Aggregated News From Investment Management Regulators

Re-organizing ?Investor Protection Fund against non-commercial risks? – Monday 7/10/2019

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• Dr. Omran: For the first time, insurance protection covering non-commercial risks resulting from the activities of listed companies. Member Company shall pay subscription fees on behalf of the client.
• Dr. Omran: Reorganization of the Investor Protection Fund included FRA’s proposal to reduce fees on the Stock Exchange’s transactions, and clients of the member company shall pay subscription fees.
• Dr. Omran: For the first time, insurance protection is provided to investors against non-commercial risks resulting from the activities of listed companies
• Dr. Omran: Covering bankruptcy risks of the listed company and compensate holders of free-floating shares in case of fraud or gross negligence from the company’s management by a maximum of 500 thousand pounds per client
• Dr. Omran: Compensation shall be paid to  holders of free-float shares from shareholders of listed companies in case of compulsory delisting from stock tables as a result of default or negligence of the member company

Dr. Mohammed Omran, FRA’s Chairman stresses on the regulator’s keenness to develop investors’ protection system, adding that for the first time insurance protection will be granted for shareholders against non-commercial risks arising from the activities of listed companies. He emphasizes that such step will have a positive impact on the market’s integrity and stability of markets, especially with the issuance of the Ministerial Decree No. 2339 of 2019 to reorganize the Egyptian Investor Protection Fund. In addition, at the same time FRA tends to reduces fees on the Egyptian Exchange’s transactions by 50% to be ten per 100,000 instead of twenty per 100,000.

FRA’s Chairman said that the “Investor Protection Fund against Non-Commercial Risks” which has an independent character and a non-profit entity has been reorganized to be an insurance fund for securities dealers against non-commercial risks arising from the activities of  listed companies. The Fund’s statute shall be issued by FRA’s BOD decision based on a proposal by the Fund’s BOD.

Dr. Omran adds that pursuant to the Ministerial Decree, the Fund includes in its membership each company that has securities or financial instruments listed on the Egyptian Stock Exchanges. Besides, each company operating in the field of securities and financial instruments – and conducts one or more activities – as clearing and settlement in securities transactions , central depository and registration , asset management , mutual  funds’ management , brokerage in securities, bond brokerage,  and custodian activity.  In addition, upon the proposal by FRA’s BOD, Prime Minister may add any other activities pursuant to the provisions of the law.

According to Dr. Omran, a board of directors formed by a Ministerial Decree will manage the “Investor Protection Fund against Non-Commercial Risks”. It shall include in its membership a representative of investors in the Egyptian Exchanges- selected by the Prime Minister according to a recommendation by FRA’s Chairman – a representative of the Egyptian Exchange selected by the Chairman of the Exchange. That is besides three experts selected by FRA’s BOD, three other members elected in accordance with the rules and procedures issued by FRA’s BOD decision representing the Fund’s  member companies (Brokerage companies , securities and non-brokerage firms, and listed companies).

Non-commercial risks of companies operating in the field of securities falling within the scope of the Fund’s insurance coverage

Dr. Omran emphasized  that the ” Investor Protection Fund against non-commercial risks ” will cover the actual financial loss of the clients’ dealing with member companies operating in the field of securities and financial instruments against non-commercial risks, arising from trading in securities and financial instruments listed on the Egyptian Stock Exchanges, coverage includes the following risks:
A) The bankruptcy or default of Fund’s member shall be determined by a decision issued by the Fund’s BOD in accordance with a report issued by the Authority in this regard.
B) Failure or negligence or defraud by  the member or his legal representative or the actual manager or his staff, either by himself or in association with others, in accordance with the result of investigations conducted by the Authority or other judicial or regulatory authorities.

Covering non-Commercial Risks for Shareholders of listed Companies that fall within the Fund’s Insurance Coverage

FRA’s Chairman added that the fund covers non-commercial risks for shareholders of companies whose securities or financial instruments are listed on the Egyptian Stock Exchanges, including the right to subscribe if being delisted before the due date, emerging risks include:

(A) Bankruptcy of the Fund’s member or the issuance of final judgments in favor of the owners of securities or free-float instruments against the member company in cases of fraud or gross negligence.

(B) Compulsory delisting of the member’s securities or financial instruments from the tables of the Egyptian Stock Exchanges, as a result of a decision issued by the Stock Exchange, pursuant to the provisions of listing and delisting  rules issued by  FRA’s BOD. That is besides compulsory delisting  resulted from the negligence of the member’s management, including if it is listed according to misleading data or forged documents without prejudice to the right of the Fund to refer to the perpetrator in all cases or for any other reason estimated by the Authority.

FRA’s Chairman noted that Article 10 of the Ministerial Decree  to re-organize the “Investor Protection Fund against Non-Commercial Risks” stated  that coverage unit should be a maximum of five hundred thousand pounds for each client or owner of a paper or free-float instrument as the case may be. Compensation shall also include the credit balance of the account resulting from the client’s transactions in the member’s securities and financial instruments, not exceeding one hundred thousand pounds.

Dr. Omran stresses that the Fund is not obliged to compensate for any financial losses resulting from changing the value of the client’s securities and financial instruments or resulting from the loss of investment opportunities by the member companies operating in the field of securities and financial instruments.

Whereas, the Fund compensates shareholders of the member company who hold securities or free-float instruments equivalent to the average closing prices of the security or financial instrument during the last three months of trading on the security or financial instrument. Compensation shall be at the fair value determined by an independent financial advisor chosen by the Authority from among its registries, that is after the Fund has paid his fees in case there is no transaction held on the security or financial instrument.

Dr. Omran welcomes the Ministerial Decree No. 2339 of 2019 to re-organize the “Investor Protection Fund against Non-Commercial Risks” and its support for the proposal presented by FRA’s BOD to reduce fees on transactions held on the Stock Exchange. As the said Decree reduces the fees collected by Investor Protection Fund from investor dealing in the Exchange, whether from brokerage firms, custodians, or asset management companies.

It was decided to reduce the fees paid by the custodian companies to the Investor Protection Fund from 11 per 100,000 of the client’s portfolio value to 5 per 100,000 per customer for the total cash balances and securities owned by him and deposited with the custodian. As well as reducing the fees paid by brokerage firms from two per ten thousand to reach 1 per ten thousand of the value of the transaction stated in the invoice.

The value of subscription fees paid by asset management companies has been reduced to “5” per 100,000 instead of 11 per 100,000 and a maximum of 100 EGP per client for the total cash balances and securities owned by the client and deposited with the company to form and manage securities portfolios, that is in accordance with the actual balances by the end of June and December of each year.

The decree also specified the value of membership fees paid by MCDR to be (2%) of the total revenues from clearing, settlement and central depository activities. In addition, the decree defined membership fees paid by listed companies at a rate of one per ten thousand of the nominal value of the company’s capital according to the latest financial, annual or periodic statements issued by the company’s auditors with a minimum of 10,000 EGP and a maximum of 100,000 EGP. On the other hand, the fees shall be reduced by 50% for the SMEs (NILEX).

 Subscription fees paid by the member company are paid on behalf of the client

The company – member of the Fund – operating in the field of securities and financial instruments is committed to submit the periodic membership fees paid by their clients to the Fund’s resources.  As well as fund’s members from listed companies engaged in central depository and registry shall pay their financial obligations shall be delivered directly to the Fund.

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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