Margin trading will begin on the Qatar Stock Exchange (QSE) from tomorrow, a move that will stimulate trading volumes and liquidity as well as extend new financing sources for investors.
The Group Securities, one of the11 stock intermediaries, will be allowed to execute margin trading on the QSE after completing the preparations necessary to put the decision into practice in collaboration with the Qatar Central Securities Depository, a bourse spokesman said.
“This new service would enhance the stock market performance and stimulate trading volumes, adding that the implementation of this initiative primarily aims to boost liquidity in the market and provide new financing channels for investors, especially those who are willing to buy large amounts of stocks for their portfolios,” the QSE chief executive Rashid bin Ali al-Mansoori said.
Through margin trading, which will be applicable only for 20 stocks in the main index, a financial services company funds a percentage of the securities’ market value purchased for its client, pursuant to the agreement governing the relation between them. 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.
It is understood that Qatar has adopted a 60:40 method wherein a financial services company funds 40% of the securities’ market value purchased for its client pursuant to the agreement governing the relation between them.
The customers would have to open a new margin trading account with the brokerage firm. As per the Qatar Financial Market Authority rules, it is not permissible to open more than one margin trading account per person at more than one financial services company.
The margin trading account is used to deal in securities traded in the market, and must not be used for subscription in new securities’ issuances, as per the guidelines of the financial market regulator.
The move (of introducing margin trading) 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.
It is seen as a precursor to the advent of derivatives trading such as futures and options. The move also comes in the backdrop of Qatar being upgraded to ‘emerging’ market by global index compilers such as MSCI, Standard and Poor’s-Dow Jones and more recently FTSE Russell.
In light of its policy to promote investment knowledge and awareness, the QSE had already held several introductory seminars on the margin trading service that allows investors to purchase securities that are partially financed by a brokerage firm licensed to provide margin trading service.