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Wednesday, 18 August 2021

Contact offering margin to HC Brokerage’s clients

Contact to finance HC Brokerage’s margin traders: Contact Financial Holding’s arm Contact Factoring will finance margin trading by clients of HC Brokerage after signing an agreement with the firm, according to a joint statement (pdf). The non-bank lender will loan EGP 400 mn initially, with each client being eligible for up to EGP 3 mn in finance, Contact Group CFO Ayman El Sawy tells us.

There’s more where that came from: Contact Factoring aims to seal two to three more EGP 400 mn agreements with brokerage companies before the end of this year, El Sawy says, without disclosing names.

Factoring companies got the regulatory green light to finance margin lending in March, in a move that aims to provide new funding sources to retail investors and boost trading volumes on the EGX. Later the same month, the central bank allocated EGP 1 bn to a newly-created fund that will be deployed to support margin lending. In early August, the EGX changed up its list of shares eligible for margin trading as part of its biannual rebalancing.

The regulator could place limits on margin trading: The Financial Regulatory Authority is considering whether to tweak restrictions on margin trading to reduce financial risk. Proposals on the table would prevent individual investors from purchasing on margin more than 1% of a company’s market cap or 2% of its shares in freefloat. The FRA’s advisory committee proposed these measures in March in a bid to mitigate the risk of a boom in investing borrowed funds on the EGX, amid expectations that margin trading could rise to as much as EGP 75 bn in the coming years. A final decision is yet to be made by the authority.

Want to know more about margin trading and factoring? We have in-depth explainers here and here.

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