• The Parliament approves major amendments to Capital Market Law after more than 26 years ago
• New financial instruments will attract more investment institutions
• For the first time since the 1960s, a legislative framework has been set to regulate Futures and Commodity Exchanges
Amendments to the Capital Market Law which were approved yesterday by the general session of the House of Representatives are the greatest in the current Capital Market Law for more than 26 years. The Authority does not accept the available financial instruments only in accordance with the Capital Market Law No. (95) of 1992 and its amendments, however FRA seeks in accordance to its strategic approach to increase the efficiency and depth of the Egyptian Capital Market by introducing new financial instruments that attract more investments. There should be various financial instruments in Egypt so as to choose the appropriate financing instrument for each entity according to their financial policies. The amendments include the following:
1. Regulating Futures Exchanges.
The amendments included the regulation of Futures Exchanges. One of the most important provisions included in the amendments that futures exchange shall take the form of an Egyptian joint stock company under FRA’s supervision and control. That is besides allowing the Egyptian Stock Exchange to establish a joint stock company to engage in future exchanges and derivatives and to be engaged in derivatives activity without the need to establish a company. Also, the new amendments includes regulating the process of establishing and granting license to Futures Company , the requirements to be met and setting a definition for contracts that are tradable at Futures Exchanges (Futures, Options and Swaps). That is besides regulating the establishment and licensing of Futures companies which are allowed to practice (futures brokerage) in accordance with the rules set by FRA. The amendments also include the regulation of clearing and settlement operations and allowing Futures Companies to participate in the Investor Protection Fund to cover the risks arising from the activities of companies operating in futures exchanges. In addition, the said amendments set the administrative measures that the Authority may take against futures exchange or brokerage companies if they violate the rules and setting the appropriate penalties for violating the rules commensurate with the gravity of the violation and representing a deterrent to the violators.
2. Re-organizing the issuance and trading in Sukuk:
The amendments regulate the issuance and trading in sukuk as one of the types of securities regulated by the Capital Market Law, with the cancellation of Law No. 10 of 2013, due to the existence of several observations thereon.
3. Reduction of listing fees in the Egyptian Stock Exchange:
The new amendments amend Article 24 of the law to reduce listing fees for small and medium-sized companies, as well as setting a limit on listing fees for bonds, sukuk and similar securities in order to encourage listing and trading in these securities in the Stock Exchange.
4. Allowing short-term debt instruments to be issued with easy procedures:
The new amendments allow companies and entities to issue short-term debt instruments not exceeding two years by a decision of the company’s board and mandated by the General Assembly
5. Allowing companies operating in non-banking financial activities to start the activity of investment funds by themselves without requiring the establishment of a company for this purpose.
In order to encourage the establishment of investment funds and facilitate licensing procedures, the amendments allow companies operating in non-banking financial activities to start the activity of investment funds by themselves without requiring the establishment of a company for this purpose.
6. Allowing banks that contribute to the investment fund company to save their securities.
The amendments allow banks that contribute to the investment fund company to save their securities as being licensed custodians that is besides setting rules to avoid conflicts of interest in this case.
7. Reducing the cost of publishing for companies and entities that issue securities or financial instruments in public subscription or upon publishing their financial statements.
The amendments reduce the cost of publishing for companies and entities that issue securities or financial instruments in public subscription or upon publishing their financial statements. The companies shall not publish the entire prospectus in two widely circulated daily newspapers, however the amendments limit the publication to a summary prospectus only according to a model set by the Authority in an Arabic widely circulated Egyptian newspaper. In addition, the entire prospectus will be published electronically on a website prepared by the Authority on the International Information Network in accordance with the rules set by FRA’s Board of Directors.
8. Organizing the establishment of a Union that includes companies operating in the field of securities.
The amendments include the formation of a Union that gathers entities operating in the field of securities, similar to the Unions organized under the Banking Law, Insurance, Real Estate Finance and Micro Finance Laws in order to strengthen the role of self-regulatory bodies and contribute to the development of professional standards for the entities operating in the field of securities.
9. Organizing rules set for private placement of securities;
The amendments regulate offering of financial instruments in the Egyptian market as well as securities. Also, it defines what is meant by public offering and the provisions governing it as well as the conditions and rules that must be abided by upon offering any security and financial instrument through a public offering, depending on the type of security or instrument and setting a definition for public subscription, public offering and private placement.
10. Allowing the subscription in investment funds’ certificate through companies operating in the field of securities.
The amendments allow the subscription in investment funds’ certificates through companies operating in the field of securities and licensed by the Authority in accordance with the regulations set by the Board of Directors in this regard, in addition to the banks in order to facilitate the clients.
11. Enhancing the Protection of Minority Rights in cases of acquisition, increasing fines for those who violate the provisions of acquisition and intensifying financial penalties due to insider dealing
The amendments enhance the protection of the rights of the minority shareholders in cases of tender offers or acquisitions or if someone -deliberately- not implement his obligations towards small shareholders, especially in the cases of acquisition and mandatory purchasing. The said amendments increase the maximum fine for anyone who trade in securities contrary to the rules stated in this law and punish anyone who violates the provisions of acquisition by paying an appropriate fine, and increase the financial penalty due to insider dealing , that is to achieve the element of deterrence, by linking the value of the fine to the benefit or the loss of the violator.
12. Cancellation of bearer security:
Bearer security is a negative point in the international evaluation of the Egyptian market in terms of combating money laundering. The international institutions concerned with financial markets stressed on the importance of canceling bearer security due to the disadvantages and problems associated with them. The most important of which are the risks associated to the owners of these securities in case of theft or loss or damage in a way that can not be defined as the only document of ownership is the material possession of security and this lead to the loss of the rights of owners and large number of disputes will occur in this regard. Also, it leads to tax evasion as it is so easy to be excluded from the tax return, thus depriving the rights of public treasury in this regard. In addition, it can be used in money laundering operations due to the lack of knowledge of owner’s name. The amendments also stipulate that FRA’s Board of Directors shall determine the controls and procedures for companies issuing bearer securities to comply with in order to adjust its positions by transferring these securities to nominal securities. Also, companies that issued bearer securities and holders of these securities shall adjust their positions accordingly.
13. Creating a registry in the Authority to register companies licensed to carry out financial valuation.
In the context of the importance and seriousness of the financial valuation of the establishments carried out by the companies licensed to engaged in financial consultations under which the valuation is made either for the purpose of increasing capital or acquisition or determining the fair value or other cases that require financial valuation in accordance with listing and delisting rules , the amendments include the addition of an article in the law that provides the establishment of a registry in the Authority to register companies authorized to carry out the financial valuation work . On the other hand, FRA’s Board of Directors shall set listing and delisting rules for the said registry and the rules set for these companies to abide by upon carrying out the financial valuation that is in addition to the preparation of fair valuation studies in accordance with the financial valuation standards issued by FRA’s Board of Directors in light of the seriousness of the work performed by the licensees in the financial valuation work and how their business may cause damage to the market or Dealers.
14. Granting the Authority and the Stock Exchange the power to take precautionary administrative measures in cases of manipulation.
The amendments grant the Authority and the Stock Exchange the right to stop the trader from buying securities when he committed irregularities related to the manipulation in securities prices. The text provided that the suspension should be based on a reasoned decision for a period not exceeding six months. The Authority shall take the precautionary measures to prevent manipulation in the Stock Market.
15. Re-organizing the criminal responsibility of the actual manager of a legal person in accordance with the constitutional regulations and pursuant to the Egyptian legislations in the field of banking and non-banking financial markets.
The amendments link the criminal liability of the actual manager of the company in case he knows about the crime or if the crime occurred because he breaches his duties, in order to determine his criminal responsibility in accordance with the constitutional regulations, which linked the criminal responsibility of the actual manager with his knowledge of such crimes or due to the fact that the crime occurred because of he breaches his duties.