The Egypt Financial Regulatory Authority has established a regulatory framework for borrowing securities for sale, enabling short selling through a central lending system linking the Egyptian Exchange, the central securities depository, brokers and custodians. Only securities meeting criteria set by the exchange and approved by the authority will be eligible. Brokers must assess clients’ financial capacity, document transactions and collect a cash margin of at least 50% of the borrowed securities’ market value before borrowing occurs. Borrowed securities are capped at 40% of an issuer’s free float, while contracts involving a broker and its lending and borrowing clients are subject to a 5% ceiling. Each borrower and its related parties may borrow no more than 2% of an issuer’s free float. The central securities depository must monitor limits, revalue positions and collateral daily, retain and invest sale proceeds for lenders, and return securities if a broker fails to do so. Lenders retain financial benefits arising during the loan period, while voting rights belong to the owner of the securities on the date of the general meeting. Authorized brokers must have net shareholders’ equity of at least EGP 5 million, rising to EGP 10 million if they conduct both margin trading and short selling, and must have maintained an average liquid net capital ratio of at least 15% over the preceding six months. They will have one month from the framework’s effective date to install the required technology. The rules will take effect on the day after publication in the Egyptian Gazette, and the authority may restrict securities, participants or brokers, adjust collateral haircuts, or revoke a broker’s approval to protect market stability.

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