The Qatar Stock Exchange (QSE) has introduced margin trading, a move that is seen not only to enhance liquidity but also the advent of derivatives in the market.
The bourse also announced the commencement of application process to allow the QSE members get licensed as margin lenders.
The introduction of margin trading comes almost a year after the Qatar Financial Market Authority (QFMA) put in place new rules regarding it.
Once a brokerage firm is licensed as a margin lender, it will be able to perform margin trading activity on the QSE, a bourse spokesman confirmed in a communiqué.
“Margin trading will increase liquidity. It is very important for investors as they have been asking for it for some time,” QSE chief executive Rashid bin Ali al-Mansoori had said on Wednesday on the sidelines of Euromoney Conference Qatar 2015.
The QFMA requires a financial services company to hold a licence to execute sale and purchase orders of securities. Other licensing requirements for margin trading activities are set out in Article 3 of the rules including minimum capital and a bank guarantee (both determined by the QFMA), according to a corporate law firm Al Tamimi and Co.
Margin trading will allow investors to purchase securities that are partially financed by a loan or credit facility made available by a margin lender, a member licensed to provide such services.
As part of the QSE keenness to raise awareness among investors and market participants, it will hold a seminar on the new mechanism, the spokesman said.
Margin trading is for those customers who want to gain from the expected upward or downward movement in price of a stock during the day but have limited money.
The move would help facilitate greater transaction volume and diversity, which could influence price formation in the market. This, in turn, has the potential to improve liquidity and further facilitate fair and smooth price discovery, market sources said.
The move by the financial regulator is seen as a precursor to the advent of derivatives trading such as futures and options. It also comes in the backdrop of Qatar being upgraded to ‘emerging’ market by both global index compiler MSCI, Standard and Poor’s-Dow Jones and FTSE.
However, the corporate law firm had earlier said in an article that the implementation of the margin trading rules by the QSE has not been tested.
Obtaining the licence of the QFMA to carry out margin trading activities would require working closely with the QSE and applications would help shape the QSE rules on margin trading, it added.