The MSCI reclassification of the United Arab Emirates (UAE) from a Frontier Market to Emerging Market status in May 2014 is a significant milestone. The upgrade has led to additional foreign inflows, significantly higher trading volumes and an influx of new investors that required rebalancing of portfolios to include the UAE.

Georges Cattan, head of HSBC Securities Services, UAE, says the upgrade follows key regulatory changes including buyer cash compensation and securities lending and borrowing introduced by the Emirates Securities and Commodities Authority (SCA). HSBC began engaging with and raising awareness among market participants in early 2014 to prepare for significantly higher trading volumes during the upgrade week, adds Cattan.

“Positive sentiment in the UAE market led by the MSCI upgrade and winning the Expo 2020 bid has encouraged new issuances,” says Cattan. “The second half of 2014 has seen five new IPOs of notable size.”

In 2014, the SCA approved regulations for sukuk and corporate bond issuance to provide investors with additional investment tools. New brokerage regulations have also been issued to re-classify brokerage firms as trading members, or trading and clearing members. The implementation of rights trading regulation is another addition aimed at further boosting liquidity, investment flows and institutional participation.

Through 2015 and the coming years, the UAE regulator is keen to further strengthen the regulatory landscape and improve transparency and governance in the UAE markets. A series of regulatory developments including the new companies law, bankruptcy regulations, CCP regulations and allocation accounts for trading are on the horizon, according to HSBC.