Relaxation of margin trading rules to enhance traded volumes

Muscat: A recent move to further relax secured financing or margin trading is expected to enhance traded volumes on the Muscat bourse.
The market watchdog Capital Market Authority (CMA) has extended secured finance facility to companies listed in regular and parallel markets, which is against an earlier stipulation of this facility only for MSM 30 companies. This will help enhance liquidity and thereby trading volumes on the local bourse.
Margin trading allows investors to borrow money from a broker to purchase stocks, using their investment as collateral. In fact, CMA has introduced the scheme more than five years ago for attracting more liquidity into the market.
Last week, CMA has decided to increase the amounts the companies can provide to their customers to 10 per cent of the total assets, while the amounts to be given to a single client was raised to 15 per cent of the funds for secured financing, which should not exceed OMR500,000. This will allow large number of clients to benefit from funds available with brokerage firms.
“Margin trading will definitely enhance volume in the long run. It is good for both brokers and their clients. The general market sentiment will also influence the trend,” said a senior market analyst, who does not want to be named.
However, the market analyst added that the people who make use of margin trading is very limited in Oman.
The amount the company is allowed to grant as financing has been increased to OMR500,000 from OMR250,000, provided the sum will be more than 15 per cent of the funds the licensed company provides for such activity.
Abdullah Salim Al Salmi, executive president of CMA said the new amendments were made in line with CMA’s policy in reviewing the regulations to enhance their efficiency to cope with the development in the stock markets.
“The whole idea is to create more efficiency and flexibility,” added the analyst.
The CMA also relaxed the rule by increasing the maintenance margin in 5 trading days instead of 3 so as to allow the broker to meet the margin maintenance ratio from the client. The licensed companies were allowed to deal with the securities listed on the regular and parallel markets based on standards set out by the companies.
Although the daily turnover of MSM was higher in March and April, there was a fall in turnover and volume in May. The average daily market turnover is around OMR4 million now.