Egypt’s FRA approves securities lending rules to boost market liquidity

Egypt’s Financial Regulatory Authority (FRA) has issued Monday new rules allowing the borrowing of securities for short-selling purposes, aiming to improve market liquidity, enhance trading efficiency, and protect investor rights.

Under the new regulations, all securities lending will be conducted exclusively through the Central Depository and Clearing Company (Misr for Central Clearing), ensuring transparency and real-time oversight. Loan requests will follow a priority system based on the lowest lending rate, longest duration, and order of submission.

Borrowers must provide cash collateral equal to 150 per cent of the borrowed securities’ value — 100 per cent covering the shares plus a 50 per cent cash margin — with daily revaluation of both borrowed securities and collateral according to market closing prices. If collateral falls below 140 per cent, borrowers have two business days to restore it, or the securities are returned automatically.

The FRA also set limits to prevent concentration risk: a single lender or its affiliates may lend up to 5 per cent of a company’s free-floating shares, while a single borrower or its affiliates may borrow up to 2 per cent. Total securities available for lending cannot exceed 25 per cent of a company’s free-floating shares.

Brokerage firms engaging in securities lending must meet stringent requirements covering financial strength, operational competence, and integrity. Firms must maintain net shareholder equity of at least 5 million Egyptian pounds for standalone short-selling activities, or 10 million pounds if combined with margin trading, and keep an average liquid capital ratio above 15 per cent over the previous six months. They must also establish specialised units with trained staff, maintain robust accounting and internal control systems, and deposit margin funds in segregated accounts invested only in fixed-income instruments.

The regulations ensure lenders retain all financial rights, including dividends, bonus shares, subscription rights, and other entitlements. Mandatory termination of lending positions is required if the security is delisted, subject to legal restrictions, or involved in mergers, acquisitions, splits, or liquidation.

The FRA said the new framework aims to support market stability, deepen liquidity, and enhance investor confidence as Egypt’s stock exchange continues to grow.

Attribution: Amwal Al Ghad English

Subediting: Y.Yasser