• Dr. Omran: Regulating short selling mechanism and introducing a new trading mechanism
In order to add new mechanisms and increase liquidity on the Egyptian Stock Exchange, Dr. Mohammed Omran – FRA’s Chairman issues regulatory decision no. (268) of 2019 on short selling rules and activating the mechanism. The Egyptian Stock Exchange, MCDR shall prepare and set up the automated systems and technical requirements related to short selling mechanism. Both parties shall inform the Authority before activating the mechanism.
Dr. Omran explained that short selling rules stated that brokerage companies shall manage short selling system and shall provide both the borrower and the lender. Besides, brokerage companies shall check cash collateral. In addition, it shall reinvest selling proceeds, cash collateral and shall hand over full investment’s return to the client after deducting the set commissions. Moreover, custodians shall enter into contracts with clients wishing to lend their securities.
On the other hand, MCDR shall check lending ratio set for each security amounting to 20% of the listed shares, provided that the ratio of each lender shall not exceed 5% of the company’s total shares, whereas borrower’s ratio and his related group shall be 0.5% of the issued shares.
FRA’s Chairman said that the brokerage company will evaluate the market value of the securities borrowed at the closing price declared on the stock exchange by the end of each working day and invest the cash collateral in fixed investment instruments (bank deposits, treasury bills, certificate of deposits).
Dr. Omran said that decision no. 268 of 2019 regulates transaction’s commission taken from the client by brokerage company and custodians in accordance with the contract concluded between them and the client without considering the return.
The brokerage company is also entrusted with the management and investment of cash collateral (selling proceeds + initial collateral). Selling proceeds and initial collateral (50%) are deposited at the brokerage company.
During the term of the lending, the Lender shall maintain all the rights and proceeds associated with the ownership of the securities. These rights shall be collected through deduction from the borrower’s cash collateral account.
FRA’s Chairman confirmed the commitment of the brokerage company, the lender and the custodian to conclude lending securities’ contract according to the model issued by the Authority in this regard. He added that the contract must include the client’s acceptance to lend his securities through securities’ lending system of MCDR, taking into account the rules and procedures related to securities lending system adopted by the Authority.