Brokerages 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.