CISI UAE FRR Investment Products and Markets 2 — Questions and Answers
Question 1: What distinguishes NASDAQ Dubai from the Dubai Financial Market (DFM)?
- NASDAQ Dubai only trades commodities
- NASDAQ Dubai operates within the DIFC under DFSA regulation, while DFM is SCA-regulated (Correct answer)
- They are the same exchange with different names
- DFM only allows UAE nationals to trade
Correct answer: NASDAQ Dubai operates within the DIFC under DFSA regulation, while DFM is SCA-regulated
NASDAQ Dubai operates within the Dubai International Financial Centre under DFSA regulation, while DFM operates under federal SCA regulation, giving them different regulatory frameworks.
Question 2: What is the role of market makers on UAE stock exchanges?
- To set listing fees for new companies
- To provide continuous buy and sell quotes to enhance market liquidity (Correct answer)
- To audit listed companies
- To approve new investor accounts
Correct answer: To provide continuous buy and sell quotes to enhance market liquidity
Market makers on UAE exchanges provide continuous two-way quotes (bid and ask prices), enhancing liquidity and enabling smoother trading by ensuring there is always a counterparty available.
Question 3: What is the minimum capital requirement concept for UAE brokerage firms?
- There is no minimum capital requirement
- Brokerage firms must maintain prescribed minimum capital to ensure financial stability and client protection (Correct answer)
- Only AED 1,000 is required
- Capital requirements only apply to foreign firms
Correct answer: Brokerage firms must maintain prescribed minimum capital to ensure financial stability and client protection
The SCA requires brokerage firms to maintain minimum capital levels to ensure they have sufficient financial resources to meet their obligations and protect client assets.
Question 4: What type of collective investment scheme is most commonly offered to retail investors in the UAE?
- Hedge funds
- Open-ended mutual funds (Correct answer)
- Private equity funds
- Venture capital funds
Correct answer: Open-ended mutual funds
Open-ended mutual funds are the most common collective investment schemes available to retail investors in the UAE, offering diversification, professional management, and daily liquidity.
Question 5: What is the purpose of the investor protection fund maintained by UAE exchanges?
- To guarantee investment returns
- To compensate investors for losses caused by broker default or fraud (Correct answer)
- To provide interest-free loans to traders
- To fund government infrastructure projects
Correct answer: To compensate investors for losses caused by broker default or fraud
The investor protection fund provides compensation to investors who suffer losses due to broker default, bankruptcy, or fraudulent activities, maintaining confidence in the market.
Question 6: What is short selling and what is its regulatory status in the UAE?
- Buying securities on margin; always permitted
- Selling securities not owned by the seller; regulated and permitted under specific SCA rules (Correct answer)
- Selling securities at a discount; prohibited
- Buying securities in foreign currencies; unregulated
Correct answer: Selling securities not owned by the seller; regulated and permitted under specific SCA rules
Short selling involves selling securities the seller does not own, borrowing them to deliver. The SCA has established a regulatory framework permitting short selling under specific conditions including disclosure requirements.
CISI UAE FRR Investment Products and Markets 2
What distinguishes NASDAQ Dubai from the Dubai Financial Market (DFM)?