Egypt’s Financial Regulatory Authority issues model borrower contract covering collateral and position closure ahead of short selling launch

Egypt’s Financial Regulatory Authority has issued an indicative model contract between licensed brokerages and clients borrowing securities for short selling, setting out their rights, obligations and responsibilities for managing collateral and closing positions. The contract builds on the recently adopted short selling framework as preparations continue for the mechanism’s formal launch through Misr for Central Clearing’s central securities lending system. Live testing and work to complete regulatory and operational guidance remain underway. Under the model, borrowers must provide margin collateral before borrowing, at contractually specified ratios no lower than regulatory minimums. Brokerages must place cash collateral in a separate account dedicated to short selling operations, revalue borrowed securities using the latest closing price during trading and monitor collateral coverage. If securities are not returned on time, the brokerage must purchase the securities needed for repayment, taking account of settlement deadlines. The model also addresses position closure when securities cease to be eligible for short selling or specified corporate actions arise, including acquisitions, mergers and liquidation. The contract must disclose all fees and expenses and their calculation basis, with subsequent changes requiring the client’s express consent. Cash margin must be invested in instruments specified by the authority, and brokerages must disclose the investments and actual returns and credit proceeds upon receipt or under agreed terms. Clients may close positions wholly or partly during the borrowing period, subject to the contract. Brokerages must also provide a detailed explanation of the mechanism, procedures and risks at least annually and whenever the guide is updated following regulatory changes.