Securities & Commodities Authority (SCA)

Regulatory Infrastructure Introduction

• Federal Law No. 4 of 2000 established the Securities & Commodities Authority (SCA), which this chapter will introduce
• This chapter covers SCA's functions and powers and requirements for security and commodity markets in the UAE to be licensed
• There is consideration of corporate governance, the Chartered Institute for Securities & Investment's (CISI's) Code of Conduct, and different license categories provided by the SCA.

Federal Law of No. 4 of 2000

• The Securities & Commodities Authority (SCA) was established by Federal Law No. 4 of 2000
• SCA has a separate legal distinct from state legalities with financial and administrative independence and reports to the Cabinet of Ministers
• SCA was incorporated as a public authority in Abu Dhabi, the State's capital, to provide supervisory and executive powers.
• The SCA's objectives are to provide investment opportunities in securities and commodities and serve the interest of the national economy
• SCA provides security for the integrity and accuracy of transactions, ensures prices align with supply and demand, and protects investors through reliable market practices
• SCA develops investment awareness via research and reporting, and ensures financial and economic stability.
• SCA cannot engage in commercial activities, have private interests, or own/issue securities, but may establish branches/offices to oversee licensed markets in the UAE.
• The Cabinet of Ministers issues regulations proposed by the SCA, as empowered by Article 4 of Federal Law No. 4 of 2000
• Regulations concern the SCA's operation, licensing, market monitoring, and the listing/delisting of securities/commodities trading
• SCA creates regulations for market functioning, broker oversight, trading procedures, membership, transparency, and dispute arbitration, in consultation with licensed markets
• Specialist technical committees are formed to specify work scope and remuneration
• SCA can contact international markets for data exchange, join international groups, and assist in achieving its objectives as per the law

Organs of the SCA and their Competencies

• SCA is managed by a board based on a Cabinet of Ministers resolution
• The Cabinet determines board chairman, member compensations, and meeting/decision procedures
• SCA board members are appointed for four-year terms and renewable once, excluding the chief executive position
• A successor will complete the term if a member resigns early
• Joining the board requires disclosing securities owned by members, their spouses, and minor children, along with any broker holdings to the SCA
• Changes in holdings must be reported within one week and made in writing
• Board membership can be forfeited for dishonor offences, bankruptcy, or missing three meetings
• Board meetings need a majority of members with the chairman, or deputy present to be valid
• Resolutions pass with a majority vote, and the chair has the deciding vote in ties

Responsibilities of the Board of Directors

• Article 4 of Federal Law No. 4 of 2000 is applied with subsequent amendments.
• Notifications related to market/broker activities are collected and resolved under legal provisions.
• Markets and brokers must submit audited financial statements within one month of year-end.
• Markets will disclose rules on significant listed company developments, ensuring adherence.
• Transparency and disclosure are ensured as per the Law
• Resolutions are about concerning market membership and trading are issued and maintained per the law and regulations
• Board undertakes actions that assist in achieving the SCA objectives.
• The board reports market activities to the Cabinet of Ministers every six months.
• The SCA has administrative functions led by a chief executive (undersecretary rank) and a deputy (assistant undersecretary rank), both appointed by federal decree upon board proposal
• Regulations applying to SCA employees extend to the chief executive and deputy.

The SCA's Financial Affairs

• The chief executive prepares the budget and presented to the board for approval, including the annual budget approved by the board, and the fiscal year runs from January to December
• SCA's income sources include government funds and accrued income
• Sources of income include listing fees, fees levied on trading, and service fees levied on brokers and market companies
• SCA keeps accurate books to reflect financial standing under state accounting rules, with statutory auditors appointed annually, and the auditors undergo the approval of fees.

The Markets

• Federal Law No. 4 of 2000 established markets for securities/commodities trading in the UAE.
• Licensed by the SCA, each market operates as a local public entity or joint stock company, reciprocally and electronically connected statewide
• Local public entities must be run by a board appointed by a local authority
• Those on market boards cannot be directors for joint stock entities or brokers
• Members of a board must step down for dishonour, bankruptcy, or missing three meetings.
• Joint stock markets elect directors under the Commercial Companies Law
• Leaders must also declare ownership of securities to SCA.
• A market's board of directors appoints the general manager and deputy, establishes the structure and rules to ensure justice, monitors transactions and issues reports to the SCA for transparency
• Markets are funded via listing fees, trading fees, and fines on listed entities.
• Markets must keep records of security transactions, with outside trades reported. Unrecorded trades are void.

Clearing, Settlement, Transfer of Ownership and Custody

• Federal Law No. 4 outlines regulations, including "Clearing, Settlement, Transfer of Ownership and Custody" and "Supervision and Inspection Procedures."
• All prices of securities and commodities must be displayed per market regulations
• Securities transfer and registration must align with the market's rules
• The issuer is required to promptly carry out procedures per SCA regulations without delay
• The market's board can temporarily suspend trading broadly, trading in a specific company's shares, or specific security transactions
• Majority board member must be present to suspend trading
• Suspension can occur when exceptional circumstances threaten market operations
• The market's board can freeze, suspend, or reinstate rules
• Doing so requires the majority of the board to be present for decisions
• SCA can impose sanctions on a market for unpaid amounts
• Sanctions can be ranked through warnings, rectifying notices, followed by penalties, then suspension.

Disclosure and Transparency

• The board can demand public/private disclosure and information submission related to securities activities to maintain transparency
• The board may investigate law implementation to support transparency
• Listed companies must immediately disclose any price-sensitive information
• The board can publish the information in the local press for public awareness
• Listed companies need to provide explanatory data on activities as needed to ensure integrity
• Falsifying data to sway market value or investors is disallowed
• Using insider information for gains is disallowed
• Any transaction violating these rules is null and void, which includes purchases and sales
• Employees can trade with board’s transaction approval and details revealed to the market. All other unapproved transactions or spreading of rumors is not permitted

Securities & Commodities Authority (SCA)

• The SCA is the authority of securities and commodities based in the UAE
• Federal Law No. 4 is the legal framework for conducting work on securities and is supported by resolutions, and decrees

The Functioning of the Securities & Commodities Authority

• Cabinet of Ministers Resolution 2000-13 details the functioning, looking at objectives and powers of the SCA

Public Authority, Objectives and Powers

• The SCA has a separate legal personality, financial and administrative independence, and the powers to functions, ensuring a proper climate for investment that serves national interest.
• SCA lays out its mission to protect investors, promote sound practice and attract innovative systems
• Five strategic goals include developing the legislative framework, safeguarding financial market and investor rights, transparency, and quality of administrative services
• The SCA has broad powers, including regulation, supervision, licensing markets/brokers, and authorizing security/commodity listings

Organs of the SCA and their Competencies

• Board of directors and an administrative system compose the SCA's organisational structure
• Seeking assistance from third parties, SCA's board governs affairs according to laws and regulations
• The board collects information and manages appropriate actions, approves budget and also appoints auditors.

Administration

• The chairman of the board is the chief head, representing the SCA
• The chairman convenes meetings, leads discussion, and appoints experts
• The chairman delegates to his deputy, any board member, or the executive
• The board meetings convene bimonthly or requested/required.
• The board meets with a majority, with resolutions passed with a chair voting when required at all times, not allowing voting by letter.
• Proceedings led by a chairman maintain order where there are exceptional circumstances

Finances

• SCA is fiscally managed through an annual budget, with fiscal year starting from January to the end of December annually
• Draft budget prepared and submitted by chief executive and approved by the board
• Within 90 days of fiscal year closes, the chief executive required to submit final accounts.
• SCA must keep account books to check the financial position.

Market Licensing and Supervision

• No market activity may be performed without SCA licensure.

Conditions

• For licenses, it is required to be in a public institution or company, has proper tech or is electronically linked to other markets.

Applications

• Market license applications shall be submitted with supporting documents
• The market license application should included establishing local resolutions or member statements, including SCA written declarations/undertakings

Board's Powers

• SCA will examine license applications which can be recommended to go to the board.
• Board should make decisions which are issued within 30 days by SCA.
• SCA may conduct inspections through markets
• Market shall maintain balance sheets and financial statements that are certified for audits.

Regulations for Securities and Commodities Markets

General Provisions

• The State licenses markets trading activities to the SCA
• A board manages the market, with a director general (assisted by members, officers and administrative staff).
• These markets must be in the form of a public system and conduct their practices electronically with system links.

Establishment and Management

• Market members, boards of directors, directors, and deputies are subject to regulations, as the Board of directors must be competent.
• The Board must appoint generals and deputies needed, while drawing up regulations to deal with the SCA.
• The Board must monitor transactions in securities and commodities to seek equity and disclose transparency.
• The SCA must levy penalties and be consulted with.

Membership

• Market obligations are given to brokers licensed, in line with the law.
• Markets maintain member registers, notified by the SCA weekly.

Corporate Governance

• Corporate governance regulates corporate entities through regulations, criteria and procedures
• Aims to ensure discipline by determining management responsibilities, safeguarding shareholder's interests.
• OECD Principles define it as a relationship involving stakeholders and shareholders
• in 2020, the chairman issued no. 03 of 2020 with corporate rules given to joint stock companies to align with best practices.

The Corporate Governance Guide for Joint-Stock Companies

• The guide provides a framework to regulate joint stock companies and its supervised by the SCA
• Guidelines and principles are for accountability, fairness, transparency and responsibility.

Responsibilities for Implementation

• The Board of Directors takes responsibility when adhering the governance on policies.
• This implementation must show all meeting documents related from HQ in as little as 10 years.

Gifts, Conflicts and Related Party Transactions

• To avoid conflict, the Corporate Governance Guide applies to related areas based on the requirements below

Gifts

• Board member shouldnt seek gifts that influences duties with exceptions of symbol/real value less than AED 500

Conflict of Interests Management

• Board member with interests must inform board when participating in resolutions.
• To resolve conflict, it must require for disclosures.

Insiders Register

• For insiders, the rule provides written rules about securities that is expected in insiders company management with register to be notified with information to SCA

Transactions with Related Parties

• Corporate Governance Guide defines parties of interest to be companies with related interest from the company.
• The guideline specifies parties is consent of board from the values within the company.

Codes of Conduct

• The Chartered Institute for Securities & Investment (CISI) has its own rules for membership requirements
• expectations are set by the institute to which a member must act within their requirements to act beyond mere compliance.
• Each principal dictates a measure that is used to see which members adhere to a stakeholders duties to determine which actions will impact them
• These measures help the code decide by the course of action needed with clear action in relation to members.

Licence Categories and Requirements

• SCA decision No 13 in 2021 defines financial activities and the requirements that is associated with the licences .
• details of what is introduced and which functions provide those detail as well what a company requires to receive regulatory approval from the SCA.

Category 1 – Dealing in Securities

• First category is to deal in securities incorporated in the states as legal persons
• AED 30 Million requires to satisfy capital requirement.

Accounting System Controls

• Firms are licensed to deal with securities as first category and possess an electronic accounting system for managing client accounts
• The system adheres to functions required:
• The ability to separate powers in the functions of a user within the account.
• An Audit trail log for movements.
• Setting local times and keeping documents on a monthly scale to prevent cases.