SCA Market Surveillance & Manipulation 2 — Questions and Answers
Question 1: What is 'short selling' and how is it regulated in the UAE?
- Selling shares you own immediately; it is unregulated in the UAE
- Selling securities you do not own, with the aim of buying them back at a lower price; regulated by the SCA with strict rules (Correct answer)
- Selling very few shares at a time; fully prohibited
- Selling shares below market price; allowed freely
Correct answer: Selling securities you do not own, with the aim of buying them back at a lower price; regulated by the SCA with strict rules
Short selling involves selling securities not currently owned, expecting to profit from a price decline by buying them back cheaper. The SCA regulates short selling with rules on covered vs. naked short selling, disclosure, and conditions to prevent abusive practices.
Question 2: What is 'cornering the market'?
- Operating a trading desk at the corner of a building
- Acquiring sufficient control of a security or commodity to manipulate its price by controlling supply (Correct answer)
- Specializing in a specific sector
- Trading in a particular geographic region
Correct answer: Acquiring sufficient control of a security or commodity to manipulate its price by controlling supply
Cornering the market means gaining monopolistic control over a security or commodity so that one party can dictate prices. It is a serious form of market manipulation prohibited under UAE securities law.
Question 3: What is the SCA's approach to cross-market manipulation?
- It only regulates manipulation within UAE exchanges
- It cooperates with other regulators domestically and internationally to address manipulation that spans multiple markets or jurisdictions (Correct answer)
- Cross-market manipulation is not regulated
- Only IOSCO handles cross-market cases
Correct answer: It cooperates with other regulators domestically and internationally to address manipulation that spans multiple markets or jurisdictions
The SCA cooperates with other UAE regulators (Central Bank, Insurance Authority) and international organizations (IOSCO members) to address market manipulation that may involve multiple markets or cross-border activities.
Question 4: What obligation do licensed brokers have regarding suspicious trading activity?
- No obligation — only the exchange must report suspicious activity
- Brokers must report suspicious trading activity to the SCA and relevant authorities (Correct answer)
- Brokers can choose whether to report suspicious activity
- Only institutional brokers must report suspicious activity
Correct answer: Brokers must report suspicious trading activity to the SCA and relevant authorities
Licensed brokers have a mandatory obligation to report suspicious trading activity that may constitute market manipulation or other violations to the SCA. This surveillance obligation is a key part of market integrity.
Question 5: What is the consequence of market manipulation on investor confidence?
- It increases investor confidence
- It has no effect on investor confidence
- It undermines investor confidence and damages market integrity, reducing participation and market efficiency (Correct answer)
- It only affects professional investors
Correct answer: It undermines investor confidence and damages market integrity, reducing participation and market efficiency
Market manipulation undermines investor confidence by creating unfair markets where prices do not reflect genuine supply and demand. This damages market integrity, deters investment, reduces liquidity, and harms overall economic development.
Question 6: What is 'price stabilization' and when is it permitted under UAE law?
- It is always prohibited
- It is the practice of supporting a newly issued security's price in the aftermarket, permitted under strict SCA rules for a limited period post-IPO (Correct answer)
- It is permitted at all times without restriction
- Only the SCA can conduct price stabilization
Correct answer: It is the practice of supporting a newly issued security's price in the aftermarket, permitted under strict SCA rules for a limited period post-IPO
Price stabilization involves supporting the market price of a newly issued security shortly after an IPO to prevent an initial sharp price decline. The SCA permits this under strict conditions, including disclosure, time limits, and price limits.
SCA Market Surveillance & Manipulation 2
What is 'short selling' and how is it regulated in the UAE?