ADGM FSRA Publishes Consultation Paper to Advance its Capital Markets Framework and Ecosystem, covering Virtual Assets, Spot Commodities and Emissions Allowances

ADGM FSRA 21/03/2022
  • ADGM publishes consultation paper proposing significant changes to capital markets framework to reinforce and secure its market-leading position in MENA
  • Wide-ranging amendments cover virtual assets, securities, derivatives, commodities and benchmarks, in a move by the financial centre to strengthen its innovative leadership

To continue its innovative and progressive leadership in financial markets, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) today announces that it has published a consultation paper proposing significant amendments to its capital markets framework, including in virtual assets, spot commodities, securities, derivatives, benchmarks and emissions allowances.

Designed to reinforce and secure ADGM’s market-leading capital market ecosystem across the Middle East and North Africa (MENA) region, the proposed wide-ranging amendments would enable greater participation within the primary and secondary markets, and ensure ADGM market participants continue to operate in accordance and under the protection of the highest regulatory standards.

The proposed changes are set to significantly benefit markets-related activities, including Virtual Assets, Securities, Derivatives, Commodities and Benchmarks, and will affect Recognised Investment Exchanges, Recognised Clearing Houses, MTFs, OTFs, Remote Bodies, Remote Members, Offerors, Issuers, Listed Entities, Reporting Entities, and Sponsors.

Commenting on the release of the Consultation Paper, His Excellency Ahmed Jasim Al Zaabi, Chairman of ADGM, said: “ADGM has been a pioneer since its inception, providing regulatory leadership and innovative initiatives that position ADGM and Abu Dhabi as the jurisdiction of choice. The proposed enhancements to our capital markets framework will serve to unlock the next stage of investment and growth opportunities, including in virtual assets, spot commodities and emission allowances. These amendments will strengthen our innovative leadership in virtual assets and commodities trading regionally and internationally, and drive advancements to position ADGM and Abu Dhabi well for the future.”

Virtual Assets Framework 2.0

In 2018, ADGM became a leading jurisdiction globally for the regulation of virtual asset activities with the introduction of its comprehensive regulatory framework. This was complemented by a supportive ecosystem for industry leading virtual asset players, fostering market confidence and positioning ADGM as a destination of choice for virtual asset activities. In the past four years, ADGM has seen significant growth in the number licensed firms offering virtual asset related activities in its jurisdiction, with 11 fully licenced and approved in-principle virtual asset players.

With the publication of the Consultation Paper, ADGM is launching its transition to Virtual Assets Framework 2.0., heralding a new stage for the asset class. Proposed changes include:

  • requirements on the use, sharing and reuse of public keys;
  • amendments to the risk disclosure requirements; and
  • allowing regulated MTF/Custodian groups within ADGM to conduct non-fungible token (NFT) activities.

Spot Commodities and Emissions Allowances: First in the Region

Like its innovative approach on virtual assets, ADGM is proposing to introduce a new and novel regulatory framework regulating spot commodity trading, becoming the first international financial centre in the MENA region to offer a framework for the regulation of spot commodities and emission allowances. Proposed changes also cover mining and petroleum listed entities and new regulatory requirements concerning benchmarking activities.

With the new framework, ADGM aims to support Abu Dhabi’s economic plans to develop new markets in commodities such as carbon, hydrogen and ammonia.

To support the UAE’s growth, ADGM has developed into a commodities trading hub, encompassing both physical markets and financial commodity derivatives markets. In February 2022, PTT joined the growing energy trading community based at ADGM, alongside ADNOC Global Trading, ADNOC Trading, and ICE Futures Abu Dhabi (IFAD), which launched Murban Futures in March 2021. The opening of India’s Reliance Industries trading offices in October 2021 further reinforced ADGM’s position as a leading regional commodities trading hub.

Listings, capital structures and capital raising:

ADGM proposes to enhance its regulatory framework to enable offers and listings by petroleum and mining companies; and attract companies in their growth phases by offering more flexible capital structures and avenues to raise capital. For instance, a change proposed includes offering new shares to new investors, representing up to 20% of a company’s existing share capital per year, without triggering the pre-emptive, anti-dilution rights of existing shareholders. ADGM also proposes to strengthen its requirements in line with IOSCO and comparable jurisdictions in respect of continuous disclosure obligations, preference securities, and weighted voting rights.

Emmanuel Givanakis, CEO of the FSRA, said: “The significant enhancements to our capital markets framework is part of the FSRA’s objective to continue to develop ADGM’s comprehensive regulatory framework to further enhance ADGM’s vibrant financing ecosystem. It will help support and bolster the growth of enterprises that will in turn contribute to the growth and diversification of the economy of Abu Dhabi and the broader UAE as well as the broader region, while providing greater participant and investor choice. Collectively, our regulatory framework caters to the funding needs of a wide range of companies at different stages of their growth and life cycle.”

The amendments fall across FSRA’s Financial Services and Markets Regulations (“FSMR”), as well as the Market Rules (“MKT”), Market Infrastructure Rules (“MIR”), General Rules (“GEN”), Conduct of Business Rules (“COBS”), Islamic Finance Rules (“IFR”) and Fees Rules (“FEES”). The proposed amendments would also replace the existing Rules of Market Conduct (“RMC”) with a Code of Market Conduct (“CMC”). The CP, amendments and associated draft guidance notes can be found here: Proposals for Enhancements to Capital Markets and Virtual Assets in ADGM.

The Consultation Paper is open for a period of 2 months, with responses due back to the FSRA by 20 May 2022.