Consultation Paper No. 13 Price Stabilisation Rules

June 2005


1. Introduction

This paper consults on the DFSA's proposed rules constituting the prescribed Price Stabilisation requirements for the purposes of Article 48(1) of the Markets Law 2004.

The Price Stabilisation Rules module (PRS) containing the Price Stabilisation Rules is attached at Annex A. This paper also consults on associated changes to the Glossary module (GLO) of the DFSA Rulebook and these changes are set out in Annex B.

The draft rules are published for consultation purposes only. Please note that, although the draft rules are in near final form, the DFSA reserves the right to amend the drafts at its sole discretion. The rules will be made under powers contained in the Regulatory Law 2004 and the Markets Law 2004.

Comments are invited on any aspect of the regime proposed in this paper, on both the principles and the detailed drafting. The DFSA would be particularly interested to have the views of firms considering using the proposed rules and views on how this regime compares with those in other major centres. In the light of the comments received, the DFSA may determine to adopt in whole, or in part, the proposals outlined in these papers, or may amend the proposals.

Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of commentators and the content of their submissions may be published on the DFSA website and in other documents to be published by the DFSA. If you wish your name to be withheld from publication, please indicate this when you make your submission.

Any comments should be addressed to:
Mr Nicholas Alves
Legal Counsel
PO Box 75850
Dubai, UAE

or e-mailed to

All comments should be provided in writing, on or before 26 July 2005.

2. Background and context

The draft rules forming the PRS module and the associated changes to other parts of the DFSA Rulebook need to be considered in the context of the core Financial Services laws - the Regulatory Law 2004, the Markets Law 2004 and the Law Regulating Islamic Financial Business 2004 and the objectives of the DFSA set out therein.

3. The DFSA rulebook

The core Financial Services laws provide the DFSA with a wide range of powers, including powers to make rules and to issue Guidance. This Guidance is not binding on the DFSA, nor does it create a "safe harbour" protecting those who comply with it from action for breach of the underlying rule.

The rules together make up a Rulebook containing a number of modules. The DFSA Rulebook may be viewed on the DFSA's website ( along with all the DIFC Laws and Regulations.

The DFSA has power to waive or modify rules, and is prepared to use this to adapt the rules to specific circumstances which may arise.

4. Interpreting the rulebook

Defined terms are identified throughout the Rulebook by the capitalisation of the initial letter of a word or of each word in a phrase and are defined in the Glossary (GLO). Please note that Annex B contains further definitions. Unless the context otherwise requires, where capitalisation of the initial letter is not used, an expression has its natural meaning.

Every provision in the Rulebook must be interpreted in the light of its purpose. The purpose of any provision is to be gathered first and foremost from the text of the provision in question and its context among other relevant provisions. A provision means every type of provision, including Rules and Guidance.

Where reference is made in the Rulebook to another provision of the Rulebook or other DIFC legislation, it is a reference to that provision as amended from time to time. If a provision in the Rulebook refers to a communication, notice, agreement, or other document 'in writing' then, unless the contrary intention appears, it means in legible form and capable of being reproduced on paper, irrespective of the medium used. Expressions Related to writing must be interpreted accordingly. Any reference to 'dollars' or '$' is a reference to United States Dollars unless the contrary intention appears. References to Articles made throughout the Rulebook are references to Articles in the Regulatory Law 2004 unless otherwise stated.

Unless the contrary intention appears:

• words in the Rulebook importing the masculine gender include the feminine gender and words importing the feminine gender include the masculine; and
• words in the Rulebook in the singular include the plural and words in the plural include the singular.

Unless the contrary intention appears, a day or business day refers to:

• in relation to anything done or to be done in (including to be submitted to a place in) the u.a.e. any day which is not a Friday or Saturday or an official u.a.e. Bank holiday; and
• in relation to anything done or to be done by reference to a market outside the u.a.e. any day on which that market is normally open for business.

5. Purpose and summary of the material provisions of the PRS rules

The rules in the PRS module are created under powers contained in the Regulatory Law 2004 and the Markets Law 2004. The purpose of these rules is two fold. The first purpose is to provide the necessary detail in relation to the defence available to a Person under Article 48(1) of the Markets Law 2004. The second purpose is to create a regulatory regime in respect of price stabilising activities in relation to Shares or Debentures offered "for the first time" by way of a Prospectus in or from the DIFC. The term "for the first time" mean Shares or Debentures which are the subject of an initial public Offer or of an additional public Offer of further Shares or Debentures to rank alongside those already in issue.

Other major international markets such as in the UK, USA, Australia and Hong Kong have implemented elective Price Stabilisation rules as have the Members of European Union. The draft PRS rules are in general based on such major international jurisdictions but the DIFC regime has been implemented with a narrower application to reflect the use of such regimes in practice and to suit DIFC circumstances. The DFSA recognises that effective stabilisation will often require an international stabilising operation and accordingly, provisions have been made for such operations in the rules.

It is also significant to note that the regime is one in which an Issuer can elect to use Price Stabilisation with a view to keeping a proper and orderly market at the commencement of trading of new Shares. Commercially, the availability of such a regime can lend itself to investor confidence in a particular IPO.

The DFSA believes that the PRS rules will create a comprehensive regime for Price Stabilisation activities and will assist in fostering market confidence.

As mentioned above, these rules also constitute the prescribed Price Stabilisation requirements for the purposes of Article 48(1) of the Markets Law 2004. Pursuant to which, the Price Stabilisation activities must be carried out in accordance with the rules so as to avoid the consequences of market manipulation under Article 36 of the Markets Law 2004. Consequently, acting in accordance with these rules is a defence under Article 48 of the Markets Law 2004 to such manipulation.

The PRS module makes provision for price stabilising activities in Chapters 1 and 2 providing various limits in relation to the types of Securities which may be the subject of stabilising activities, the period covered by the stabilisation window in which price stabilising activities may take place and in relation to pricing limits for Shares.

The rules in Chapter 3 set out provisions in relation to the appointment of stabilisation managers and their agents. Restrictions are imposed upon the stabilisation manager with respect to entering into transactions for the purchase or sale of certain types of Shares as principal with any stabilisation agent.

Chapter 4 contains further conditions in relation to the carrying out of Price Stabilisation including a requirement for a Prospectus to contain a prominent statement in relation to any proposed Price Stabilisation activities. Other provisions impose responsibilities upon the Stabilisation Manager to take all reasonable steps to satisfy himself that, for example, any requirements of an AMI or other Exchange have been informed that Price Stabilisation in Shares admitted to trading may take place. Other provisions deal with the establishment of a register and there are detailed provisions in regard to Market Price, Options and notifications to the market including post Price Stabilisation market disclosure.

Chapter 5 specifies the requirements in relation to the register mentioned above detailing the required contents and various other matters.

Chapter 6 sets out requirements in relation to Price Stabilisation on a foreign Exchange, that is, an Exchange located outside the DIFC in respect of certain types of Securities.

Chapter 7 deals with Price Stabilisation activities carried out by a Person in respect of dual listed Shares.

Annex B contains new definitions for the Glossary module of the DFSA Rulebook.