulla al-Thani, who is also the Qatar Central Bank governor — has also issued legislations pertaining to rules of external auditors and financial evaluators for listed companies and entities and also on the daily disclosure of major shareholders, who own directly or with minor children or subsidiaries, 5% or more of the listed company’s capital.
“The issuance of such legislations comes as a part of the ongoing effort to follow up the capital markets developments and monitor the market needs as well as modernise the legal infrastructure with further services and procedures that ensure diversity in financial services with updating the regulatory tools to raise the level of disclosure according to the generally accepted standards in the developed markets,” QFMA CEO Nasser Ahmed al-Shaibi said.
An external auditor is a legal person licensed to do revision and auditing of financial statements and reports, to express an opinion in accordance with the origins of the profession and the International Standards on Auditing or auditing standards relating to Islamic financial institutions; and to confirm that these financial statements are free of material misstatements; as well as the liquidations.
In January 2012, QE established a separate standalone junior bourse ‘QE Venture Market’ stipulating eased entry norms as well as lower capital base and shareholders but made mandatory liquidity provider and perpetual services of listing adviser.
The QFMA stipulated SMEs with a track record of one year and a minimum subscribed capital of QR5mn (50% paid) to be eligible for listing compared to three years and a higher capital base of QR40mn (50% paid) for those in the main market.
QSE and Enterprise Qatar had early this year launched the new SME subsidy programme for listing in the new Venture Market; wherein each successful applicant will be eligible to receive a percentage of the fees payable to their listing adviser.
