3.2.1. Admission to Trading Rules

An Authorised Investment Exchange must make clear and transparent rules concerning the admission of Securities, Units in a Listed Fund, Commodity Derivatives, or Environmnetal Instruments to trading on its facilities.

3.2.2. Content of Admission to Trading Rules

The rules of the Authorised Investment Exchange must ensure that:

• (a) Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments  admitted to trading on an Authorised Investment Exchange’s facilities are capable of being traded in a fair, orderly and efficient manner;
• (b) Securities, Units in a Listed Fund, or Environmental Instruments admitted to trading on an Authorised Investment Exchange’s facilities are freely negotiable; and
• (c) In case of Commodity Derivatives:
  • (i) contracts for Commodity Derivatives admitted to trading on an Authorised Investment Exchange’s facilities are designed so as to allow for their orderly pricing as well as for the existence of effective settlement conditions.
  • (ii) the rules and procedures must promote transparency by ensuring that there is sufficient information made available to the markets relating to the terms and conditions of the Derivative contracts traded on its facilities (including, where relevant, information relating to delivery and pricing of Derivative contracts)

Guidance: Fair, orderly and efficient trading

When assessing whether a Security, Unit in a Listed Fund, Commodity Derivative or Environmental Instrument is capable of being traded in a fair, orderly and efficient manner, the Authorised Investment Exchange shall take into account, depending on the nature of the Security, Unit in a Listed Fund, Commodity Derivative or Environmental Instrument being admitted, whether the following criteria are satisfied:

• (a) the terms of the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument are clear and unambiguous and allow for a correlation between the price of the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument and the price or other value measure of the underlying;
• (b) the price or other value measure of the underlying is reliable and publicly available or ascertainable; and
• (c) there is sufficient information publicly available of a kind needed to value the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument.

3.2.2-1. Commodity Derivative contract design specifications

(1) An Authorised Investment Exchange must ensure, where appropriate, that the Commodity Derivative contracts have terms and conditions which:

(a) promote price discovery of the underlying commodity;

(b) ensure, to the extent possible, that there is a correlation to the operation of the physical market in the underlying commodity; 

(c) include contract delivery specifications which address matters specified in Schedule 1; and 

(d) provide for legally enforceable settlement and delivery procedures.

(2) For the purposes of meeting the requirement in 3.2.2(c)(i), an Authorised Investment Exchange must include in its Business Rules contract design specifications relating to Derivative contracts traded on its facilities which, at a minimum, include:

(a) minimum price fluctuations (price ticks);

(b) maximum price fluctuations (daily price limits), if any;

(c) last trading day;

(d) settlement or delivery procedures as applicable;

(e) trading months;

(f) position limits, if any;

(g) reportable levels; and

(h) trading hours.

3.2.2-2. On-going review of Commodity Derivative contracts

An Authorised Investment Exchange must:

(a) establish and implement clear procedures relating to the development and review of contract design for Commodity Derivative contracts traded on its facilities;

(b) have adequate process through which the views of potential users of Commodity Derivative contracts can be taken into account when developing and reviewing contract design for Commodity Derivative contracts;

(c) have adequate powers which enable it to eliminate contractual terms which produce, or are likely to produce, manipulative or disorderly conditions in the markets generally, or in relation to the particular class or type of Commodity Derivative contracts; and

(d) have adequate mechanisms to monitor and evaluate whether the settlement procedures reflect the underlying physical market and promote reliable pricing relationship between the two markets.

Guidance

(1) When assessing whether an Authorised Investment Exchange’s rules and procedures are adequate, the AFSA considers, among other things:

(a) the criteria adopted by the Authorised Investment Exchange for Commodity Derivative contracts to be traded on its facilities;

(b) what powers the Authorised Investment Exchange has in order to eliminate manipulative or disorderly conduct, including powers to vary, remove or rescind conditions of any Commodity Derivative contracts already traded where these are found to cause manipulative or disorderly conditions; and

(c) what mechanisms are established by the Authorised Investment Exchange to monitor and review market activities relating to Commodity Derivative contracts traded on its facilities.

(2) When designing and reviewing the design of Commodity Derivative contracts, an Authorised Investment Exchange should consider the following physical market characteristics, including differences within a commodity market with regard to the commodity in question:

(a) size and structure of the physical market;

(b) commodity characteristics (such as grade, quality, weight, class, growth, origin, source etc.);

(c) historical patterns of production, consumption and supply, including seasonality, growth, market concentration in the production chain, domestic or international export focus and logistics;

(d) extent of distribution or dispersal of production and consumption of the underlying physical commodity among producers, merchants and consumers;

(e) the liquidity of the underlying physical market;

(f) the spot market pricing system including transparency, availability, reliability and frequency of cash pricing;

(g) price volatility; and

(h) the existence of price controls, embargoes, export restrictions or other regulation or controls affecting the price or supply of the underlying physical commodity.

Guidance: Effective settlement conditions

When assessing whether a contract for a Commodity Dderivative contains effective settlement conditions, the Authorised Investment Exchange shouldall take into account, depending on the nature of the derivative being admitted, whether the following criteria are satisfied:

(a) the arrangements for determining the settlement price of the derivative ensure that this price properly reflects the price or other value measure of the relevant underlying Investment; and

(b) where the settlement of the derivative requires or provides for the possibility of the delivery of an underlying Investment or asset rather than cash settlement, there are adequate settlement and delivery procedures for that underlying Investment as well as adequate arrangements to obtain relevant information about that underlying Investment. 

(c) appropriate supervisory arrangements are in place to monitor trading and settlement in such Commodity Derivative; and

(d) settlement and delivery, whether physical delivery or by cash settlement, can be effected in accordance with the contract terms and conditions of those Derivatives.

3.2.2-3. Use of Price Information Provider

(1) An Authorised Investment Exchange may admit to trading or trade on its facilities Investments the value of which is determined by reference to an underlying benchmark or index provided by a Price Information Provider where it has undertaken appropriate due diligence to ensure that the Price Information Provider, on an on-going basis, meets the requirements set out in (2).

(2) For the purposes of (1), the Price Information Provider must:

(a) have fair and non-discriminatory procedures for establishing prices of Investments which are made public;

(b) demonstrate adequate and appropriate transparency over the methodology, calculation and inputs to allow users to understand how the benchmark or index is derived and its potential limitations;

(c) where appropriate, give priority to concluded transactions in making assessments and adopt measures to minimise selective reporting;

(d) be of good standing and repute as an independent and objective price reporting agency or index provider;

(e) have a sound corporate governance framework;

(f) have adequate arrangements to avoid its staff having any conflicts of interest where such conflicts are, or are likely to have, a material adverse impact on price establishment process; and

(g) adequate complaint resolution mechanisms to resolve any complaints about the Price Information Provider’s assessment process and methodology.

3.2.3. Undertaking to comply with AIFC rules

An Authorised Investment Exchange may not admit Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments to trading unless the Person who seeks to have such Investments admitted to trading:

1. (a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution, including but not limited to requirements in MAR relating to Reporting Entities;
2. (b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution;
3. (c) agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution; and
4. (d) appoints and maintains at all times, an agent for service of process in the AIFC and requires such agent to accept its appointment for service of process.

Guidance

1. See Guidance to AMI 2.6.4

3.2.4. Review of compliance

The Authorised Investment Exchange must maintain arrangements regularly to review whether the Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments admitted to trading on its facilities comply with the Admission to Trading Rules.

3.2.5. Verification of compliance by issuers with Market Rules

The Authorised Investment Exchange must maintain effective arrangements to verify that issuers of Securities or Units in a Listed Fund admitted to trading on a regulated market operated by it comply with the Market Rules.

3.2.6. Arrangements for access to information

The Authorised Investment Exchange must maintain arrangements to assist users of a market operated by it to obtain access to information made public under the Market Rules.