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A road map that sets the priorities to introduce futures exchanges in the Egyptian economy

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• Dr. Omran: Organizing trading in derivatives whether by establishing a new stock exchange for “futures contracts” or granting the Egyptian Stock Exchange the right to practice the activity after obtaining license by the Authority

• Dr. Omran: Clearing and settlement of transactions held in futures exchanges in accordance with the provisions of the Central Depository and Registration Law and the company or entity authorized by the Authority.

• Dr. Omran: The Authority will issue some decisions that will regulate the futures exchanges within the coming weeks.

Dr. Mohammed Omran – FRA’s Chairman presented the main results of the committee that is assigned to prepare a report on international best practices related to the rules and decisions governing futures exchange. Accordingly, an intensive work plan will be developed in coordination with the Authority’s experts to speed up the preparation of all regulatory decision related to futures exchange to be submitted to FRA’s BOD for the issuance of the needed decisions.

Dr. Omran added that the Authority has prepared a bunch of draft resolutions to activate the futures exchanges, either through licensing the establishment of a new entity “futures exchange” or through granting license to the Egyptian Stock Exchange. Moreover, FRA prepares a decision on the contract’s form and company’s statute. This is in addition to the conditions and procedures set for licensing the activity. Licensing request shall verify that there will be an appropriate headquarter for the activity and shall check the availability of the necessary technical equipment. That is besides the conditions, competence and experience that shall be met by those who manage the activity, and the need to provide data security and protection for information systems, trading and communication.

In this context, Mr. Abdul Hamid Ibrahim – Head of the Committee presented to Dr. Mohammed Omran the results of the committee’s  study on the best international practices in regulating  futures exchanges in eight countries, guided by the principles of the international bodies concerned with the capital markets.

The study included the international practices in futures exchanges and detailed information on the most important characteristics and requirements to activate futures exchanges in Egypt. The study included the CME Group, The National Stock Exchange of India Limited (NSE). Besides, three leading markets in France namely, (MATIF) market for derivatives trading on commodities, currencies and governmental securities, (MONEP) market for options, the Alternext market for trading on futures contracts for small and medium-sized companies. In addition to Bursa Malaysia Derivatives Berhad (BMD), and the Hong Kong Stock Exchange and London Stock Exchange Derivatives. On the Arab experience, comes the UAE Securities and Commodities Authority (SCA) and Commodity Exchange market in Morocco.

Dr. Omran emphasized that the committee has distinguished in its work three types of futures exchanges. One of them is dealing with all types of derivative contracts on securities, currencies and commodities. Another category of exchanges is dealing with derivatives and securities contracts only. The latter category is dealing with commodities.

FRA’s  Chairman noted that the meetings of the Committee over the course of several months have discussed and examined many details related to the futures exchange and determine the types of contracts that are traded , the basic elements and the specifications of those contracts, whether contracts of futures or options or swap. Moreover, the committee set licensing rules and conditions for these markets, as well as rules of membership in futures exchange. Also, the committee defines those who may not be accepted as a trading member in these types of stock exchanges, the criteria to be taken into account upon listing futures, types of orders, clearing and settlement and preparing the internal system of the exchange.

He added that the committee assigned to “Prepare a report on international best practices related to the rules and decisions governing futures exchange “, which was formed by FRA’s Chairman Decision has set out in its report a road map with priorities upon n preparing the rules governing futures exchanges. In this respect, this step will activate the legislative amendment proposed by the Authority and issued in Law no. 17 of 2018 amending some provisions of Capital Market Law No. 95 of 1992.

FRA’s Chairman revealed that the committee has reached four basic recommendations, foremost of which is regulating derivatives until the competent authorities establish commodities exchange and provide many requirements for futures exchanges, including approved warehouses and commodity classification experts. Also, the committee recommended the preparation of decisions related to derivatives   either through the establishment of a new futures exchange or through licensing the Egyptian Stock Exchange to practice derivatives activity. Besides, setting the controls for clearing and settlement of derivatives to the entity authorized by the Authority in accordance with the provisions of the Central Depository and Registry Law.

Lastly, the committee recommended the preparation of the rules related to licensing conditions for brokerage firms to be engaged in futures contracts.  These rules included regulations for practicing brokerage in contracts by securities brokerage companies. These regulations include in particular capital adequacy rules for companies which have the potentials and capital adequacy to be licensed to practice brokerage in derivatives.

It is worth mentioning that FRA’s Chairman issued decision no. 562 of 2018 to form a committee which includes a number of experts in the field of capital markets and related legislation, and a number of technical staff in both FRA and the Egyptian Stock Exchange. The said committee determines international best practices related to the rules governing futures exchanges.

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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