New rules in the UAE on mutual funds, short-selling, and rights issues may be finalised by mid-2012 as part of measures to strengthen the operation of exchanges and attract overseas investors, the regulator said.

Last year, the UAE postponed draft regulations on its nascent asset management industry, which were seen as a key step for investor protection and boosting market confidence, after market players voiced concerns that some of the proposals lacked clarity, sources said.

Abdullah Al Turifi, chief executive of the Securities & Commodities Authority (SCA), said the body was finalising regulations which could be issued by mid-year.

'These new regulations and mechanisms, products and services for the markets will complete the regulatory framework for the system,' he said, adding the rules also covered market makers.

Mutual funds, earlier regulated by the central bank, are now under the ambit of the SCA. The regulator licensed three mutual funds last year and plans to promote foreign mutual funds, Al Turifi said.

The three licensed funds are run by Abu Dhabi Islamic Bank, Al Hilal Bank and Al Mal Capital.

The UAE bourses are still classified as frontier markets by Index provider MSCI, failing to make the grade to emerging markets status late last year.

The exchanges hope that an upgrade would bring in much-needed capital from foreign investors and raise their profiles as they seek to become regional financial centres.

Foreign ownership in companies is limited to 49 per cent but most companies have lower levels of foreign investors.

A long-awaited companies' law is unlikely to raise this limit, said Al Turifi.

'We have our own strategy for the new companies law, it won't open up to 100pc for foreign ownership, only for certain industries,' he said.

The UAE has many free zones where 100pc ownership is allowed and foreign companies can invest there, he added.-Reuters