Earlier this month the Dubai Financial Services Authority (the DFSA) announced that responsibility for maintaining the Official List of Securities traded on NASDAQ Dubai (the Official List) will be transferred to the DFSA from NASDAQ Dubai. This change will be effective from 1 October 2011.

What will happen as a result of the transfer of oversight?

The DFSA will oversee the listing process and NASDAQ Dubai will continue to oversee admission to trading of securities on its market.

Background of the current position

At present, NASDAQ Dubai maintains the Official List and regulates admission to trading while the DFSA regulates offers of securities in the DIFC and approves prospectus content. If a company wishes to list on NASDAQ Dubai it must file an application for listing on the Official List to NASDAQ Dubai and file the prospectus for approval with the DFSA.

Transfer of oversight from NASDAQ Dubai to the DFSA

On 1 October 2011, responsibility for maintaining the Official List will move from NASDAQ Dubai to the DFSA. Companies will therefore be able to make both an application for listing and file their prospectus for approval with the DFSA. This should help to streamline the procedure for listing and minimize duplication between NASDAQ Dubai and the DFSA. Following the transfer of oversight, NASDAQ Dubai will continue to be responsible for admission to trading of securities on its market. We understand NASDAQ Dubai will shortly publish rules governing admission to trading of securities on its market and certain ongoing obligations.

As well as streamlining the procedure for issuers seeking a listing on NASDAQ Dubai, the transfer of oversight will also serve to align the DIFC markets regime with international best practice. Although a welcome change to the current regime, we do not anticipate the changes above will improve liquidity on NASDAQ Dubai. Amendments to the regulatory environment alone will not achieve this goal – the real concern here is the competition between exchanges both within the UAE and across the broader Middle East.

Why is the transfer of oversight being carried out?

The transfer of oversight is being carried out because of the DFSA’s new Markets Rules (the Markets Rules), which are due to come into force in early 2012. The Markets Rules will replace the current Offered Securities Rules. The Markets Rules, together with certain changes to the DIFC Markets Law (expected to come into force later this year), are designed to bring the DFSA regime into closer alignment with the European Union regime, while also accommodating regional needs. The DFSA has stated that, without the transfer of oversight, the Markets Rules would have increased the regulatory burden on companies listed on NASDAQ Dubai.

Impact of changes on the NASDAQ Dubai Listing Rules

As a result of the transfer of oversight, NASDAQ Dubai will no longer regulate the Listing Rules from 1 October 2011. From this date, the DFSA will regulate the NASDAQ Dubai Listing Rules. The amendments to the Listing Rules proposed by NASDAQ Dubai during a two-month consultation period earlier this year may therefore not now be implemented.

Earlier this month the DFSA announced amendments to the Offered Securities Rules which will come into force on 1 October 2011. These amendments set out an interim regime pursuant to which the DFSA has adopted the existing NASDAQ Dubai Listing Rules with minor amendments to reflect the transfer of oversight from NASDAQ Dubai to the DFSA. It is anticipated that these transitional arrangements will remain in place until the introduction of the Markets Rules.

We understand the DFSA intends to conduct a review of the Listing Rules, which it will then include within the Markets Rules. As the inclusion of the Listing Rules was not anticipated at the time of the previous consultation on the Markets Rules, a further consultation will be launched. This consultation will be limited to the proposed amendments to the Listing Rules and will not provide an opportunity for further comment on the Markets Rules. The DFSA anticipates this consultation will be undertaken before the end of the year. However, until the consultation paper is published we will not know what, if any, of the amendments proposed by NASDAQ Dubai will be considered by the DFSA