Now is a time when there is a real focus on transparency in financial markets and evidence of opportunistic acquisitions of equity stocks depressed by negative market sentiment. For both these reasons, it is timely to examine the current disclosure requirements governing the trading in shares undertaken by the existing shareholders of a Public Joint Stock Company (PJSC) ("Investor/s") listed on either the Abu Dhabi Exchange (ADX) or Dubai Financial Market (DFM).

It is important to appreciate that there are three licensed stock exchanges operating in the United Arab Emirates. Two are onshore exchanges namely the ADX and DFM. The third stock exchange is NASDAQ Dubai, the international financial exchange located in the Dubai International Financial Centre (DIFC). NASDAQ Dubai is regulated and licensed by the Dubai Financial Services Authority. As such, it has its own sets of rules and regulations and is subject to a discrete legal regime.

In contrast, the ADX and DFM are each regulated by the "onshore" regulator, the Securities and Commodities Authority. This article is confined to examining the rules applying to the onshore markets (the "Market"), where most equity stocks are listed.

Where Are the Rules?
The detailed disclosure requirements are contained in the Resolution No (3) of 2000 regarding the Regulations as to Disclosure and Transparency (the "Regulations") issued by the Securities and Commodities Authority (SCA).

Why Do the Rules Exist?
The Regulations have been placed to establish a stable and well-built foundation for the dealings with listed shares of PJSCs in addition to ensuring the transparency and the protection of the investors which allows making informed decisions about the PJSC. It further ensures that there is no change in real control of a PJSC by stakeholders without the supervision and involvement of the regulators, and the knowledge of the Board, shareholders and the insider market.

What Notifications Are Expected From the Investors?
There are a number of notifications required from an Investor when increasing its shareholding in a PJSC listed on the Market. The notifications depend on the size of the stake the Investor is seeking to acquire. It also depends on the legal personality of the Investor. Such disclosure requirements are imposed on the acquirer of the shares. The Regulations did not address the disclosure requirements imposed on a seller in the event of disposition of the shares.

Ownership amounting to 5% or more by a natural person
Article 3 of the Regulations requires an Investor to immediately notify the Market in events where such Investor owns together with his minor children a percentage equivalent to 5% or more of the shares of the listed PJSC. Article 3 applies where the Investor is a natural person and not a legal entity.

Ownership amounting to 5% or more
Article 4 of the Regulations requires an Investor to immediately notify the Market in events where such Investor owns 5%. ("Every juristic person which owns what amounts to 5% of the shares of a company listed in the Market shall immediately notify the Market thereof.")

Article 4 applies where the Investor is a legal entity. The notification required under this Article applies where shares representing 5% of the listed shares are owned.

Ownership amounting or exceeding 10%
The disclosures required under Article 5 of the Regulations may be divided into two sections. The first, dealing with natural persons. Pursuant to the said Article, any natural person owning by himself or together with his minor children a percentage equivalent to 10% or more in the parent, subsidiary, affiliate or group entity of the listed company must immediately notify the Market thereof.

The same Article also requires such obligation from legal entities. As such, in events where the Investor is a juristic person, which owns a percentage equivalent to 10% or more in the parent, subsidiary, affiliate or group entity of the listed company, then such Investor must immediately notify the Market thereof.

Ownership amounting to 30% or more
Under Article 6, the Investor, under certain circumstances, a natural person or a legal entity, is required to obtain the preapproval of the Director-General of the Market before placing any purchasing order. This restriction applies when such Investor is already a holder of 10% or more of the listed shares, and subsequently seeks to purchase 20% or more of the listed shares of such PJSC.

The Director General of the ADX or DFM (as applicable) may, after consultation with SCA, prohibit any such transaction if in his opinion, prejudice to the "interest of the national economy" would ensue from it.

Even though Article 6 requested the disclosure requirement when an Investor holding 10% in a listed PJSC seeks to purchase 20% or more of the listed shares of such PJSC, it is most likely that the same disclosure requirement would apply in the event that the Investor wishes to acquire a smaller percentage than the 20% limit stipulated in the Article in harmony to the spirit of the Regulations which aims to maintaining the transparency and integrity when trading with shares of a listed PJSC.

Where Article 4 or 5 applies, notification must be made immediately upon attaining ownership of the shares of the PJSC. Article 6, however, requires notification prior to placing the purchase order for on floor execution. Although the above Articles refer to existing shareholders in a PJSC, in our view, the provisions also apply to potential investors who do not already have a shareholding in the company. The SCA and the Market would almost certainly require new investors to also adhere to these requirements.It may be noted that the Regulations did not formulate a criteria for differentiating between legal ownership and beneficial ownership of the shares. The Regulation has referred to the owner of the shares, whether a natural person or a juristic person without expressly defining the owner. Nevertheless, the owner of the shares is the person or corporate entity who's name and Investor Number is registered in the electronic share register of the PJSC.

Additional Requirements Applying to UAE Banks or Financial Institutions
It is worth mentioning that Article 7 of the Regulations imposes an additional set of obligations where the Investor is a bank or a financial institution licensed by the UAE Central Bank. In such event, the pre approval of the Central Bank must be obtained before entering any transaction leading to acquiring 5% or more of any listed shares.

The preapproval of the United Arab Emirates Central Bank is entirely additional to the notifications and/or preapprovals required under Articles 4, 5 and 6 above, and does not supplant these other requirements.

Conclusion
The disclosure obligations outlined above constitute the main and basic disclosures required by the Regulations from Investors.

As yet, there is no comprehensive set of rules in existence providing a blueprint for the takeover of companies listed on onshore UAE markets. The development of a legal framework regulating changes in control of listed companies is the next logical step in the development of the optimal legal environment for UAE financial markets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.