The Securities and Commodities Authority said the new regulations, which include provisions for lending and borrowing of securities, will enhance liquidity in stock markets which have struggled to gain momentum after the 2008 financial crisis.
“The regulation will help maintain market balance and boost national economy,” Sultan bin Saeed al-Mansoori, UAE’s minister of economy, said in a statement on Wednesday.
The rules are expected to be implemented by the end of the year, the statement said.
UAE’s capital markets have failed to keep pace with the country’s economic growth and lack the regulatory developments seen in more developed economies.
Foreign investors have stayed away and the absence of long-term institutional investors has led to speculative trading.
The country is classified as a frontier market by influential index compiler MSCI, a status seen risky and less attractive than the emerging market category.
In November 2011, the regulator published draft rules on short selling and stock borrowing.
A number of brokerages in the UAE have been forced to shut as turnover on the Dubai Financial Market and the Abu Dhabi bourse slumped to seven-year lows in 2011.
Allowing market makers is expected to reduce transaction costs which has hampered liquidity.
“I would think this means brokers will become market makers, which should help their revenues,” said Robert McKinnon, ASAS Capital chief investment officer in Dubai, adding he does not see an immediate fillip to the market from the move.
“Stock borrowing will probably be expensive and may only be available on the biggest stocks in terms of liquidity,” he said.
Both Abu Dhabi and Dubai have stock exchanges which mainly trade banking, real estate and telecom companies. The country is home to prominent companies such as telecoms firm Etisalat and real estate firm Emaar Properties.
In June, the regulator overhauled stock ownership rules to boost transparency in the Gulf Arab state’s two stock markets and lead to better disclosure during takeovers.
It also approved new regulations for the country’s nascent fund management industry in August.