Abu Dhabi Global Market Changes Capital Markets Framework

In order to continue its innovative and progressive leadership in the financial markets, the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) announces today that it has published a consultation document proposing changes important to its financial markets framework, including in virtual assets, spot commodities, securities, derivatives, benchmarks and emission allowances.

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

The proposed changes are expected to significantly benefit market-related activities, including virtual assets, securities, derivatives, commodities and benchmarks, and will affect recognized investment exchanges, clearinghouses organisations, MTFs, OTFs, remote organisations, remote members, offerors, issuers, Listed Entities, reporting entities and sponsors.

Commenting on the release of the consultation document, His Excellency Ahmed Jasim Al Zaabi, President 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 changes will reinforce our innovative leadership in trading virtual assets and commodities regionally and internationally, and drive advances to position ADGM and Abu Dhabi well for the future.

Virtual Assets Framework 2.0
In 2018, ADGM became a globally leading jurisdiction for the regulation of virtual asset activities with the introduction of its comprehensive regulatory framework. This has been complemented by a supportive ecosystem for the industry’s leading virtual asset players, fostering market confidence and positioning ADGM as a premier destination for virtual asset business. Over the past four years, ADGM has experienced significant growth in the number of licensed companies offering virtual asset-related activities in its jurisdiction, with 11 virtual asset players fully licensed and approved in principle.
With the publication of the consultation document, ADGM is launching its transition to Virtual Assets Framework 2.0., heralding a new milestone for the asset class. Proposed changes include:
 requirements for the use, sharing and reuse of public keys;
 changes to risk disclosure requirements; and
 Allow regulated MTF/Custodian groups within ADGM to conduct non-fungible token (NFT) activities.

Commodities and spot emission allowances: first in the region
Like its innovative approach on virtual assets, ADGM proposes to introduce an innovative new regulatory framework regulating spot commodity trading, becoming the first international financial center in the MENA region to offer a framework for regulation of spot commodities and emission quotas. The proposed amendments also cover listed mining and oil entities and new regulatory requirements regarding benchmarking activities.

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

To support the growth of the UAE, ADGM has developed into a commodity trading hub, encompassing both physical 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 Reliance Industries Indian trade offices in October 2021 has further strengthened ADGM’s position as a regional commodity trading hub.

Listings, capital structures and fundraising:
The ADGM proposes to strengthen its regulatory framework to allow offers and quotations from oil and mining companies; and attract companies in their growth phases by offering more flexible capital structures and ways to raise capital. For example, one proposed change includes offering new shares to new investors, representing up to 20% of a company’s existing share capital per year, without triggering the pre-emption and anti-dilution rights of existing shareholders. ADGM is also proposing to strengthen its requirements in accordance with IOSCO and comparable jurisdictions regarding continuous disclosure obligations, preferred securities and weighted voting rights.

Emmanuel Givanakis, FSRA CEO, said: “The significant improvements to our capital markets framework are part of FSRA’s goal to continue to develop ADGM’s comprehensive regulatory framework to further improve the ADGM’s vibrant funding ecosystem. It will help sustain and enhance the growth of businesses which will in turn contribute to the growth and diversification of the economy of Abu Dhabi and the wider UAE as well as the wider region, while offering greater choice to participants and investors. Collectively, our regulatory framework meets the financing needs of a wide range of businesses at different stages of their growth and life cycle.

The Amendments apply to FSRA’s Financial Services and Markets Regulations (“FSMR”), as well as Market Rules (“MKT”), Market Infrastructure Rules (“MIR”), Rules Rules (“GEN”), Rules of Conduct of Business (“COBS”), Islamic Finance Rules (“IFR”) and Rules on Fees (“FEES”). The Proposed Amendments would also replace the existing Market Conduct Rules (“MCR”) with a Code of Market Conduct (“MCR”). The CP, amendments and associated draft guidance notes can be viewed here {https://www.adgm.com/legal-framework/public-consultations}.

The consultation document is open for a period of 2 months, with responses to be returned to the FSRA by May 20, 2022.