The UAE market regulator will launch draft rules on short-selling 'very soon', the minister of economy said on Wednesday, the latest step aimed at boosting dwindling trade and helping attract foreign investors.

Short selling is not permitted on the UAE's two markets - Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) - but some international firms operating outside the jurisdiction of the regulator, the Securities and Commodities Authority (SCA), provide short selling against their own inventory, analysts said.

'The SCA is conducting research on short selling, lending and borrowing securities and options and the SCA is about to launch a draft of this legislation very soon,' Sultan bin Saeed al-Mansoori said in a speech in Abu Dhabi.

UAE market volumes slumped to a six-year low in 2010, while Dubai's index is down more than 70 per cent from a January 2008 high.

Falling volumes have led many brokers to close or ask for their licenses to be suspended, but short selling, plus reforms such as sanctioning margin trading, could boost liquidity.

'There has to be a way institutional investors can make money in a bear market here,' said Jeff Singer, chief executive of DFM's sister bourse Nasdaq Dubai.

DFM aims to introduce a delivery versus payment (DvP) settlement system by the end of March, a key requirement of index compiler MSCI to upgrade the UAE to emerging market status from frontier market at its next review in June.-Reuters