QSE launches covered short selling, securities lending and borrowing

The Qatar Stock Exchange (QSE) has launched covered short selling as well as securities lending and borrowing (SLB) activities, as part of its reforms to make the market more liquid and attractive for the investors, especially foreign.
The move, which indicates the imminent launch of derivatives, is also aimed at achieving 'developed' market status for the QSE from the present 'emerging' tag.
The covered short selling will be allowed solely for market makers, liquidity providers, and qualified investors, including members, and any other cases approved by the Qatar Financial Market Authority or QFMA.
The SLB transactions will be executed in the post-trading system of the Edaa (formerly Qatar Central Securities Depository) by its members or custodians licensed by the QFMA to conduct this activity under the designation "Securities Lending & Borrowing Agents."
The roles and responsibilities of these agents have been defined under Article (3) of the SLB rules issued by the QFMA.
SLB would aid in enhancing the liquidity in the capital market, which in turn would ensure reduced cost of capital and better valuations, market sources said.
Abdulaziz Nasser al-Emadi, the acting chief executive officer of QSE, highlighted the significance of launching this initiative and its role in enhancing market liquidity and introducing new investment tools that will offer investors improved options for optimal investment in the market.
"Such initiatives are essential for launching the derivatives market and adopting the tradable investment instruments," he said, adding the availability of these tools, alongside other instruments, would contribute primarily to upgrading the Qatari market to advanced status.
The covered short selling rules stipulate that transactions can only be executed at a price higher than the last traded price for the same security, where the 'Uptick Rule' will apply to all traders. Brokers will be responsible for ensuring that the covered short selling order is entered into the trading system at a price at least one point higher than the last traded price for that security.
Most short selling is done by hedge funds and institutional investors to cushion their positions against falling stock prices.
The covered short selling rules aim to enable investors to use different investment strategies in line with the best practices in the financial markets, according to market experts.
In September last year, the QFMA had issued rules relating to the covered short selling and SLB in a bid to increase liquidity and volumes as well as expand the investment instruments for the investors.
This contributes to increasing trading volumes and liquidity in the market, maximising the returns of stakeholders in the Qatari capital market, as well as broaden the scope of borrowing securities for various purposes.
In its Capital Market Report 2020, the Qatar Financial Centre had suggested creating a derivatives market, initially offering single-stock futures contracts, as part of the key recommendations for the country’s capital market development.
A derivatives market would add to the breadth of Qatar's capital market, offering investors risk management tool to hedge their investments and business exposure.