Egypt’s central bank imposes new rules on margin trading finance
Egypt’s central bank has issued new regulations governing banks’ financing of securities purchases on margin, a move aimed at curbing risks and safeguarding the stability of the banking sector amid evolving financial market conditions.
The Central Bank of Egypt (CBE) said its board approved the measures at a meeting on 21 April, introducing stricter controls on margin lending, including caps on client exposure, portfolio concentration, and eligible securities.
Under the new regulations, banks must adopt board-approved internal policies governing margin lending, subject to periodic review and aligned with Financial Regulatory Authority (FRA) rules.
These policies must set a ceiling on the total amount allocated to margin trading finance, as well as limits on exposure to a single client and to a client together with related parties. Banks must also define caps on individual securities and sector concentration within each client’s portfolio, in line with their risk tolerance, including a limit on securities traded outside the EGX 100 index not exceeding 10 per cent of the client’s total portfolio.
The rules require banks to establish procedures for handling breaches of these limits, including thresholds for notifying clients to reduce exposures through repayment or the provision of additional collateral, the timeframe allowed for compliance, and levels at which banks will initiate the sale of securities and liquidation of collateral.
Banks must also implement automated systems, procedures, and controls to identify, monitor, and manage all risks associated with margin trading, including the daily revaluation of securities to ensure compliance with internal limits and regulatory requirements.
The central bank said securities financed under margin arrangements must be held in custody with the lending bank, while financing must be denominated in Egyptian pounds and restricted to securities denominated in the same currency.
The rules prohibit the inclusion of a bank’s own shares in margin-financed transactions and bar banks from extending such facilities to clients seeking to purchase shares in companies where they are major shareholders or board members.
Lenders are also required to report margin financing facilities to the central bank’s credit registry system and to credit information and rating agencies as unsecured exposures, in line with applicable regulations.
The measures take effect immediately, with banks given a six-month period to align existing portfolios.
The central bank also reaffirmed earlier instructions issued on 20 June, 2001, limiting facilities granted to securities brokerage firms to covering short-term timing gaps between trade execution and settlement. Such facilities must be proportionate to transaction volumes and backed by appropriate risk controls, including limits on duration and adequate collateral coverage.
Attribution: Amwal Al Ghad English