FRA Board of Directors’ Decree No. 155 of 2026

On 1 September 2026, the Financial Regulatory Authority (“FRA”) published Board of Directors’ Decree No. 155 of 2026 (“Decree”) regulating securities borrowing for the purpose of sale (“Short Selling”). The Decree came into force on 2 September 2026.

Scope

The Decree applies to Short Selling transactions involving securities that meet the criteria set by the Egyptian Exchange and approved by the FRA.

Who Can Offer Short Selling?

Brokerage firms must obtain FRA approval to offer Short Selling. Key requirements include:

  • Minimum net shareholders’ equity of EGP 5 million, increasing to EGP 10 million if the firm also offers margin trading.
  • Average net liquid capital ratio of at least 15% during the six months preceding the application.
  • No judicial rulings or administrative measures against the firm during the preceding six months, subject to the limited exception under the Capital Market Law.
  • Appropriate record-keeping, internal control, financial audit and required technology systems.
  • At least one qualified officer with relevant capital markets experience, who has completed the required FRA examinations or training and has no disqualifying disciplinary sanctions or criminal convictions during the preceding three years.
  • Payment of an EGP 10,000 application review fee.

The FRA will decide on a complete application within two weeks, taking into account market needs.

Key Brokerage Obligations

Approved brokerage firms must:

  • Maintain separate books and accounts for Short Selling transactions and an integrated system for borrowing clients.
  • Enter into an agreement with each borrowing client and assess the client’s ability to meet its obligations.
  • Ensure that the sale price of borrowed securities exceeds the last traded price, or equals it if the last price movement was upward.
  • Obtain collateral from the borrower before the transaction. Cash collateral must be at least 50% of the market value of the borrowed securities and invest such cash collateral for the benefit of the borrowing client. The brokerage firm may agree with the borrower to receive a percentage of the investment return.
  • Continuously monitor and revalue borrowed securities and related collateral.
  • If the firm’s license is revoked or it is suspended from carrying on the activity, transfer or close open positions within five business days of notification.

Collateral and Margin Calls

  • If total collateral falls to 140% of the market value of the borrowed securities, the borrower must restore it to 150% within two business days of notification. No new borrowing transactions may be entered into for the borrowing client until the required collateral level is restored.
  • The broker must take the required steps to return the borrowed securities without consulting the borrower if the collateral is not restored within the required period or if it falls to 130%.
  • Multiple borrowing transactions made through the same broker are treated as a single account for these purposes.

Limits and Ratios

  • Securities borrowed through the Central Lending System are capped at 40% of an issuer’s free-float securities, with up to 5% allocated to direct contracts.
  • Each borrower, together with its related parties, is limited to 2% of an issuer’s free-float securities, subject to a maximum value determined by the FRA.
  • The FRA may set maximum lending limits or adjust these percentages and values depending on market conditions.

Rights Attached to Borrowed Securities

  • The lender remains entitled to financial and other rights attached to the borrowed securities during the lending period, including cash and in-kind dividends and subscription rights.
  • Voting rights belong to the owner of the securities on the date of the relevant general assembly meeting.
  • MCDR will adjust the number of securities lent and borrowed where such rights affect the total number of issued securities.

Role of MCDR

The Misr for Central Clearing, Depository and Registry (“MCDR”) operates the Central Lending System, monitors the applicable borrowing and lending limits, and holds and invests the proceeds from the sale of borrowed securities for the lender’s benefit.

MCDR must pay the lending rate and investment return to the lender within two business days of closing the position, after deducting a percentage determined by MCDR and approved by the FRA, capped at 20% of the net investment return. It also values borrowed securities and collateral and settles valuation differences on a daily basis.

Direct Lender and Borrower Contracts

Brokerage firms may arrange direct contracts between lenders and borrowers, provided that the transactions comply with the Decree and are recorded through the Central Lending System.

FRA Powers

The FRA may, among other measures, exclude securities from Short Selling, adjust collateral haircuts, temporarily prevent lenders or borrowers from carrying out Short Selling transactions, temporarily prevent brokerage firms from entering into new transactions, or revoke a brokerage firm’s approval.

Any such measures will not affect legal positions established before they are imposed.

What to do?

Brokerage firms offering or planning to offer Short Selling should review their compliance with the new capital, systems, personnel and operational requirements.

Brokerage firms already approved to offer Short Selling have one month from the effective date of the Decree to comply with the new technology requirements.

Investors considering Short Selling should be aware of the applicable collateral requirements, margin calls and borrowing limits.