SCA Board changes brokers’ regulation

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Following a Cabinet approval of the new board set-up, the reconstituted board of the Emirates Securities and Commodities Authority (SCA) has held its first meeting, presided over by its chairman, Engineer Sultan bin Saeed Al-Mansoori, Minister of Economy.

At the beginning of the meeting, which was attended by all the new board members, including Mohammed bin Ali bin Zayed Al-Falasi, Abdullah Salim Al-Turifi, SCA Chief Executive Officer, Mubarak Rashid Al-Mansoori, Mohammed Ali Ahmed Al-Dhahiri, Abdullah bin Ali Al-Hamli and Butti bin Khalifa Al-Falasi, the board chairman welcomed the new board members. He expressed profound gratitude to members of the previous board for their selfless services and great contributions throughout the four years of their tenure.

He reviewed some of the achievements and contributions of the previous board, particularly in the area of drawing up framework for regulating trading in securities, developing of legislation infrastructure that governs the market and introducing new regulations and bye-laws to bolster the SCA’s ability to live up to its obligations.

The new board approved the naming of Mohammed bin Ali bin Zayed Al-Falasi as Deputy Board Chairman, Ibrahim Al-Za’abi, Deputy CEO for Licensing, Supervision and Enforcement Affairs, as the board’s Rapporteur, Maryam Al-Suwaidi, Deputy CEO for Legal Affairs, Issuance and Research, as the board’s Coordinator.

The new board also reviewed during the meeting the implementation of resolutions issued by the previous board.

Brokers’ regulation: In order to enhance its supervisory and monitoring role in regulating the work of securities brokerage companies, in coordination with the securities and commodities markets, the new board approved a memo on a suggestion calling for amending of some articles of the brokers’ regulation, as well as the rules that regulate the merger of brokerage companies, the conditions that must be met by any brokerage firm to qualify to open a branch for any of its purposes and the rules that compel brokerage companies, interested in trading in their own account, to contract a securities custodian company licensed by the SCA.

Merger of brokerage companies: The board also approved the addition of new definitions in the text of Article 101 of the brokers’ regulation and the addition of a new article (Article 19b) to the rules governing the amalgamation of brokerage companies licensed to operate in the country. The move is aimed at streamlining the rules and regulations which must be met to effect the amalgamation of brokerage companies.

Based on the amendment and in view of the amalgamation rules outlined in the Commercial Companies Law, the following rules must apply in the case of amalgamation of brokerage firms licensed to operate in the country:

1. Amalgamation of brokerage companies should be in the form of acquisition or merger. The amalgamation resolution shall not take effect until after getting approval from the SCA and other concerned authorities stated in the Commercial Companies Law, for the type to which the company is being converted to.

2. If the amalgamation between two or more brokerage firms is in the form of acquisition, an application supported by the following documents must be presented to the SCA:

a) An authenticated resolution of the boards or management authorities of the brokerage firms involved, confirming the desire of their companies to merge.
b) A copy of the amalgamation contract.
c) A list signed by the internal supervisor and the external auditor of the broker, showing the obligations of each brokerage firm involved in the amalgamation and the rights of its clients.
d) The most recent financial statements of each brokerage company, fully audited according to the norms.
e) The valuation of the net assets of the company being amalgamated in accordance with the provisions for the valuation of shares in kind stipulated in the Commercial Companies Law and its amendments.
f) A report showing steps taken regarding the employees approved by the SCA.
g) A letter from the securities markets during the most recent week preceding the application date. The letter must contain the obligations of the amalgamated brokerage company.
h) The acquiring company should adopt a resolution increasing its capital in accordance with the result of the valuation of the acquired company.
i) Declaration by each of the parties involved in the amalgamation to remain committed to all the rights of their investors and to the obligations and liabilities of the acquired company, in accordance with the final report.

3. If the amalgamation between two or more brokerage firms is in the form of merger, the brokerage companies seeking the amalgamation shall have to be committed to all obligations and procedures outlined in Clauses No. (2) and (7) of this Article. Each of the firms involved in the amalgamation shall issue a declaration dissolving itself. The new brokerage firm will then be incorporated in accordance with the rules of the Commercial Companies Law. The capital of the new company shall be the net of the outcome of the evaluation of the merged brokerage companies. All obligations and rights of the merged companies shall be transferred to the new company, in accordance with the latest report presented to the SCA prior to the merger.

4. The resolution to amalgamate shall become effective after three months from the date of registration in the Commercial Register. The creditors of the amalgamating company may, by a registered letter to the concerned authorities and the SCA, within the said period object to the amalgamation. The amalgamation shall be suspended unless the creditor waives his objection. The Court decrees in a final judgment the rejection of the objection or the company settles the debt if it was due or provides sufficient guarantees for its settlement if deferred. If any person does not come forward to object, during the period referred to, the amalgamation shall be considered final and the amalgamating company or the new company shall replace the amalgamated companies in all their rights and liabilities.

5. Both companies involved in the amalgamation shall be inspected to ascertain all information, obligations and rights regarding each of them, for a report on that to be prepared.

6. Having met all requirements, the application for amalgamation shall be referred to the board for the latter to make a decision on it.

7. The amalgamated brokerage firm shall be committed to the following:

a) Implement the amalgamation resolution and issue a resolution of dissolution of the company three months after gazetting it in the Commercial Register. The actual date of dissolving and amalgamating the company shall be published in two local daily newspapers – one, at least – must be an Arabic daily.
b) The amalgamated brokerage company shall not touch any of its assets after the evaluation process has been completed by the assigned committee. If the company has touched any of its assets after the evaluation process, due to circumstance beyond its control, it must notify the SCA about that without delay.
c) The amalgamated company shall notify the SCA about any changes that occurred in its financial liability. It must also present to the SCA an audited list of investors’ rights and liabilities with the company, spanning from the date of presenting the application to the day prior to the date of actual dissolution of the brokerage company and implementation of the amalgamation resolution. The list must be signed by the company’s board or management authority and its auditor.

8. The amalgamated companies shall continue to practice their activities normally until the SCA and other concerned authorities approved the merger.
Regulating the opening of branch office: The board also approved an addition to another text of the Brokers Regulation (Article 19b) on the regulating of branch offices of brokerage companies, with the aim of organizing and unifying the rules and regulations which must be met before opening of such offices, for whatever the purposes.

The Article contains the following rules:

1. A brokerage company shall open a branch office only after getting SCA approval for each branch it plans to open.

2. To open an executive branch office, the following conditions must be met:

a) A resolution must be issued to that effect by the company’s board or management authority.
b) The brokerage company must have the necessary financial adequacy to support such expansion of opening a branch office. It must therefore furnish the SCA with a certificate to that effect from external auditor.
c) The company must appoint for the branch office a branch manager who must possess all the requirements of an executive director of a brokerage company, in accordance with Article (12) of this regulation. The branch manager shall present a declaration taking full responsibilities of the actual administration of the branch office as a full time official.
d) The company must have rules, to be signed by a legal representative and the executive director of the brokerage company. The rules shall outline the tasks, responsibilities and prerogatives of the branch office manager.
e) The company must present ownership document or rent contract of the branch office, duly endorsed by the concerned bodies.
f) It must present a list of the technical equipment in the branch office, as well as a list of names of the branch office’s employees and their job titles.
g) The brokerage company must abide strictly by the laws and regulations issued to its effect. This shall be verified through the company’s register. The SCA shall assess the level of the company’s adherence to the rules.
h) The company must have the necessary network link with the securities markets and its head office.
i) The branch office must be completely independent from any quarter, in terms of location, organization, technical and administration.
j) The brokerage company must furnish the SCA and the market with all information about the branch office and the changes that may crop up on it or on its administration soon after the branch office came to actual existence. The SCA shall inspect the branch office to ensure all the necessary technical and administrative equipment are in place.

3. The brokerage firm may open its branch office just for receiving client orders. With the exception of sub-clause (C ‘&’ I), all conditions stated in Clause (2) of this Article shall apply on the branch office.

4. Application for opening of branch office shall be presented by the legal representative of the brokerage company. The application must be accompanies with documents proving compliance with the conditions outlined in Clause (2) of this Article. The SCA shall issue, within 30 days from the date of submission of the application, a decision approving or rejecting the opening of the branch office. If the decision is not issued within the stipulated period, it shall be deemed as rejection of the application. Any applicant whose application is rejected may appeal against the decision before a specialized court of law within a period of 30 days from the date of his awareness about the rejection.

5. All rules outlined in this regulation shall apply on the branch office and its activities.

6. A brokerage firm may seek the closure of its branch office and the SCA, after seeking the opinion of the market, shall issue a decision approving the closure.

7. The SCA Chief Executive Officer shall issue a final decision stopping any branch office operating without SCA approval from conducting any activity. The SCA stoppage decision may include closure of the office operating without the SCA approval.

8. Without prejudice to the penalties stated in this regulation, the SCA may cancel the approval given to the branch office if any of the conditions of the approval is flouted or ceased to exist or if any of the rules, regulations and resolutions issued for its application is flouted.

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

The board also approved an amendment on Article (17b, Fourth, 2) concerning the need for brokers to contract a body that is licensed to practice securities custody activities in the country, when trading in their own accounts, in accordance with Article (17b).

Cancelling of broker’s license: The board also approved the cancelling of licenses of InvestOne Financial Brokerage LLC and Al-Madina Financial and Investment Services Co., whose names are to be deleted from the brokers register. The decision followed the failure of the two companies to rectify their situation.

The new board reviewed other issues on its agenda, including a report about steps taken on decisions previously made by the board chairman, a memo about the audited SCA financial statements for 2009, which was approved, a report of the external auditor and approved the renewal of the contract of the SCA external auditor.

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