Settlement process – United Arab Emirates (Nasdaq Dubai)
In order to access Nasdaq Dubai securities, Clearstream's subcustodian, Deutsche Securities and Services, Dubai Branch, maintains a main securities account with the CSD. This securities account is covered by a National Investor Number (NIN) and is opened in the name of “Clearstream Banking S.A. Nominee A/C”.
The securities account has the following sub-accounts – a custody account and an agent account:
- The custody is only accessible to the custodian and the CSD itself (that is, not the broker). The account is used for the safekeeping of securities. Clearstream clients are required to advise their brokers of the NIN when placing a trade with a broker.
- The agent account. Purchased securities are received into this account before the subcustodian can transfer them to the custody account. Likewise, securities to be sold are transferred onto this account from the custody account in order for the transaction to take place.
Securities are not available for trading while they are held in the custody account. The custodian responsible for the NIN is required to grant a specific broker access to the NIN; certain custodians grant this access on the condition that the broker enters into an SLA with them to govern the brokers access, liabilities and responsibilities.
Brokers will need to know the NIN under which an investor's securities are held in order to execute the transaction at Nasdaq Dubai.
Settlement cycles
The settlement cycle for Nasdaq Dubai securities is T+2 (Trade date +2). Over-the-counter (OTC) trading for ordinary shares, DRs and ETFs is not permitted.
Central counterparty
The Nasdaq Dubai CSD acts as a central counterparty for trades on Nasdaq Dubai-eligible securities executed either on-exchange or OTC.
On-exchange trades
The transfer of ownership for Nasdaq Dubai securities must take place against payment. Free of payment transfers with a Change of Beneficial Ownership (CBO) are not permitted.
The settlement of on-exchange trades at Nasdaq Dubai is mandatory.
Settlement flow
All times stated are UAE local time.
Omnibus account solution for Clearstream clients
The following settlement flow is applicable to clients holding Nasdaq Dubai securities via Clearstream. Investors holding securities via an alternative arrangement using a global custodian and a local subcustodian in the UAE will be required to follow the standard settlement flow for all Nasdaq Dubai securities.
The flow differs from standard market settlement process for Nasdaq Dubai securities. FOP transfers involving a change of beneficial owner (CBO) are not permitted. FOP transfers following the change of local custodian are permitted, but require specific transfer documentation to be completed following the submission of settlement instructions.
Internal transactions are permitted and do not require crossing via Nasdaq Dubai but are reported to Nasdaq Dubai.
T | Investors purchase or sell securities via their broker. Their broker or underlying local brokers are required to be members of Nasdaq Dubai and maintain a Nasdaq Dubai cash account with a Nasdaq Dubai approved clearing bank, or they could access Clearstream’s NIN after the acceptance and signing the SLA between Deutsche Bank Securities & Services Dubai and the broker. Brokers execute their trades on the DFM's X-Stream trading platform. When placing their orders, brokers are required to quote the NIN of their client on their instructions. An investor's NIN is linked to a security trading account and a safekeeping account in the books of DFM. Investors apply for a NIN via a local custodian and thereby appoint a local custodian access over the NIN and associated accounts. Clearstream clients are required to provide their brokers with the NIN belonging to Clearstream. Designated brokers have access to their specific trading account at Clearstream's subcustodian for the purposes of executing trades. Following trade execution, brokers receive confirmations from X-Stream and these are provided back to their clients. At the close of trading at 14:00, Nasdaq Dubai clearing members receive a “Broker File” report detailing all transactions for their clients. Local custodians receive “Trade Files” detailing securities movements and cash obligations for the NINs for which they are responsible. Securities are flagged as “sold” in the NIN of the investor in the Nasdaq Dubai system. Nasdaq Dubai acts as a central counterparty (CCP) to all trades executed on-exchange. The appointed general clearing agents (or the broker itself) derive a broker's obligations following a comparison of trade details between the “Broker File” and the “Trade Files” received by local custodians. |
T+1 | Local custodians receive settlement instructions from the investor via Clearstream. Local custodians receive and process settlement instructions received up until 18:50. If a settlement instruction is missing and has not been received for a given transaction or not matching, then the custodian will reject the transaction by close of business. |
| SD | SD (Settlement Date) = T+2. |
| – until 10:30 | The local custodian notifies the exchange by 10:00 regarding unmatched trades. The local custodian will provision their cash account for settlement at the Cash Settlement Bank (CSB). The total provision made by a local custodian is determined by the “Trade Files” received on T and is made on a net basis of these obligations. (This needs to be at 10:00 on SD). |
– after 10:30 | Nasdaq Dubai releases the “Securities Files” to local custodians confirming the transfer of securities from the NIN to the CCP. |
| SD+2 / T+4 | A mandatory buy-in may be invoked by Nasdaq Dubai against the brokers if there is failure to resolve rejected settlement. If this too fails, a cash close-out will be calculated on the basis of the outstanding unsettled quantity against the NIN holder at the original traded price. |
Cash clearing
All licensed local banks in Dubai approved by the exchange may act as a central cash clearer for cash settlement of trades done for Nasdaq Dubai securities. The fund transfer takes place electronically between settlement banks (appointed by the exchange) and clearing banks (appointed by the local custodian).
Cash Settlement Bank (CSB)
If a Nasdaq Dubai member wishes to provide settlement facilities on behalf of its clients, it must appoint a settlement bank for the purpose of cash settlement obligations. The cash settlement account will be held at any settlement bank approved by Nasdaq Dubai.
Members (individual clearing members and general clearing members) of Nasdaq Dubai and custodians appointed for specific NINs may choose to open settlement bank accounts with any of the following settlement banks:
- HSBC Bank Middle East Limited (for equities, derivatives and all other products);
- Standard Chartered Bank (for equities, derivatives and all other products);
- Emirates National Bank of Dubai (for equities market only).
Rejected trades and buy-in mechanism
Omnibus account solution for Clearstream clients
Once a trade is executed and matched on the trading system by brokers, the settlement accounts covered by the NIN will be debited for securities in the event of a sale or credited with securities in the event of a purchase (in favour of the NIN), provided there are no rejections by the local custodian.
Nasdaq Dubai has drafted procedures to address the potential problem of transaction discrepancies (errors, mismatched and unconfirmed transactions) executed by local brokers for a specific omnibus NIN. Nasdaq Dubai regulations foresee protection for investors safekeeping securities via an omnibus NIN via the following means:
- The terms and conditions signed and put in place between all custodians and Nasdaq Dubai;
- The terms and conditions signed and put in place between all Trading and Clearing members and Nasdaq Dubai;
- Formal procedure for “Managing Nasdaq Dubai Equity Sell Transaction Discrepancies”, which was issued via Nasdaq Dubai notice. This document also outlines the process that will be employed by the Nasdaq Dubai to recover securities sold erroneously and for which no valid settlement instructions have been sent by a custodian's clients.
- A letter of undertaking to be entered into by Clearing Members (brokers) and the Settlement Agent (local custodian).
- Signed SLAs between custodians (of NINs) and local brokers that wish to have access to investor NINs/securities account for Nasdaq Dubai securities at the DFM and their linked trading account.
In addition to the measures outlined above, Nasdaq Dubai has implemented DVP procedures, which are invoked in the following circumstances:
- A buy/sell trade executed by a broker is not recognised by an investor;
- Settlement instructions are not received by a local custodian;
- Settlement instructions are received “late” (that is, past the market/local custodian deadline; or
- Settlement instructions are mismatched before the market/local custodian deadline.
Important note:
The rejection process is as follows:
If you are the seller
Timeline | Events |
Post trade (order executed under CBL's NIN) | |
T/SD-2 | Local custodian reconciles the list of instructions from broker and Nasdaq Dubai against DVP instructions received from CBL. |
T+2/SD | Settlement will take place at Nasdaq Dubai if all trade details in the settlement instruction matches. |
Late instruction scenario under irrevocable rejection | |
In the event of late instruction received from the CBL client | |
T+2/3/4 | Following the rejection processed by the local custodian on T+1/SD-1, the client has a window from T+2 10:50 to T+4 10:50 to send an instruction to settle the trade in the late confirmation window. Upon receipt of late instruction from CBL, the local custodian will proceed to reverse the rejection processed on T+1/SD-1. |
T+3/4/5 | Settlement will occur one business day after reversal of rejection. |
No instruction scenario under irrevocable rejection | |
In the event of no instruction received from the CBL client | |
T+4 | Settlement obligation to make delivery is transferred to the selling broker and no follow up required with CBL. |
If you are the buyer
Timeline | Events |
Post trade (order placed under CBL's NIN) | |
T/SD-2 | Local custodian reconciles the list of instructions from broker and Nasdaq Dubai against RVP instructions received from CBL. |
T+2/SD | Settlement will take place at Nasdaq Dubai if all trade details in the settlement instruction matches. |
Late instruction scenario – normal rejection | |
In the event of late instruction from the CBL client | |
T+2/3/4 | Following the rejection processed by the local custodian on T+1/SD-1, the client has a window from T+2 10:50 to T+4 10:50 to send instruction to settle the trade in the late confirmation window. |
Upon receipt of a late instruction from CBL, the local custodian will check if the local buying broker agrees to settle. | |
T+2/3/4 | If local buying broker agrees, settlement happens on same day. |
If local buying broker does not agree to settle, the local custodian will inform CBL to send cancellation for that instruction. | |
Fail trade scenario | |
i) In the event that the seller rejects the trade via irrevocable rejection | |
T+2/3 | If the seller rejects the trade, the obligation to settle the trade is passed to the selling broker. The selling broker can attempt to buy the securities from the market on T+2/3/4 to fulfil the delivery and depending on market conditions this may lead to partial settlements. |
T+2/3 | Settlement will occur on the same day if selling broker is able to make delivery (full or partial) |
T+4 | If the selling broker fails to buy the failed securities from the market, Nasdaq Dubai will invoke a mandatory buyin. If Nasdaq Dubai is able to execute the entire buyin, settlement will occur on same day. If Nasdaq Dubai is only able to execute partial buyin, partial settlement will occur on same day buy and Buyer Cash Compensation (BCC) will be communicated to Clearstream via email on T+4 however it will only be credited on T+5 by Nasdaq Dubai. If Nasdaq Dubai is not able to execute buyin, Buyer Cash Compensation (BCC) will be communicated to Clearstream via email on T+4 however it will only be credited on T+5 by Nasdaq Dubai. |
T+5 | Buyer receives cash compensation for securities purchased. |
ii) In the event that the seller rejects the trade via normal rejection | |
T+2/3 | If the seller rejects the trade, the obligation to settle the trade is passed on to the selling broker. The selling broker will/may attempt to buy the securities from the market on T+2/3/4 to fufil the delivery and depending on market conditions this may lead to partial settlements. |
T+2/3 | Settlement will occur on the same day if selling broker is able to make delivery (full or partial). |
T+4 | If the selling broker fails to buy the failed securities from the market, Nasdaq Dubai will invoke a mandatory buy-in. If Nasdaq Dubai is able to execute the entire buy-in, settlement will occur on same day. If Nasdaq Dubai is only able to execute a partial buy-in or unable to execute a buy-in, full settlement will occur on same day as Nasdaq Dubai will debit the securities from the seller’s NIN to make delivery to the buyer. |
Penalties
Buy-in
A buy-in mechanism for Nasdaq Dubai securities is in place following Nasdaq Dubai DVP procedures (see above). The mechanism requires pre-validation of available securities and mandatory settlement at the point of trade execution on the exchange. However, “unrecognised” trades or trades for which settlement instructions are received “late” (after the market deadline) are subject to a buy-in procedure supervised by the exchange.
Late settlement on T+4 is subject to penalties imposed by Nasdaq Dubai. These penalties are elaborated below and can also be found on Nasdaq Dubai’s website:
Trade processing day | Applicable penalty |
Late confirmation window on T+3 | Nil |
Late confirmation window on T+4 | USD 700 or 0.25% of trade value, whichever is greater |
Note: An additional penalty of USD 100 is applicable on the reversal of each irrevocably rejected trade.
OTC trades
Under current regulations, OTC transactions for exchange members may be negotiated off-exchange but the resulting trade must take place on-exchange. Therefore, Clearstream clients will be required to cross external transactions on the trading platform via their brokers. Brokers will also be required to report these transactions to the exchange.
Registration
Book-entry securities
The Nasdaq Dubai market is fully dematerialised.
Physical securities
Physical securities are not eligible for Nasdaq Dubai.
Stamp duty
Stamp duty is not applicable in the Dubai market.
Short-selling
Short-selling of Nasdaq Dubai securities is prohibited as the exchange only permits the selling of provisioned securities.
Turnaround trades
Turnaround trades for Nasdaq Dubai securities are permitted. Investors must ensure that a purchase order is initiated first prior to a sell order being placed via a local broker as all sell orders are validated against the availability of the NIN.