On November 8th, 2023, the Board of Directors of the Financial Regulatory Authority (the "FRA") issued Resolution No. 245 of 2023 (the "Resolution") on the amendment of the Board of Directors Resolution No. 67 of 2014 regulating the Practice of Securities Brokerage Companies and Custodian Securities Purchases at Margin.
Pursuant to the Resolution, any securities brokerage company or custodian shall be required to give prior notification to the FRA, the Egyptian Stock Exchange ("EGX") and Misr for Central Clearing, Depository and Registry ("MCDR"), with the amount set aside for the purchase of securities at margin. Furthermore, the brokerage company's auditor shall be required to confirm the availability of the amount set aside for the purchase of securities at margin.
By virtue of the Resolution, the brokerage company or the custodian (as the case may be) shall be required to notify the MCDR with the securities presented as a guarantee for its annotation and reservation in favor of the brokerage company or the custodian guaranteeing the purchased securities at margin on behalf of the customer, provided that the said securities satisfy certain requirements and are valued at (100%) of the market value.
The Resolution amended the percentage required for the brokerage company and/or custodian to deal in securities purchase at margin, ensuring that their customer's debt does not exceed (10%) of the funds available for margin purchases (decreased from 15%), provided that the percentage does not exceed (15%) for the customer and its related parties (decreased from 20%). New percentages shall only be applicable on customers dealings following the entry into force of the Resolution, as of November 9th, 2023.
Subsequently, the Resolution provides a new definition of related parties as any group of customers under the actual control of the same natural persons or legal entities. The following shall also be deemed related parties, (i) the natural persons and any of their relatives until the second degree, (ii) the legal entities consisting of two persons or more, whereas the majority of its shares/quotas are owned directly or indirectly by another party or owned by one person, and (iii) the holding companies, affiliated companies and sister companies (as the case may be).
The brokerage company or the custodian shall be entitled to acquire credit balance with the customer for the securities presented as a guarantee, taking into consideration that the brokerage and/or custodian agreements stipulate the brokerage company or custodian's right to carry out all procedures to sell the securities and to liquify the guarantees presented in certain situations. MCDR shall be notified in order to remove the annotation and the reservation of the securities presented as a guarantee, in order to sell the said securities.
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