Complex Made Simple

CMA issues the rules for selling the securities the client fails to pay their value

Al Salmi: The rules will enhance the regulatory infrastructure

HE Yahya Said Al Jabri, Chairman of the Capital Market Authority has issued Decision No. 3/2015 approving the Rules for selling the Securities the client fails to pay their value.

The move comes as part of upgrading the regulatory and legislative framework of the capital market to create healthy investment environment.

HE Sheikh Abdullah Salim Al Salmi, Executive President of CMA said “The issuance of the rules comes within the efforts of enhancing the regulatory and legislative infrastructure of the capital market for the protection of investors and market participants from unsound practices to enable the capital market to attract local and foreign investments.”

He pointed out, that “Such rules would reduce the risks to which market brokers are exposed to due to clients failure to pay the value of the shares they purchase as the client’s failure to pay obligates the companies to pay from their own accounts which is additional financial burden and might affect their efficiency.”

The aim of the legislature is to confer on the broker the power to sell the securities the clients fails to pay their value as per specific mechanism. The decision provides in Article One that the broker shall have an authorization by the client to the broker.

Sale After T+3
The rules provides the broker may sell the securities the client fails to pay their value during the business day following the end of the settlement period T+3 without authorization from the client. Where there is no demand for such securities during the said day the broker may reoffer them during five working days maximum commencing on the day following the end of the said day as per the prevailing prices. The broker shall notify the client prior to the sale on the agreed contract address or any other appropriate means and keep evidence of such notice.

Article four provides the broker shall not sell securities whose value is paid to cover the amount resulting from purchase of securities whose value is not paid. Where the client pays insufficient amount to pay for the securities and fails to pay the balance until the end of settlement term T+3, the broker may sell the unpaid part as stipulated in Article 5.

Article 6 provides if the broker buys more than one security for the client on the same day and the client deposited specific amount and failed to pay the balance prior to the end of T+3, the amount shall cover the value of the securities as per the sequence of purchase according to the statements of MCDC.

The Client will bear the difference of losses resulting from the purchase operations of the securities whose value he didn’t pay in addition to brokerage commission which will be a debt in his account.

The broker shall perform the transfer transaction to the fund within 3 working days commencing on the third day of the purchase according to Article 7.

Article 8 prohibit the broker from selling the securities the client fails to pay their value again save after payment in full the accruing debt pursuant to this decision.

Article 9 allows the companies operating in securities the right to circulate the names of clients whose securities are sold pursuant to these rules two consecutive times “The broker who execute securities sale transaction in accordance with this decision for two consecutive times shall immediately inform the Omani Securities Association of the identity of the client, his account number with MSDC and the Association shall create a list of the names of such clients and circulate to the members as they deem fit.”

The broker shall provide CMA with a monthly report on the sale transactions executed according to this decision and shall notify the client of these rules on opening the account or on drafting the authorization to sell. The broker shall set out clear internal policy and fully abide by the rules ensuring the application of the provisions of this decision.