FRA allows factoring companies to finance purchase of securities on margin

Egyptian factoring companies are now able to finance margin lending by brokerage companies under new regulations (pdf) released by the Financial Regulatory Authority (FRA) yesterday.

The move is meant to give brokerages access to new sources of funding and stimulate trading on the EGX. Eligible brokers are required to get approval from the FRA before engaging in margin lending.

Allowing non-bank lenders to finance margin lending will likely be a welcome move for brokerages and industry associations, which have for years been seeking greater access to financing for the practice. Banks are typically reluctant to finance margin trading out of fear of turbulence in the stock market.

FRA Chairman explained that factoring companies will be committed to developing an integrated system for practicing the activity of deducting financial rights arising from buying securities on margin,

The activity includes the rules for practicing the activity of factoring the financial rights arising from margin purchases, and a model for the contract for practicing this activity with the brokerage company, including the rights and obligations of both parties, according to the indicative contract form issued by the authority