Egypt’s regulator sets three criteria for short-selling stocks

Egypt’s Financial Regulatory Authority (FRA) will use three key criteria to determine which stocks qualify for short selling on the Egyptian Exchange (EGX), Chairman Islam Azzam said Thursday, as the regulator seeks to ensure orderly trading and market stability.

The proposed methodology will go beyond stocks already eligible for margin trading, using a weighted-average formula based on free float, liquidity, and volatility, Azzam said.

Free float will measure the availability of shares for trading and borrowing, while liquidity will assess the volume and frequency of daily transactions to determine how easily investors can enter and exit positions.

The third criterion, volatility, will measure fluctuations in share prices, helping maintain market balance and limit sharp speculative movements, Azzam said.

The regulatory framework will also set limits on securities lending and individual short-selling positions to prevent excessive concentration and market dominance.

Securities lending will be capped at 40 per cent of a company’s total free-float shares, while an individual investor will be allowed to short-sell no more than 2 per cent of a company’s free float, according to Azzam.

The framework is part of efforts to establish eligibility criteria for short selling on the EGX in the coming period.