Activation of the Insurance System in the Capital Markets to Support Investment and the Protection of Small Investors

Prof. Ali Ahmad AlMahdawy
Professor of Civil Law – College of Law – University of Sharjah


This research recommends activating liability insurance systems in securities markets and bourses, in order to support the investments in those markets, protect the investors, and create a secure environment towards potential transition risks. These insurance systems could potentially protect against a variety of risks, regardless of where the risk is sourced from – whether it be from the companies, the brokers, the bourse clerks, the investors themselves or even the unstable economic and political circumstances, all of which may negatively affect the stability and consistency of the markets. Thus, all parties, the investors, companies, and the market itself, will obtain benefits from the insurance. No doubt this will enhance overall social and economic stability.
This proposal requires the insurance to be obligatory, regulated by special rules according to a uniform insurance policy, applied by an insurance company established especially for the bourse, owned by the government or in which the government owns no less than 51{e574c6cff940d8d5a9ac538779c657d486556f11c838827e06e77ac326839f1b} of its capital, and be supervised by the securities authority to ensure its financial situation, its rational administration and the supervision of its duties.
The above ideas are discussed in detail in this research to specify the insured according to the risk, the premium, the direct action toward the insurer and all related issues. The research contains three sections. The first section provides a general overview of securities authority legislation. The second section discusses the effectiveness of insurance in supporting investment, whilst the third section examines the effectiveness of insurance in protecting small investors. Finally the research ends with a conclusion and some recommendations aimed at improving the authority legislation, which is the overall aim of this research.

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