SCA amends brokerage merger rules

13/09/2010 00:00 AST

The Securities and Commodities Authority, or SCA, has amended rules and regulations to streamline the merger, acquisition and amalgamation of brokerage companies in an environment where falling share prices and shrinking trade volumes have forced many to quit the once booming business.

The watchdog’s newly reconstituted board in its meeting approved the recommendation calling for the new rules for amalgamation of brokerages in the country that would be in the form of either acquisitions or mergers.

This comes as the financial crisis-hit equities trading, resulting in low revenues that forced several brokerage firms in the last 18 months to either trim their cost of doing business to survive or quit.

The resolution shall not take effect until after getting approval from the SCA and other concerned authorities.

Brokers’ regulation will be beefed-up, under the Authority’s supervision and monitoring role in regulating the work of brokerage companies, in coordination with stock markets.

Welcoming the move, Dr Qaiser Anis, managing partner of Abu Dhabi-based chartered Accountant firm Alliott Hadi Shahid & Co, termed the new rules as “a step which will lay the regulatory environment to encourage financially unhealthy brokerage firms to merge with stronger players.” Fearing many brokerages that mushroomed with in the country may not survive the continuing crisis on the equity markets, Dr Anis said that the SCA has sensed the situation at a right time and has created a transparent legal framework for any merger to take place in the future.

The board also approved the addition of new definitions to brokers’ regulation and rules governing their amalgamation, which must be met to effect the amalgamation of brokerage companies.

Approval was given to new rules, meaning more regulatory oversight on the setting up or winding up of a branch of a brokerage firm by putting in place stringent procedures. However, it said the brokerage firm may open its branch office just for receiving client orders.

The new board also approved the lowering of the minimum number of broker representatives from four to two.

Cancellation of brokers’ licences

The board also approved the cancellation of the licences of InvestOne Financial Brokerage LLC and Al Madina Financial and Investment Services Co, as they failed “to rectify their situation.”

More brokers are likely to shut this year, analysts warn, with little expectation for a pick-up in trade as domestic indexes languish near 2010 lows.

Khaleej Times