Procedure for Pledging Securities in Dubai Financial Market Title: Procedure for Pledging Securities in Dubai Financial Market Version: 001 Owner: CSD Pages: 5 Date: 16 November 2014
Procedure for Pledging Securities in Dubai Financial Market: Please follow the steps and procedures outlined below to pledge securities in the CSD Registry system. First: Pledge Pledge Requirements: The Pledgee Bank should send the following documents: 1. Formal letter to the Director of Clearing, Settlement and DepositoryDepartment (CSD) with a copy sent to the company which issued the listed securities, identifying the following: - Name of investor whose securities will be pledged. - Investor Number in DFM. - Name of listed security company. - Pledge effective date (In case it was not specified in the letter, the date on the letter itself will be considered as the pledge effective date). - Pledge Period (In case it was mentioned). - Identify party entitled to profit distributions whether dividend or bonus share to be in favor of (the bank or the investor). - Contact Details ( Name, Telephone, Fax and Email Address). 2. Letter from the investor to CSD authorizing the pledgee bank to pledge the securities, which should include and match all the information mentioned above as per the pledgee bank letter. 3. Pledge fees, which are 2 per thousand (0.002) of the market value of the pledged securities and 2 per ten thousand (0.0002) in case of bonds (# of securities Last closing price 0.002) and the minimum pledge fees is AED 100 per company. 4. List of the pledgee bank authorised signatories names and their specimen signatures on pledge transactions. 5. DFM will execute the pledge transaction and send a letter confirming the pledge and attach the fees voucher to the pledgee bank. Important Remarks: The bank letter should be signed by the authorized signatories of the pledgee bank on pledge transactions. Investor signature on his letter should be authenticated in DFM. Original security certificate should be attached (in case it had not been previously handed over) or a copy of the allotment letter for the new listed companies. The investor should have an updated investor number (NIN) and in case he does not have a NIN, he should complete the Investor Data Entry Application and attach with supporting documents. As per the Dubai Islamic Bank instructions, Non-Islamic banks can not pledge Dubai Islamic Bank securities unless they attach an approved authenticated letter from the Dubai Islamic Bank including the investor name, pledgee bank name and number of securities. In case of pledging institution securities: although the status provides that these securities should be under frozen at least two years as of the deal of incorporation, we can pledge these securities, but they will remain frozen in the pledge account, and cannot be released or transferred for sale during that period. The investor can pay pledge fees by depositing in the DFM account number 0412063720929 (IBAN AE370260000412063720929) with Emirates National Bank of Dubai and submit the credit advice with the required pledge letters. Pledge in favor of Foreign Bank: In case DFM receives a pledge application from a bank that is not located in the UAE and does not have a branch or a representative office in the UAE, in addition to meeting all of the above mentioned Pledge Requirements, the bank must submit the documents listed below: 1. An application submitted to the DFM management from the Bank s authorized representative. 2. An attested Certificate of Incorporation and Registration of the Bank in its country of origin, issued by the agency authorizing the Bank to carry out its activities in its country of origin and specifying the name of the Bank s representatives, their capacities and limit of their authorities. This document shall be attested by the UAE Embassy abroad. 3. The Bank s board of directors Resolution to exercise the activity of pledgee party with DFM for the registration of pledges
concerning listed securities of their clients in favor of the bank.. Further this resolution requires to nominate and specify the name of their local agent and the limit of his authority in this regard. This document shall be attested by the UAE Embassy abroad. 4. A certified copy of the Bank s Articles of Association and by law this document shall be attested by the UAE Embassy abroad. The Bank s Articles of Association should specify that the bank is authorized to act as a pledgee. 5. Submit copies of the passport and specimen signatures for the authorised signatories of the Bank on pledge transactions. 6. In addition to that there should be an authenticated and attested undertaking from the Bank that the pledge shall be subject to the UAE law and DFM Rules and Regulations. Also, the Bank shall notify DFM in writing if the Bank decides to revoke the power of attorney granted to their local agents or representatives. Pledge in favor of a Bank Licenced by the DIFC: In case DFM receives a pledge application from a bank licensed by the Dubai International Financial Centre (DIFC), in addition to meeting all of the above mentioned (Pledge Requirements), the Bank must send the documents listed below: 1. An application submitted to the DFM management from the Bank s authorized representative. 2. An attested Certificate of Incorporation and Registration of the Bank in its country of origin, issued by the agency authorizing the Bank to carry out its activities in its country of origin and specifying the name of the Bank s representatives, their capacities and limit of their authorities. This document shall be attested by the UAE Embassy abroad. 3. Articles of Association and the POA must be certified by the UAE Embassy abroad; 4. Submit copies of the passport and specimen signatures for the authorised signatories of the Bank on pledge transactions. 5. Additonally, there should be an authenticated and attested undertaking from the Bank that the pledge shall be subject to the UAE law and DFM Rules and Regulations. Also, the Bank shall notify the DFM in writing if the Bank decides to revoke the power of attorney granted to their local agents or representatives. Pledge of Securities in Favor of Finance Companies: In case DFM receives pledge applications from finance companies, in addition to meeting all of the above mentioned (Pledge Requirements), the company must send the documents listed below: 1. An application to the DFM management from the finance company. 2. Trade License 3. Memorandum and Articles of Association of the company; which must be mentioned the phrase the practice of pledge activity in the financial markets under the purposes of the company and be certified by the concerned authorities. Send an approval book from the Securities and Commodities Authority (SCA) to engage the company in the activity of a pledging member in the Dubai Financial Market. 4. Submit specimen signatures for the authorised signatories. Court Reservation on Pledged Securities as per Court Order: If DFM receives an order from the Legal Authorities to reserve the securities that are pledged in favor of a certain bank, the DFM will apply the court order on the Pledged Securities in the Pledge Account in favor of the court case. Bonus Securities Issued on Pledged Securities: 1. When bonus securities are issued on pledged securities, they will be distributed based on the party entitled to profit distributions whether to be in favor of the bank or the investor as mentioned in the pledgee bank pledge letter request. In case it was in favor of the bank, it will be frozen in favor of the pledgee bank in the pledge account, and if it was in favor of the invesor, it will be available in the investor CSD account. 2. In case the pledgee bank wishes to pledge the frozen bonus securities, it will be treated as a new pledge request and they should submit the pledge fees plus an official letter from the bank including the following: Name and Investor Number of the investor whose securities will be pledged. Name and number of the listed security company that is required for pledge. 3. In case the pledgee bank wishes to grant the frozen bonus securities to the investor, the pledgee bank should submit a formal letter
addressed to the CSD requesting a transfer of bonus securities to the investor account. Financial Returns on Pledged Securities: When the listed company takes a decision regarding the distribution of cash dividends, the CSD will provide the listed company with a report that indicates all pledged securities details of investors in that company. The listed company will distribute the dividends as per the report received from the market. Second: Transfer of Pledged Securities to Broker for Sale: 1. If the investor and the pledgee bank want to deal with the pledged securities, a formal letter should be sent by the bank to the Director of CSD indicating that both sides (bank & investor) desire to transfer the pledged securities to the investor s account with a DFM accredited broker (previously agreed upon by the bank and investor). The broker should open a new account specifically for selling the pledged securities only. The pledgee bank should attach the fees of transferring pledge securities to the broker for sale which is AED 100 per company. After the transfer is executed, CSD will send confirmation letters to the broker and the pledgee bank. 2. The broker will then sell the securities and transfer the proceeds to the pledgee bank within 5 days from the deal execution date. 3. In case the pledged securities have not been sold, the pledgee bank should send an official letter to CSD whether to repledge (return the securities to the pledge account) or release the pledge of the securities. 4. If the investor was not able to pay the value of the pledge to the bank, and refused to sign the letter of transfer pledged securities to the broker for sale in favor of the pledgee bank, then the pledgee bank may request the court to issue a selling order addressed to the DFM stating therein, the investor s name, investor s number, and the name and number of the securities pledged in favor of the pledgee bank. Important Notes: In case of securities (Bonus Frozen) within the required quantity of transfer, the pledgee bank should pledge the bonus first, and then they can transfer to the broker for sale. In case of the absence of the investor s signature on the bank transfer letter, the bank should attach a letter from the investor agreeing to transfer those pledged securities to the broker for sale, which should also match with the bank letter of transfer. Pledgee bank must ensure that the trasnfer letter is signed by the invesor and the authorised signatories of the bank, and stamped with the bank stamp. Transfer of Pledged and Reserved Securities to Broker for Sale: In case the DFM recevies an order from the Legal Authorities to sell all or part of the Pledged and Reserved securities as per a Court Order, the following percedures will be followed: 1. DFM will execute the Court Order and transfer the pledged and reserved securities to the broker for sale. 2. CSD will send a formal letter to the Pledgee Bank informing them that the transfer was executed as per the Court Order. Third: Pledge Release: 1. In case the pledge is released and the investor has paid the entire bank commitments, the pledgee bank should send a formal letter to the CSD with a copy to the listed company (which issued the securities), indicating the number of pledged securities which are required to be released. 2. The pledgee bank should attach the fees for releasing the pledged securities, which is AED 100 per company. 3. DFM will implement the pledge release transaction and send a letter confirming the release of the pledge attaching the fees voucher to the pledgee bank, unless there were any reasons preventing the execution thereof, such as: The number of the securities required to be released is more than the actual pledged securities. The authorized signatories signature of the pledgee bank does not match. The bank letter is not stamped. The information mentioned in the bank letter is incorrect such as the investor s name, number and the name of the listed company. Fees are not received. Reports:
If the pledgee banks wishes to aquire details of pledged securities in their favor, they should send an official letter to the CSD and the fees, which are as follows: 1. Preparing and printing reports upon request: AED 200 per 20 pages and AED 20 for every additional page provided the maximum is AED 15,000. 2. Electronic preparation of reports upon request: AED 0.5 per investor within the report provided the minimum is AED 200 and the maximum is AED 3,000. 3. Prepare and print investor s pledged shares statement: AED 50 per letter provided the maximum is 3 statements.
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