SCA Board approves Capital Adequacy Regulations for Securities and Commodities Brokers

H.E. Sultan bin Nasir Al-Suwaidi, UAE Central Bank Governor, H.E. Abdullah Salim Al-Turaifi, SCA Chief Executive, H.E. Sami Dha'en Al-Ghamzi, Director General of Dubai's Department of Economic Development and H.E. Mahmoud Ibrahim Mahmoud, were all present at the 15th meeting of the board's 3rd session, which was held in Dubai.

The board's approval of the draft regulations is part of the SCA's efforts to improve the performance standards of securities and commodities brokers and broker dealers and to boost their expertise in the management of the risks involved in their activities, including credit risk, market risk and operational risk. It is also to correspond with the special requirements of sideline trading systems and the rules governing brokers' trading for their own interest to ensure they adhere strictly to the capital adequacy rules of engagement.

The approval also followed several studies conducted by the SCA, which compared notes on various capital adequacy systems being implemented by advanced and emerging markets in countries like the United States, Malaysia, England, Singapore, Egypt, Jordan and Oman, before finally making a decision that picked the best practices and regulations being implemented on international markets in this regard.

The resolution adopted liquidity and risk regulations as the yardstick for assessing capital adequacy for brokerage companies. With regard to liquidity regulations, the net capital of the liquidity is to be calculated in percentage of the company's commitment in such a way that it will always match with the size of the company's activities and its ability to determine and control them according to its wish and its ability to increase the size of its activities. As for the risk regulations the capital is to be earmarked to enable the company face adequately all credit, market and operational risks, whether provision had been made for them or not in the company's budget allocation.

They are to be calculated regularly and accurately to reflect the true picture of the company's financial status, its capital adequacy and its ability to meet its obligations towards its clients to win the trust of investors.

The resolution also outlined the requirements and regulations of capital adequacy and rules on how to face credit, market and operation risks, general commitments, internal assessment of capital adequacy and the company's publishing of information related to its capital adequacy, strategies, systems and objectives for managing such risks and exposures.

Moreover, the resolution took into consideration the Basel 2 regulations and developments on the local, regional and international markets, following the world economic crisis.

The resolution urged all concerned companies to abide strictly by the regulations and to the methods of calculation as outlined in the guidebook and the capital adequacy form accompanying the resolution.