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Qatar: Securities practices

Dina Al Wahabi
There are two types of securities that are listed on the Qatar Stock Exchange (QE), namely, shares and bonds. Only governmental bonds issued by the Qatar Central Bank (QCB) on behalf of the Government of Qatar are listed on the QE. Although the procedures relating to pledging of securities prescribed by the Qatar Central Securities Depository (QCSD) Rules of Dealing do not differentiate between shares and bonds, there are legal and practical differences in pledging bonds under the Qatari Civil Code 22 of 2004. This article will set out a summary of the issues relating to the creation of a pledge over securities and discusses enforcement issues in Qatar.

The QE is the securities market in the State of Qatar and is regulated by the Qatar Financial Markets Authority. Last year, the QE was upgraded from frontier to emerging market status by index provider MSCI, signaling investor confidence and improved governance. The QE has 43 listed companies and trades on securities, Government Bonds, Sukuks and Treasury Bills issued by the QCB.

The QCSD was established jointly by the QCB and QE has been operational since January 2014 and regulates the transfer of ownership of securities listed on the QE. The QCSD absorbed several functions from the QE and now acts as the central registry and depository for listed equity and debt securities (shares, bonds and sukuks) and is responsible for the settlement of orders by delivery-versus-payment and for registering pledges over listed securities.

Briefly, the creation of a pledge over shares consists of a three-step process: registration of the pledgee bank by the QCSD; authentication of the share pledge; and, registration of the share pledge agreement.

Firstly, the pledgee bank should register as a member with the QCSD. The QCSD accepts membership registration applications from both foreign and GCC banks. Subject to registering as pledgee member with the QCSD, any financial institution, including non-Qatari entities, can register pledges over securities listed on the QE.

Secondly, the share pledge agreement should be authenticated before the Ministry of Justice in Qatar. It should include provisions in relation to the payment of a dividend (that is, the dividend would be payable to the pledgee bank or the pledgor) and voting rights (before and after default).

Finally, the authenticated share pledge would need to be registered with the QCSD. Upon completion of the pledge process, the QCSD will issue a letter to the pledgee bank providing confirmation of the pledge.

Enforcement of share pledges is not unusual in Qatar, and courts in Qatar will order the sale of the shares if the outstanding debt is proven and the pledge has been properly created. It is important to note that enforcement in Qatar is a court-led process, and self-help remedies are not permitted under the law in connection with commercial pledges over securities in general.

The Qatari Commercial Code Law 27 of 2006 and the QCSD Rules of Dealing govern the enforcement of a commercial pledge over movables in general, including pledges over securities. Article 247 of the Commercial Code states that the rights of the pledgee over pledged shares in Qatar may only be enforced through a court process.

Accordingly, subject to the discretion of the court, a pledgee bank may own the pledged shares after obtaining a court order. Where a pledgee bank seeks to obtain enforcement through a power of attorney, which authorises the pledgee bank to sell the shares without a court order, this would be deemed invalid as it would seek to circumvent of the court-led process.

There is a summary procedure in place which involves the pledgee bank petitioning the Qatari courts to claim the total or partial amount outstanding following seven days from the pledgee bank sending a notification to the debtor that the amount is outstanding and obtaining an acknowledgement receipt.

Whilst the mechanism of the summary process is expedient, in practice a defendant may raise substantive and procedural objections which would lead to the enforcement proceedings being referred to the Court of First Instance. This would greatly delay enforcement of the pledge, which could take up to three years to resolve.

Dina Al Wahabi

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