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Margin trade crack down prompts Shariah push

dubai stocks set for correctionBrokerages in the United Arab Emirates, where the market regulator last month vowed it may create new rules to control so-called margin trading, are increasingly offering Shariah-compliant versions of the service.

The practice contributed to stock market volatility in the country this year that sent Dubai’s benchmark index from a bull market into a bear and back again in less than a month. The U.A.E. said it may amend the rules governing lending against shares after reviewing the price swings. Increased monitoring by the central bank and Securities & Commodities Authority is creating more clarity for investors and is fueling client demand, Abu Dhabi-based Fathi Ben Grira, chief executive officer of Mena Corp., said by phone Aug. 17.

Islamic margin trading allows investors, predominantly high-net-worth individuals, to borrow cash according to terms that adhere to the religion’s ban on interest, in order to trade shares, Grira said. This is accomplished by giving interest-free loans and through Murabaha contracts, in which goods are bought and later resold at a pre-agreed mark-up, Sherif Zohdy, head of brokerage at Al Safwa Financial Services, said by phone from Sharjah Aug. 17.