In a step aimed at keeping pace with the global developments in the capital market and its needs at the local level, Qatar Stock Exchange (QSE) allowed, last Tuesday, the practice of covered short selling activity, as well as the activity of lending and borrowing securities, after they have been approved in 2022 by Qatar Financial Markets Authority (QFMA) - the regulatory and supervisory authority on the capital market sector in the country.
In accordance with the controls set by QFMA, this procedure allows covered short selling only to market makers, liquidity providers and qualified investors, including members, and any other cases approved by the authority, and it aims to provide new investment tools, further develop market work and improve liquidity for those interested.
The authority defined covered short selling as any authorized person (market maker, liquidity provider, qualified investor) selling borrowed securities, or entering into borrowing arrangements, provided that the positions arising from the sale in this case are covered on the settlement date in accordance with these rules.
On the other hand, the authority indicated that lending and borrowing securities means that the lender temporarily transfers ownership of securities or sells them to the borrower outside the market at a deferred price, with the obligation or promise of the borrower to return them or resell them to the lender at their request at any time during the agreed period, or at the end of it, unless otherwise agreed upon.
On the implications of applying this mechanism and its impact on developing the performance of the Qatari capital market, financial advisor Ramzi Qasimia told Qatar News Agency that QFMA and QSE took this step to provide more trading tools for investors with the aim of attracting institutional investors, pointing out that this is evident from the requirements set by the two agencies in terms of persons qualified to practice this activity, as they linked this activity to a strategy of lending and borrowing for securities.
Qasimia explained that this step came within the framework of seeking to advance QSE and classify it among the developed markets, as it offered various tools and trading strategies to allow more flexibility and give more trading strategies to investors, especially the qualified ones.
Regarding the advantages and disadvantages of short selling, Qasimia said that this process is mainly aimed at providing investment and profit tools for investors and traders in a declining market, where the investor benefits in case of the occurrence of a decline in the price of the security, and not only from an increase in its price, indicating that this process is used for speculative purposes, but there are many investment fund managers and portfolio managers who use it as a hedge against the risks of falling securities prices. (MORE)
Source: Qatar News Agency