Egypt’s FRA approves long-awaited short-selling framework
Egypt’s Financial Regulatory Authority (FRA) on Wednesday approved a long-awaited framework for short selling, aiming to boost market liquidity, improve price discovery and broaden investment tools in the country’s capital market.
The FRA Board, headed by Chairman Islam Azzam, issued Decision No. 155 of 2026 regulating securities borrowing for short selling, following consultations with the Egyptian Exchange (EGX), Misr for Central Clearing, Depository and Registry (MCDR), brokerage firms, and other market participants.
“The new regulatory framework reflects a comprehensive vision for modernising the capital market and diversifying investment and trading tools in line with global developments, while enhancing its ability to accommodate a range of investment strategies,” Azzam said.
The framework establishes safeguards for lenders and borrowers and provides for central oversight of transactions through a lending system linking MCDR, the stock exchange, brokerages, and custodians.
Under the system, short sellers will be able to view available securities-lending offers and select those that match their investment objectives, while lenders will be able to view offers registered through the platform.
Limits and collateral requirements
Not all listed shares will be eligible for lending. The Egyptian Exchange will establish eligibility criteria, subject to FRA approval.
Borrowed securities will be capped at 40 per cent of a listed company’s free-float shares, while each client and related parties will be limited to borrowing 2 per cent of the company’s free float. Contracts involving a brokerage firm, lender, and borrower will be capped at 5 per cent.
The FRA will also be able to impose or change maximum lending limits depending on market conditions.
Brokerage firms must obtain cash collateral equivalent to at least 50 per cent of the market value of borrowed securities before executing a borrowing transaction.
They must also assess clients’ financial capacity and investment objectives, monitor settlement accounts, and revalue borrowed securities using intraday prices.
MCDR will monitor lending and borrowing limits, value borrowed securities and collateral at the end of each trading day, and settle any resulting differences through the brokerage firm’s settlement account.
Protecting lenders
The framework ensures that lenders retain financial rights and other benefits attached to borrowed securities, including cash and in-kind dividends, and subscription rights.
Voting rights at general assembly meetings will remain with the owner of the borrowed securities on the date of the meeting.
MCDR will retain proceeds from sales of borrowed securities and invest them on behalf of lenders in fixed-income instruments or other investments approved by the FRA. It will pay lenders the lending rate and investment return within two working days after the short position is closed.
The system will also provide for daily settlement when the market value of borrowed securities changes, with mechanisms for handling both increases and declines in value.
FRA sets safeguards to limit short-selling risks
The regulator will have powers to intervene if short selling threatens market stability.
Measures include removing securities from the list of eligible stocks, changing collateral discount rates, temporarily barring lenders or borrowers from transactions, suspending a brokerage firm’s ability to initiate new short-selling transactions and, ultimately, withdrawing its approval to conduct short selling.
The new framework strikes a balance between encouraging the use of the mechanism and giving greater flexibility to market participants, while tightening risk controls and preserving market stability, Ezzam said.
Brokerage firms approved to conduct short selling will have one month from the effective date of the decision to install the required technological infrastructure.
To qualify, brokerages must have net shareholders’ equity of at least 5 million Egyptian pounds ($98,606), rising to 10 million pounds for firms seeking to conduct both margin trading and securities borrowing.
They must also maintain an average net liquid capital ratio of at least 15 per cent over the previous six months and have adequate transaction-recording, document-retention, internal-control and financial-audit systems.
At least one employee with relevant experience must also be assigned responsibility for short-selling operations and pass FRA-designated tests or training courses.
Part of broader market reform
Ezzam said short selling was part of a wider programme to develop Egypt’s capital-market infrastructure and investment products.
The FRA recently introduced rules for establishing hedge funds and allowing existing investment funds to engage in hedge fund activities for the first time, including short selling and investment in financial derivatives.
The authority said the reforms were being pursued alongside efforts to strengthen regulatory and technological systems, governance and disclosure, and broaden the investor base.
The new short-selling decision is expected to be published within days in Egypt’s Official Gazette and on the FRA’s website. It will take effect the day after publication.