Muscat – The Muscat Stock Exchange (MSX) and Muscat Clearing and Depository (MCD) have announced the issuance of new regulations governing dual securities lending and borrowing (SLB) activities, as well as covered short selling (CSS). These regulations are designed to enhance market efficiency and improve liquidity, providing market makers, liquidity providers, and liquidity funds with new tools to bolster trading stability and create new investment opportunities.

The issuance of these regulations forms part of ongoing efforts to develop and update capital market systems and legislation, keeping pace with global advancements while addressing local market needs, MSX said in a statement.

Haitham al Salmi, CEO of MSX, explained that the introduction of these regulations will reshape investment strategies by providing innovative methods for market makers and liquidity funds to diversify their portfolios and effectively manage risks.

He said: “This will contribute to enhancing liquidity and provide all market participants with a more dynamic trading environment, while ensuring compliance with regulatory requirements for greater security. These activities will create new opportunities, enabling the implementation of hedging strategies and benefiting from market efficiencies, ultimately boosting investor confidence and supporting the sustainability of the market.”

Regarding the Dual SLB regulations, Mohammad al Abri, CEO of Muscat Clearing & Depository, emphasised that these regulations are a strategic step towards improving market efficiency, increasing liquidity, and enhancing flexibility.

“This activity is a key tool in supporting market stability and providing investors with additional opportunities to maximise their returns. Our role at MCD is to ensure the smooth and transparent execution of lending and borrowing operations, fully adhering to the highest standards of safety and compliance with applicable regulations. Through this activity, we reaffirm our commitment to providing innovative solutions that meet investors’ needs and enhance their trust in the Omani market,” he said.

The importance of these new regulations lies in their potential to elevate MSX from a Frontier Market to an Emerging Market status. By introducing new financial services activities, these regulations aim to increase the size and scope of financial companies’ operations, enhancing their ability to offer diverse investment alternatives. This, in turn, will promote the trading of otherwise dormant securities and help boost overall trading volumes.

Both SLB and CSS will offer investors new tools to manage their investments, positioning MSX among advanced markets and attracting global institutions and investors seeking a diversified investment environment.

In terms of Dual SLB, the regulations allow borrowers to temporarily transfer or sell securities outside the market on a deferred payment basis, with a commitment to return or repurchase the securities at the lender’s request during the agreed period. This activity is intended to increase market liquidity, improve efficiency through continuous buy and sell offers, and provide market makers with an emergency reserve of securities when stockpiles are depleted.

MCD plays a central role in ensuring the smooth and transparent operation of these lending and borrowing activities. It is responsible for managing the collateral and overseeing the transfer of securities between lenders and borrowers. MCD will also publish periodic reports detailing the total amount of borrowed securities from each issuer, which will be made available on MCD’s official website.

Licensed entities, such as SLB agents, will manage regulatory activities between borrowers and lenders. This process ensures transparency, governance, and compliance with applicable regulations. Furthermore, a contract must be signed between the lender and borrower, outlining the rights and obligations of both parties.

Regarding eligibility, lending is open to state institutions, licensed financial institutions, insurance and reinsurance companies, and investment funds with assets exceeding RO1mn, or individuals whose assets exceed RO500,000, excluding their primary residence.

As for the CSS activity, it will allow sophisticated investors to sell borrowed securities, with the obligation to settle the transaction by the settlement date. Regulations require these transactions to be executed at or above the last traded price, with additional restrictions if the price drops by 5% from the previous closing price. In such cases, the transaction will be suspended for two trading days.

To engage in CSS, sophisticated investors must obtain approval from MSX and demonstrate their technical, administrative, and financial capabilities. They must also show that they have systems in place to manage and segregate orders for CSS and submit reports regarding their internal control and compliance systems.

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