Muscat: Muscat Stock Exchange (MSX) and Muscat Clearing and Depository (MCD) announced the issuance of new regulations governing Bilateral 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 that will bolster trading stability and open up new investment opportunities.

The issuance of these regulations is part of ongoing efforts to enhance and update capital market systems and legislation, keeping in pace with global developments while addressing the local market needs.
Under the new regulatory framework, CSS will be subject to the MSX regulations outlined in Decision No. 143 of 2024. Additionally, Bilateral SLB activities will be governed by Decision No. 2 of 2024, along with the procedural rules and guidelines issued by MCD.

In this regard, Haitham Al-Salmi, CEO of MSX, explained that issuance 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. This will contribute to enhancing liquidity and provide all market participants with a more dynamic trading environment, while complying with regulatory requirements to ensure 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 Bilateral SLB regulations, Mohammad Al-Abri, CEO of Muscat Clearing & Depository, emphasized that these regulations are a strategic step towards improving market efficiency, increasing liquidity, and enhancing flexibility. This feature is envisaged to be a key tool in supporting market stability and providing investors with additional opportunities to maximize 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 affirm our commitment to providing innovative solutions that meet investors' needs and enhance their trust in the Omani market.

The importance of these new regulations lies in their potential to elevate MSX from a Frontier Market to an Emerging Market status. By issuing 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, as well as CSS, will offer investors new tools to manage their investments, positioning MSX among advanced markets and attracting global institutions and investors looking for a diversified investment environment.

In terms of Bilateral SLB, the regulations allow borrowers to temporarily transfer or buy 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 their holdings 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 facilitate the transactions 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.

As regards the eligibility, lending is open to state institutions, licensed financial institutions, insurance and reinsurance companies and investment funds with assets exceeding 1 million Omani Rials (1,000,000 OMR), or individuals whose personal assets, or those held jointly with their spouses and minor children, exceeding 500,000 Omani Rials (500,000 OMR) or its equivalent in foreign currencies, excluding the value of the individual's primary residence. This feature provides institutional investors with additional ways to diversify their portfolios while improving market liquidity.

And on regard 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.
MSX & MCD encourage all interested parties to review the detailed regulations and procedures for Bilateral Securities Lending & Borrowing and Covered Short Selling on the official websites of MSX (www.msx.om) and MCD (www.mcd.om).

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