Clearing and Settlement

Overview

Dubai Financial Market (DFM) Clearing provides settlement assurance by being counterparty to all matched trades executed on the DFM and reported immediately to the DFM Clearing system. 

DFM Clearing assumes the role of a seller to the buying clearing member and the role of a buyer to the selling clearing member. DFM Clearing adopts the BIS Model 2 DVP settlement model for trade settlement with its clearing members. 

Financial settlements are settled on a net basis while securities settlement gross. Trades are settled on a T+2 settlement cycle. T means Trade Date; T+2 means two trading days after Trade Date.

Fridays and Saturdays are non-settlement days in addition to official local holidays. Financial settlements are settled by 10:00am (UAE time) while securities settlement commences at 10:15am (UAE time) on T+2.

Financial settlements are settled by DFM approved settlement banks while securities are settled by DFM Depository through a book-entry scripless electronic system. The two DFM approved settlement banks are Emirates NBD Bank PJSC, and Standard Chartered Bank.

Membership

There are two types of clearing membership: 

1. Trading Clearing Member
2. Custodian Clearing Member 

To be a Trading Clearing Member, an applicant must be an approved Trading Member of the DFM and licensed by the local regulator, which is the Securities and Commodities Authority of the UAE (SCA). Therefore, all Trading Members are Trading Clearing Members of DFM Clearing.  Trading Clearing Members settle their own proprietary trades and trades of clients using the Trading Clearing Member as a depository participant. 

To be a Custodian Clearing Member, a local custodian must be an SCA licensed custodian before being eligible to apply to become a Custodian Clearing Member.  Custodian Clearing Members make financial or securities settlement on behalf of their clients who executed trades with a Trading Member. The following are Custodian Clearing Members of DFM:

1. HSBC Bank Middle East Limited
2. Citibank N.A. UAE
3. Deutsche Bank AG
4. National Bank of Abu Dhabi PJSC
5. Standard Chartered Bank

Services

Dubai Financial Market (DFM) operates the clearing and settlement services for the settlement of trades executed on the market whereby DFM assures the settlement of trades. In addition to the clearing and settlement services, the Clearing and Settlement Department is also responsible for other main services such as settlement cap maintenance, collateral management, transfers of securities, handling correction trades and special deals. 

Collateral

All Clearing Members must lodge collateral with DFM Clearing before commencing business. The minimum collateral value is AED 20 million, and it should be in the form of a bank guarantee.

The collateral value determines a clearing member’s settlement cap value.  The values of all purchase trades for a clearing member are pre-validated against the settlement cap value on a real-time on-line basis. If there is insufficient settlement cap value, no new purchase trade orders will be accepted by the trading system. All sell trade orders are pre-validated against availability of securities balances before a sell order can become a valid sell order.

The risk of a default in delivery of securities is mitigated by the earmark of securities balances for securities delivery on T+2 once a sell order is pre-validated and matched.

Operational Procedures

The following procedures are the Clearing and Settlement Operations of DFM Clearing:

1. DVP Procedures for DFM Participants
2. Clearing and Settlement Procedures for Custodians
3. Correction of Deal Procedures
4. Special Deal Procedures
   • Special Deal Procedures without cash settlement
   • Special Deal Procedures with cash settlement
   • Buyer Special Deal with Cash Settlement Form
   • Seller Special Deal with Cash Settlement Form
5. Settlement Procedures
6. Procedures for Registration of Trading Clearing Members, Clearing Members & Custodians
7. Increase or Decrease Trading Limit
8. Bank Guarantee Procedures
9. Transfer of Securities
   1. Stock & Registry Transfers
   2. Inter-Broker Transfer of Securities
   3. Transfer Securities from Trading Account to Margin Account
10. Procedures for pledging securities in Dubai Financial Market
    1. Pledging of Securities
    2. Transfer of Pledged Securities to Broker for Sale
    3. Release of Pledge
11. Broker Report upon request
12. Annual Subscriptions for Brokers
13. Buyer Cash Compensation Procedure
14. SLB General Procedures
15. DFM SLB Rules
16. Repo and Murabaha Procedures and Rules

Securities Settlement

Trades executed on the DFM are settled on a T+2 settlement cycle. T means Trade Date; T+2 means two trading days after Trade Date.  

Fridays and Saturdays are non-settlement days in addition to official local holidays. Securities settlement are conducted on a gross settlement basis during a securities settlement run which starts at 10.15am UAE time after the completion of the financial settlement process by 10.00am UAE time.

During the securities settlement process, earmarked securities are debited from the seller’s securities inventory account and credited to the buyer’s securities inventory account.

DVP Settlement

This settlement feature ensures that custodian clients settle their sell trades on the DFM on a DVP basis.

All sell trade orders are pre-validated for availability of securities balances before the orders become valid sell orders in the trading system. Once validated, securities balances are earmarked in the selling custodian client’s depository account for settlement on T+2. On T+2, if matched settlement instructions are not received by the client’s Custodian Clearing Member, the Custodian Clearing Member can reject the sell trade to the selling Trading Clearing Member for settlement.

The Custodian Clearing Member is given a two-day late confirmation period (subject to penalties on the custodian client) to confirm the rejected sell trade for settlement if matched settlement instructions are subsequently received from the custodian client. During the Late Confirmation Period, the selling Custodian client will not be entitled to corporate actions.

Should the rejected sell trade remain unconfirmed on T+4, a mandatory buy-in is invoked by DFM Clearing against the selling Trading Clearing Member. Should the mandatory buy-in be unsuccessful, a cash closeout against the selling client for the unsuccessful mandatory buy-in quantity is invoked whereby the selling client is paid a financial settlement.