Legislative Framework and Requirements for Listing Securities on ADX

Part II: Listing Securities on Abu Dhabi Stock Exchange (ADX)

The ADX (formerly the Abu Dhabi Securities Market) was established in the Emirate of Abu Dhabi on November 15, 2000. Its trading locations include the Emirates of Al Ain, Fujairah, Sharjah, and Ras Al Khaimah. The ADX is regulated by the ESCA, a federal agency. The ADX is two-thirds owned by the DFM.

Legislative frameworks 

The applicable legislations for the ADX are as follows;

ESCA Law (Federal Law No. 4 of 2000).

• Listing Resolution (Council of Ministers' Decision No. 12 of 2000 concerning the Regulations as to the Listing of Securities and Commodities) (ESCA Listing Regulation).

• Disclosure Resolution (Council of Ministers' Decision No. 3/R of 2000 concerning the Regulations as to Disclosure and Transparency).

• Central Bank Resolution (UAE Central Bank Board of Directors' Resolution No. 164/8/94 regarding the Regulation for Investment Companies and Banking, Financial and Investment Consultation Establishment or Companies).

• Authority's Board of Directors' Decision No. (7/R) of 2002 concerning the listing of Foreign Companies.

• Ministerial Resolution No. (518) of 2009 Concerning Governance Rules and Corporate Discipline Standards.

• ADX Rules (note that the DFM currently has no separate rules, parties wishing to list on the DFM must comply with the requirements of the ESCA Listing Regulation).

• Companies Law (Federal Law No. 2 of 2015 concerning Commercial Companies).

Minimum size requirements 

The Securities and Commodities Authority (SCA) Resolution No. 25/RM of 2020 stipulates that a free zone company willing to offer shares in a public offering must have a minimum paid-up capital of AED 20 million. Furthermore, the net shareholder's equity must equal at least 100% of the paid-up stock. Furthermore, the free zone company must have established an independent core sector, either directly or through one or more of its subsidiaries. The free zone company must have had a successful result in the two years prior to the public offering, i.e., the free zone company must have realized net income from its core business in the two financial years prior to the public offering, either directly or through its subsidiaries.

Minimum shares offered to the public. 

According to the Securities and Commodities Authority (SCA), Resolution No. 25/RM of 2020 in the public offering, the free zone company, must sell at least 25% and no more than 70% of its shares. SCA will allow an offering of 100 percent of the free zone company's shares as an exception to the preceding rule if the offering is limited to eligible investors as specified by SCA rules and regulations. 

Listing requirements 

• There must be at least ten natural or corporate persons among the founding partners.
• The capital must be at least AED 10 million, subject to licensing conditions for minimum capital.
• The founders' shares must account for no less than 20% of the capital and no more than 45 percent of the capital.
• Uniformity and specialization in the company's primary goals must be taken into account.

Documentation requirements 

• The draft memorandum of association copy (Form A-2)
• The company's articles of association copy (Form A-3).
• Economic feasibility study and the implementation time plan established and authorized by an approved expert house subject to the guidance statement (Form A-4).
• A report on the value of the in-kind share generated by an authorized expert house must be enclosed if an in-kind share is included in the capital.
• The public offering prospectus approved by the founding committee (Form A- 5).
• The prospectus's draft announcement.
• Estimation statement of the issue expenses authorized by the following committee and auditor (Form A-6)​
• Initial permits and licenses received by the company from the relevant authorities in order to do business in the state (such as the Central Bank for banks, finance companies and financial investments; and the Insurance Authority for insurance companies).
• An Arabic copy of the agreements concluded with them to decide their responsibilities and fees, as well as evidence of appointing a licensed Issue Manager and Auditor for the subscription accounts.
• An English copy of the IPO Accounts agreement with an approved auditor.
• Payment of AED 5,000 in fees for studying the application to form a public joint stock company using an e-Dirham card. (payable to only the Authority).
•  (This process would take 10 working days at the Authority)

Continuing obligations

SCA establishes a number of regulations governing listed companies' ongoing obligations on onshore markets, including disclosure, accountability, monitoring, and corporate governance rules. Listed entities shall comply with the following reporting obligations under SCA Decision (Number 3/R) of 2000:

• Within 45 days of the end of the applicable reporting period, report half-yearly financial reports prepared by an external auditor. 
• Annual audited financial reports must be submitted within 90 days of the end of the financial reporting period.

Listed entities must also comply with certain disclosure provisions in addition to the reporting obligations outlined above, including the disclosure of:

• Material events that have an effect on the price of a stock.
• Decisions made by the material board
• Details on the selling or purchase of major properties.
• Changes in the board of directors and senior management of the issuer.
• Meeting dates and agendas for shareholders' general assemblies.

Direct Market Access

According to Resolution of the Chairman of the Board of Directors of the Authority No (26/R.M) of 2016 concerning the regulation of some activities, financial services and trading mechanisms, Article (2), the brokerage company must obtain market approval to initiate DMA services. It must comply with the terms, conditions and procedures mentioned below;

1. Availability of a Technical system for receiving and recording DMA client orders provided that the system contains the features below;

• The ability to verify all of the Market's controls.
• Transmitting orders from the Brokerage firm to the Market through the exchange message protocol (Fix Gateway) and a special DMA user assigned electronically in the Market's trading system and then executing them.
• The right to cancel or modify an order that has not been completely or partially implemented by the DMA Client.
• The details, time, and location of issuance of the information exchanged between the DMA Client, and the Brokerage Firm shall be archived and registered via the Audit Trail Log (IP Address).
• The DMA Client shall be able to run queries and extract reports on the following topics:
• At any time, the order status (pending, partially completed, order cancelled) is shown, along with the current status time.
• The condition of its cash account and securities portfolio.
• Statements of accounts and changes in their balances.

2. Information protection and security systems. The following protection systems must be provided by the brokerage firm;

• Communication between the Brokerage Firm and the Market is secured by a protection system:
  • External communication networks, such as the internet and networks linked to the Market, Clearing, and Settlement Houses, are protected by a firewall system.
  • Anti-virus protection systems.
• Communication between the brokerage firm and the DMA client is protected by protection systems;
  • Systems and mechanisms to protect link lines and encrypt data sent between the Brokerage Firm and the DMA Client (secured connection).
• Operation and protection system;
  • A system for receiving and transmitting business messages (FIX messages) in compliance with market rules and regulations.
  • Databases with a high operational capacity and a high level of security that can constantly operate (fault-tolerant, hot-standby or cluster). Modern and stable operating systems that can act as central servers.
  • A disaster recovery centre with a copy of each server computer and real-time backup copies of data and applications, provided that the disaster recovery centre is connected to the Firm's premises through the main link line and a backup line with a fail-over platform.

3. External Auditor in charge of Information Security Reports;

• The Brokerage Firm shall appoint an external auditor to audit the information security and programs, with the condition that the auditor submits his report to the Market upon request and by the end of June and December each year.
• If it is licensed to provide such services, the Brokerage Firm may request a consolidated report on this service and the e-trading service.

4. Account opening and provision of document under the transactional agreement.

The Brokerage Firm shall, in addition to complying with anti-money laundering procedures (AML+ ATF);

• Sign a transaction agreement with the DMA Client that includes both parties' rights and obligations in compliance with the conditions and obligations set forth herein and in the statute, regulations, and judgments of the authority, given that it includes the Brokerage Firm's right to alter, deny, or cancel the DMA Client's orders if they breach the relevant legislation.

Documents required for listing the shares through Direct Market Access 

• The completed Direct Market Access (DMA) Application form.
• A detailed report on the Direct Market Access (DMA) facility, including its setup and procedures.
• The system auditor's report on the audit.
• Board resolution passed to avail DMA facility.