Public

1

Abu Dhabi Securities Exchange Rules for Securities Lending and

Borrowing

Abu Dhabi Securities Exchange Board of Directors,

Having reviewed Federal Law No (4) of 2000 concerning the Emirates Securities

and Commodities Authority and Market, as mended;

Decision No (2/R) of 2000 by The Authority’s Board concerning the Regulations

of Market Membership;

Decision No (2/R) of 2001 by the of the Authority’s Board concerning the

regulations as to trading, clearing, settlement, transfer of ownership and custody

of securities, as amended;

Decision No (3\R) of 2001 concerning the Regulations as to the Functioning of the

Market, as amended;

Decision No (47) of 2012 concerning the Regulations as to Lending and

Borrowing Securities;

Decision of the Authority’s Board of Directors No (27) of 2014 Concerning

Brokerage in Securities, as amended;

Decision of the Chairman of the Board of Directors of Securities and

Commodities Authority (SCA) No (26/R.M) of 2016 concerning the Regulation of

Some Financial Services Activities and the Trading Process as well as ADX

decisions and instructions;

The Local Law of Emirate of Abu Dhabi No (8) of 2020 Concerning Abu Dhabi

Securities Exchange Company (Public Joint Stok Company) and its amendment;

and

The controls, decisions and instructions issued by ADX Board of Directors,

Decides the following:

Article (1)

Definitions

The following words and expressions shall have the meaning assigned below,

unless the context indicates otherwise:

Public

2

State: United Arab Emirates;

Commercial

Companies:

Federal Law No (2) Of 2015 On Commercial

Companies, as amended;

Authority: Securities and Commodities Authority (SCA);

Market: Abu Dhabi Securities Exchange (ADX);

Clearing House: the authority that sets off and settles all orders

performed in the Market in accordance with the

regulations and the regulatory decisions thereof;

Securities: Shares, bonds and financial notes issued by joint stock

companies as well as the bonds and notes issued by the

federal government or the local governments and the

public agencies and organizations in the State and any

other local or non-local financial instruments accepted

by the Authority;

Brokerage

Companies:

A brokerage company licensed by the Authority to

carry on financial brokerage

Custodian: A legal person licensed by the Authority to undertake

the activity of the securities custodian

Market Maker: A legal person licensed by the Authority to undertake

the activity of market making or the foreign market

maker registered with the Market;

Securities Lending and

Borrowing:

A contract by which the title to Securities shall be

temporarily transferred from a party (lender) to

another (borrower), making the borrower obliged to

give them back on demand of the lender at any time

within or at the expiration of the agreed period, unless

otherwise agreed;

Lender: The Clearing House or any investor having an

investor number at the Market and wishes to lend

Securities to a borrower according to the provisions of

the present Controls;

Borrower: Clearing House or any investor having an

investor number at the Market and wishes to borrow

Securities from the lender according to the provisions

of the present Controls;

Lending Agent: A person having the approval of the Market for

lending securities from his own account or by his

customer in accordance with the provisions of these

Controls and the Clearing House procedures.

Guarantee: Financial sums or Securities deposited by a Borrower

to a Lender against the borrowed Securities at the

approved rates of the borrowed Securities in

accordance with the provisions hereof.

Qualified Investor: Federal government, local governments, governmental

organizations and agencies, companies entirely owned

Public

3

by any of them, international agencies and

organizations or a person licensed for carrying out a

business, provided that the investment shall be one of

its commercial activities.

Article (2)

General Provisions

1. Any Lending and Borrowing of the listed Securities may be carried out

only in accordance with the provisions of these Controls.

2. Securities may be lent only by a Lending Agent in the Market. Securities

borrowed by retail investors must be conducted only through a

Brokerage Company.

3. With the exception of Clause (2) of this Article, Securities Lending and

Borrowing may be made outside the Market between Qualified Investors;

provided that the transaction shall be immediately registered with the

Clearing House by the Lender and the Borrower through a Lending

Agent.

4. With the exception of Clause (2) of this Article, Securities may be lent by

a Brokerage Company as follows:

a. When lending its customers from its own account, provided that it

shall abide by the duties and obligations of Lending Agent herein.

b. When it lends or borrows Securities to settle the trading’s of its

customers according to the procedures of Delivery Versus

Payment (DVP).

5. A Borrower may not transfer the borrowed Securities or impose any right

or restriction thereon, such as pledge or freeze, or do any act thereon

except by short selling or for the purposes set by the Clearing House,

excluding Brokerage Companies which may lend its borrowed Securities

only to its customers.

6. Lending and Borrowing transactions on listed Securities performed by

registered owners on behalf of beneficiary owners, must be reported to

the Clearing House.

7. The Clearing House may lend or borrow Securities in accordance with

the procedures developed thereby in this regard.

8. The Clearing House shall determine the Securities to be lent and

borrowed, on condition that there shall not be any restriction on the

ownership or trading in such Securities, such as pledge or freeze, in

accordance with the Clearing House procedures and the applicable

statutes. It is conditional that such Securities were not purchased by the

margin trading system.

Public

4

9. Lending and Borrowing may not result in exceeding the percentage of

foreign ownership.

10. The Market has the power to suspend SLB eligibility market-wise and/or

security-wise if it deems necessary for the functioning of the market.

Article (3)

The Conditions and Application for the Tasks of a Lending Agent

To perform the tasks of a Lending Agent, it is required that an approval is

received from the Market in coordination with the Clearing House according to

the following:

First: an applicant shall take one the following forms:

1. A Custodian licensed by the Authority;

2. A brokerage Company licensed by the Authority and a member of the

Market;

3. A Market Maker;

4. Local banks, branches of foreign banks and investment companies

licensed by the Central Bank of the UAE;

5. Foreign establishments authorized as Lending Agents by similar

regulatory authorities abroad, after taking out a license from the

competent authority in accordance with the Commercial Companies Law.

Second: an application for approval shall be made to the Market according to

the intended form supplemented with the supporting information and documents

of the application, particularly:

1. The available technical and administrative capabilities and potentials

necessary for carrying out the tasks and managing the relevant accounts;

2. The available solvency required for carrying out the tasks, according to

the standards issued by the Authority in this regard;

3. The availability of a system to maintain the documents of the Securities

Lending and Borrowing, including the names of customers, executed

operations, signed contracts, guarantees, notices, commissions and

collected fees;

4. The availability of an appropriate technical system for identifying the

orders of Securities Lending and Borrowing, including a feature to issue a

message to the customer with the content of the issued order;

5. A report indicating the technical systems and the processing systems to

manage the Securities Lending and Borrowing accounts and the e-

connection between Clearing House and the applicant;

Public

5

6. A report detailing the rules and principles of the internal control,

auditing of lending and borrowing operations and a certificate issued

from the auditor of the company indicating that the accounting system

applied thereto ensures compliance with the requirements of the

operations required to be performed;

7. A report detailing the policies of risk management, operational

procedures and adequate systems to fulfil the regulatory obligations to

practice the activity of Securities Lending and Borrowing;

8. A Customer Agreement Form, including a minimum:

a. A description of the concept of the Securities Lending and

Borrowing and the risks which a customer may face;

b. A detailed statement of rights and liabilities imposed on each of the

customer and the Lending Agent; and

c. Customer’s obligations towards the Authority, the Market and the

Clearing House in accordance with the issued controls and

procedures; and

9. A full separation of the tasks of a Lending Agent and any other activities,

for which the applicant has an approval or license.

Third: An applicant shall, on a continuing basis, fulfil all conditions of approval.

The Market may cancel the approval if any of the conditions herein are not

fulfilled.

Fourth: An applicant may not have committed substantial violations to the

solvency standards or the controls on account separation as approved by the

Authority within six months prior to the date of submitting the application.

Fifth: The fee, as determined by the Market in coordination with the Clearing

House shall be paid.

The Market may impose further requirements or conditions, or may exempt the

applicant from any requirements or conditions according to the market activities

input or as required for the public interest.

Article (4)

Market Decision

1. The Market shall make a decision approving or disapproving the

application within (30) business days as of the date of submitting the

application, which fulfils the conditions herein. The Market may request

any clarifications, information or other documents, as deemed necessary

thereby for its approval.

Public

6

2. The term of the approval shall be one year ending at the end of December

of each year. The first approval shall be made as of the date of grant it

until the end of December of the same year.

3. The approval shall be renewed by virtue of an application to the Market

prior to the end of its term after verifying the continued compliance with

the provisions hereof and paying of the annual renewal fee, as determined

by the Market in coordination with the Clearing House.

4. A Lending Agent should register and renew the registration with the

Authority in accordance with its terms within (5) business days as of the

date of the Market first approval or any subsequent renewal.

5. The Market shall keep and maintain a record of the authorized Lending

Agents.

Article (5)

The Liabilities of a Lending Agent

A Lending Agent shall:

1. Limit lending only to the Securities determined by the Clearing House

and to the purposes specified thereby.

2. Register the Securities Lending transaction of any of its customers with

the Clearing House in accordance with the procedures thereof.

3. Ensure that the customer has an investor account as a Lender or

Borrower held with Clearing House.

4. Conclude a Securities Lending and Borrowing Agreement with each

customer desiring to use this mechanism in accordance with the

requirements of the Market and Clearing House in this regard.

5. Ensure that the Securities Lending and Borrowing Agreement between

the Lender and the Borrower and its procedures are in full conformity

with the legislations in effect and the applicable procedures of the

Clearing House.

6. Provide a copy of the Securities Lending and Borrowing Agreement

between the Lender and Borrower to Clearing House in accordance with

its procedures.

7. Open a special account for the customer with the Clearing House

electronic System to carry out the operations of Securities Lending and

Borrowing.

8. Comply with any undertaking or confirmation made by the Agent or its

customers regarding the Securities lending.

9. Ensure that the Lender has a sufficient stock of Securities at the start of

the lending and borrowing operation to complete the lending operation.

Public

7

10. Ensure that the Borrower has the required Guarantee to complete the call

or the request for redeeming the borrowed Securities in accordance with

the provisions hereof.

11. Obtain an order or authorization from the customer regarding any

application related to Securities lending and Borrowing prior to

submitting the application to the Clearing House.

12. Issue a confirmation notifying the customer of the transactions executed

on the same day.

13. Record the lending operations of its customers, the instructions received,

the volume of the performed transactions, the provided guarantees and

all commissions and fees.

14. Send regular reports to the customer, and whenever requested by the

customer, to clarify the actual lending and borrowing operations and any

changes to the value of the Guarantee.

15. Register with the Clearing House the Securities Lending and Borrowing

carried out by any of its customers of the qualified investors in

accordance with the procedures, and provide the Clearing House with a

copy of the Securities Lending and Borrowing Agreement.

16. Keep the records of the lending and borrowing transactions, including the

agreements, instructions, documents and others for a term not less than

(10) years and keep copies of such records (Backup) for the same term.

17. Obtain a prior approval of the Market for any subsequent amendment to

the OMS and submit a technical report on the Clearing House

requirements fulfilled by the amended system.

18. Maintain the solvency of the company in accordance with the solvency

standards issued by the Authority.

19. Provide the Authority and the Market with any reports requested within

two business days as of the date of the request. The Market and/or

Authority may extend the timeframe in case of complex reports.

20. Exercise the due diligence upon performing the tasks.

Article (6)

Securities Lending and Borrowing Agreement

1. A Securities Lending and Borrowing Agreement should be made between

the Lender and the Borrower either in accordance with the approved

form as well as the controls, conditions and requirements issued by the

Market in coordination with the Clearing House or according to the

standard international agreements such as GMSLA, OSLA, MSLA or

USMSLA. In this case, the agreement must include one or more

Public

8

provisions amending the Agreement clauses in accordance with the UAE

applicable laws and regulations.

2. The Lending Agent or the Brokerage Company must ensure that the

provisions of agreements concluded in any way do not contradict the

present regulation.

3. A Lender shall have all material rights of the Securities in the lending

agreement, unless otherwise agreed upon in the agreement between the

Lender and the Borrower.

4. The Lender and Borrower shall be fully liable for all obligations and

conditions in the Agreement signed and concluded by and between them

as well as any risks related thereto. The Market shall accept no liability

for these agreements or the obligations or rights therein, except within its

application and implementation in accordance with the provisions thereof

to the extent that it does not contradict with the applicable law or the

provisions hereof.

5. The Lender and Borrower or their Agents shall inform the Clearing

House of any operation of Securities Lending and Borrowing, and shall

provide the Authority, Market or Clearing House with any reports,

information or documents immediately or within the period specified by

any of them.

6. The Market is not obligated to review the relevant SLB Agreement or

verify its contents.

7. The Market may prohibit any potential party to SLB transaction,

whether as an agent or principal, from entering into SLB transaction

where in its view the terms of the SLB Agreement do not meet the

requirements set out in these procedures.

Article (7)

Guarantee Provisions

1. A Guarantee for Securities borrowing shall be provided according to any

of the following forms:

a. Cash guarantee not less than (105%) of the value of the borrowed

Securities

b. Unconditional bank guarantee issued by any bank and payable on

demand by no less than (105%) of the value of borrowed

Securities. If the Lender is a natural person resident in the UAE,

the bank guarantee shall be issued by a bank operating in the

UAE.

c. Listed Securities owned by the Borrower at a market value not less

than (110%) of the value of the borrowed Securities.

Public

9

d. Unlisted Securities owned by the Borrower, provided that they

shall meet the standards and conditions set out by the Market in

coordination with Clearing House.

2. A Brokerage Company, in the event that it lends its customer from its

own account, or as a Lending Agent, may fulfil either the Guarantee set

out in clause (1) hereof or the Guarantee set out by the Controls of short

selling issued by the Market, as it deems appropriate.

3. The Guarantee shall be kept as follows:

a. The cash guarantee or bank guarantee shall be kept with the

Lending Agent or the Lender (If it is a Brokerage Company).

b. The unlisted Securities shall be deposited in customized account

with the Lending Agent or the Lender (If it is a Brokerage

Company).

c. The listed Securities submitted as a Guarantee shall be deposited

with the Clearing House.

4. The Lending Agent or the Lender (If it is a Brokerage Company) shall

recalculate the value of the Securities on a daily basis based on the market

value of the Securities (closing price).

5. The Lending Agent or the Lender (If it is a Brokerage Company) shall

request for increasing the Guarantee submitted by the Borrower if it falls

below the percentage specified in the Lending and Borrowing Agreement

making the Guarantee up to this percentage. The Guarantee shall be

increased by no more than two business days as of the date of the request.

6. The Lending Agent, the Lender, or the Clearing House, as the case may

be, shall liquidate the submitted Guarantee, in the event that the

Borrower fails to increase the Guarantee on time; provided that such

liquidation shall be made on the day following the expiry of the specified

time in the previous clause hereof.

7. The Lending Agent or the Lender (If it is a Brokerage Company) shall

notify the Clearing House upon liquidating the Guarantee.

Article (8)

Procedures

All applications below shall be made to the Market at the risk of the applicant,

after ensuring that the application is valid and not in contravention with the

terms and conditions of the Agreement between the Parties and the applicable

legislations. The applicant shall be solely liable for any violation, as follows:

First: The Lender shall apply for lending its Securities to the Lending Agent just

to express its desire to lend its Securities.

Public

10

Second: The Borrower shall apply for borrowing Securities to the Brokerage

Company. The latter shall either lend its customer directly from its own account,

borrow Securities under its name from a Lending Agent and, then, lend the

Securities to its customers, borrow Securities on behalf of its customers from a

Lending Agent, or lend its customer as a Lending Agent.

Third: The Lending Agent or Brokerage Company shall make the applications

below to the Clearing House in accordance with the forms and requirements

issued by the Clearing House in this regard, as follows:

1. Securities Borrowing: The Brokerage Company shall apply for

Borrowing Securities to the Clearing House in accordance with the

intended form of the Clearing House accompanied with the Agreement

signed by the Parties (Lender and Borrower). Upon fulfilling the required

terms, the Clearing House shall transfer the borrowed Securities from the

account of the Lender to the account of the Borrower as per the Clearing

House procedures and after ensuring that the required guarantees are

fulfilled.

2. Submitting Securities as a Guarantee: if the Guarantee is Listed

Securities, the Brokerage Company shall apply to the Clearing House in

accordance with the intended form for transferring the Listed Securities

submitted as a Guarantee from the account of the Borrower to the

Clearing House.

3. Lender’s Redemption of Borrowed Securities (As a whole or in Part): The

Lending Agent shall apply to the Clearing House in accordance with the

intended form for transferring the borrowed Securities from the account

of the Borrower to the account of the Lender as per the Clearing House

procedures, and for transferring the Listed Securities submitted as a

Guarantee and deposited with the Clearing House to the account of the

Borrower as per the Clearing House procedures.

4. Borrower's Redemption of Borrowed Securities (As a Whole or in Part):

The Brokerage Company shall apply to the Clearing House in accordance

with the intended form for transferring the borrowed Securities from the

account of the Borrower to the account of the Lender as per the Clearing

House procedures, and for transferring the Securities submitted as a

Guarantee and deposited with the Clearing House to the account of the

Borrower as per the Clearing House procedures.

5. Termination of a Securities Lending and Borrowing: The Lending Agent

and/ or the Brokerage Company shall apply to the Clearing House in

accordance with the intended form in this regard to the effect that the

transaction is terminated. The Clearing House shall transfer the

borrowed Securities from the account of the Borrower to the account of

the Lender. In addition, the Clearing House shall transfer the Listed

Public

11

Securities submitted as a Guarantee and deposited with it to the account

of the Borrower as per the Clearing House procedures.

6. Realization (Sale) of Securities Submitted as a Guarantee: The Lending

Agent or the Lender, if it is a Brokerage Company, shall submit apply to

the Clearing House in accordance with the intended form in this regard

for transferring the Securities submitted as a Guarantee and deposited

with the Clearing House to the account of the Lender, so that they can be

sold thereby.

7. Replacement of Guarantee: The Brokerage Company shall apply to the

Clearing House in accordance with the intended form in this regard for

replacing the Guarantee submitted by the Borrower.

8. Any other applications deemed to be necessary by the Clearing House.

Article (9)

The Cancellation of A Securities Lending and Borrowing Transaction

Without prejudice to third parties, the Clearing House in good faith may not

implement or may cancel a Securities Lending and Borrowing Transaction,

redeem the borrowed Securities and make the Borrower obliged to return the

borrowed Securities, in the event of failing to comply with the present Controls

or the Clearing House applicable procedures, fraud, deception or manipulation,

or based on a final judgment or judicial orders. In case the Securities were not

sufficient, the Clearing House shall set out the appropriate actions for each case

respectively.

Article (10)

Arrangements in Compliance with Islamic Sharia

The present Controls shall apply to any agreement or transaction in compliance

with Islamic Sharia principles and shall allow for a temporary transfer of the

Securities from a Lender to a Borrower.

Article (11)

Fees and Commissions

The Market shall determine the due fees and commissions for the Securities

Lending and Borrowing Transactions. The fees and commissions shall be met in

accordance with the procedures set out by the Market.

Public

12

Article (12)

Control and Inspection

The Authority and Market shall control and inspect the Lending Agent or the

Brokerage Company concerning any transactions related to Securities Lending

and Borrowing to ensure the extent of adhering to the Law of the Authority, the

regulations and decisions issued thereunder and the provisions hereof. The

Market shall notify the Authority about any violation thereof or any penalties to

be taken against the offender. The Market may request any additional

information it deems necessary for the functioning of the market.

Article (13)

Penalties

The Market may, in case of violating the present Controls, take any of the

following actions:

1. Warning;

2. Suspending or cancelling the approval granted to the Lending Agent;

3. Imposing a financial fine on the Brokerage Company or Lending Agent

not exceeding the maximum fine under the Law of the Authority and the

regulations thereunder;

4. Applying penalties and other violations, as specified by the regulations of

the Market without contradicting with the Law and the regulations of the

Authority; and

5. Referring any offender to the Authority to consider its offence and apply

the suitable penalty.

6. The Market can waive the penalty if it deems appropriate.

Article (14)

Collateral and Fails Management

1. Collateral management activities for SLB (including marking-to-market)

are conducted bilaterally. The Market is not to be accountable for any

risks.

2. In the case of failure to return securities, ADX is not responsible for any

fails management as it will be handled completely between Borrower and

Lender through their agents.

Public

13

Article (15)

Limit of Liability

1. Without prejudice to the provisions of the Law, SCA’s Regulations and

ADX Rules and Procedures, ADX shall not be held liable for any losses or

damages incurred by any participant, their clients or any other person

who deals with ADX which may arise directly or indirectly as a result of:

a. any procedures, orders or transactions that are subject to these

procedures;

b. the partial or complete suspension or prohibition of SLB

transactions, or the interruption of activities and services provided

by ADX;

c. the exercise by ADX of any of their relevant powers under these

procedures, the Law, Authority Regulations and Decisions and

ADX Rules and Regulations;

d. any service failure attributable to ADX by reason of an event

outside of its control.

2. Without prejudice to the provisions of the Law, ADX shall have no

liability in respect of the accuracy, timeliness or completeness of SLB

transaction reports or any other information published on its website

from time to time.

Article (16)

Waivers

ADX may, after obtaining Chief Executive approval if required, waive any

requirement mentioned in these procedures either based on a request from the

relevant person or on its own initiative.

Article (17)

The rules of Securities Lending and Borrowing issued by the Market Board on

27 May 2014 as well as any circulars, controls or decisions issued accordingly

shall be cancelled.