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Wednesday, 20 November 2019

Brokerages aren’t happy with how much Egypt’s short selling electronic system is going to cost them

REGULATION WATCH- Brokerages aren’t happy with how much the short selling electronic system is going to cost them: Brokerage firms have voiced concerns to the Financial Regulatory Authority (FRA) that they will be unable to afford the cost of the electronic system needed to short sell on the EGX, sources tell Al Mal. Brokerages will be required to fork out USD 9,500 (EGP 153k), which they say is too hefty a price tag. Large brokerages already use sophisticated software capable of handling short selling transactions. Medium firms, meanwhile, generally do not have the same capability, and may struggle to afford the upgrade. EGX officials are reportedly working with their software developers to reduce the price.

The system is nearly finalized ahead of the instrument’s launch before the year is out. A meeting between the FRA’s advisory committee, EGX executives, Misr For Central Clearing, Depository & Registry, and the tech companies rolling out the platform, finalized the three options investors will have when deciding who to lend shares to.

  • the investor can lend to clients of the same brokerage;
  • they can lend to anyone provided they post their shares on the trading platform for other clients to see;
  • or, they can lend to clients of specific brokerages.

The advisory committee is coordinating with MCDR to make some final adjustments on settlements, reserving stocks, and returning them after contracts expire, as well as booking shares.

Background: The FRA has been meeting with industry stakeholders to review the system in place to launch short selling on the EGX. The consultations are meant to put the final touches on the electronic system for the financial instrument ahead of its activation next month. EGX Chairman Mohamed Farid said earlier this year that short selling would begin before the year was out, following expectations that it would be launched in the third quarter. 51 brokerage firms have already obtained the license for shorting and are awaiting the regulations to be finalized to begin offering the service.

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