Dubai Financial Market (DFM) has announced its full readiness to introduce the new settlement mechanism “Delivery versus Payment†(DvP) by the end of fisrt quarter.
The internationally acclaimed settlement mechanism is a low risk and more efficient system, which is widely used by the international exchanges such as the New York Stock Exchange, London Stock Exchange and Hong Kong Stock Exchange, said a DFM statement.
Having DvP in place is one of the key requirements for a potential promotion of the UAE stock markets from “Frontier Markets†to “Emerging Markets†within the MSCI Emerging Markets Global Index. The international index company is expected to review the status of the UAE markets in June 2011, it added.
DFM has completed all the technical requirements to apply DvP in co-ordination with custodians and brokerage firms. The exchange is poised to be at the forefront of regional markets to adopt DvP before the end of the first quarter, said a top official.
Essa Kazim, managing director and CEO, DFM said the DvP mechanism is an international best practice recommended by the International Organization of Securities Commissions (IOSCO) in its document titled“Recommendations for Securities Settlement System†published in November 2001.
This development is phase one of DFM‘s drive to implement international best practices, whilst continuing to respond to the SCA future regulations and closely co-operating with SCA in its efforts to develop the financial markets in the UAE.
Phase two will include getting DFM geared up for the introduction of “Short Selling†and “Securities Borrowing and Lending†later this year.
“DFM has engaged recently in the preparation of a series of progressive plans to enhance the market regulatory infrastructure, anticipate UAE Securities and Commodities Authority (SCA) future regulations and continue to collaborate with SCA in its efforts to develop the financial markets in the UAE through the introduction of DvP followed by “Short Selling†and “Securities Borrowing and Lending,” he added.
According to Kazim, the announcement is a significant development for the UAE markets and takes a crucial step forward in elevating the UAE markets to “Emerging Markets†status by the MSCI, who previously cited the absence of DvP as one of the main reasons for not promoting our markets in their 2010 review.
Maryam Fikri, senior vice president, Clearing, Settlement and Depository Division head, DFM said: “Over the last few months, we have successfully managed to accomplish the required technical testing to ensure full readiness and we have co-ordinated with custodian banks, brokerage firms and different related parties to apply this mechanism in a few weeks.”
“Furthermore, the enhancement of the DFM Clearing system to adapt with DvP was easy to achieve thanks to the capability and flexibility of this system,” she noted.
According to her, there are two main benefits of adopting DvP – risk reduction and enhanced efficiency.
“At this stage we are ready to have DvP in place and we are planning to host a series of workshops and experimental sessions for custodians and brokers to further enlighten them on the procedures and main features of the system,” Fikri added.-TradeArabia News Service
