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Sunday, 5 August 2018

FRA committee completes draft of short-selling regs ahead of its introduction in 3Q2018

REGULATION WATCH- Shorts are coming: FRA committee completes draft of short-selling regs ahead 3Q2018 introduction: The Financial Regulatory Authority’s (FRA) Capital Markets Committee completed on Thursday its draft of the final framework and rules that will govern short-selling, sources close to the matter tell Al Mal. Short selling will make its debut on the EGX in 3Q2018, the story suggests. Under new regulations, clients looking to short a share — or borrow shares from their brokers for a small fee then sell it right away, hoping that its price will drop before buying it back, returning it to the broker and pocketing the difference — will be forced to pay a cash security deposit equivalent to 50% of the value of their borrowed stocks, according to the sources. Brokerages will also be allowed to jump in and close out shorts, repurchase the stocks on behalf of clients if a share rises by 15%. The regs will also allow brokers to re-invest clients’ deposits in any high-yielding investment with guaranteed annual returns.

Background: The FRA’s board had approved in May amendments to the Capital Market’s Act’s executive regulations that govern short-selling, which included provisions that allow brokerage and securities firms to offer the service. FRA deputy head Khaled El Nashar had said last month, however, that he expects “very few brokerages” to win licenses to short, as the authority is planning to restrict the activity to firms that meet certain conditions, such as a strong balance sheet position. Limits will also be placed on number of shares a short seller can borrow for a short position, El Nashar had said. Short selling was introduced to the market through the amended Capital Markets Act, which also opens the door to the issuance of sukuk and commodities and futures exchanges. We’re also expecting short-term bonds to be on the investment menu soon.

On a related note, the FRA is hosting a workshop on capital market governance in Cairo today with representative from US counterpart institutions in attendance, according to Al Shorouk. The workshop — which will focus discussions on capital market oversight and regulation, as well as crimes in the digital age — will host officials from the US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Financial Services Volunteer Corps (FSVC), and Bloomberg.

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