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UAE Country Report: SCA Sukuk Announcement

The Securities and Commodities Authority (SCA) board of directors recently approved the final form of the Regulation for Sukuk. The regulation enumerates the rules for the issuance and principal listing of Sukuk; rules for Sukuk trading, clearance and sett lement; and rules for the issuance and listing of Sukuk concerning applicants.

The regulation states that each Sukuk issuance must have a nominal value of no less than AED10 million (US$2.72 million), unless otherwise approved by the SCA. Such high nominal values underscore the government of Dubai’s intention to bolster the economy through the use of Sukuk. The SCA calls Sukuk an “ownership tool” and not a debt one, which shows the SCA’s intention of using Sukuk as a vehicle for high-level Shariah compliant trading instead of merely a lending platform.

The regulation also provides that Sukuk must be approved by a Shariah committ ee prior to any listing. Once the Sukuk are listed, they may be traded inside and outside the market. However, the regulation stipulates the conditions under which such trades may be made, cleared and sett led and how they must be recorded. Such procedural conditions have been put in place by the SCA to mitigate abuse and create transparency in the Dubai Sukuk market.

Applicants must also comply with the regulation demands and are required to meet certain conditions prior to the issuance of Sukuk. For instance, applicants for retail Sukuk must be companies based onshore in Dubai and may not be incorporated under any freezone authority. Further, applicant companies’ Articles of Association may not contain any restrictions preventing the applicant from complying with the SCA regulations. The SCA will be enforcing the regulation to ensure that applicant companies are acting within the purview of the legislation.

The new regulation was enacted following the recent issuance of the Dubai Financial Market’s (DFM) ‘Standard for Issuing, Acquiring, and Trading Sukuk’. The government of Dubai also recently announced a huge number of Sukuk in the region. These recent advances in Sukuk regulation are further proof that the Sukuk market is growing and that Dubai is positioning itself to become the capital of Islamic economy.

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Published: May 2014
Publication: Islamic Finance News
Title: Country report - UAE: SCA Sukuk announcement
Practice: Corporate and M&A,Banking & Finance
Authors: Rima Mrad
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