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Tuesday, 14 March 2023

One step closer to the new futures exchange

The FRA is out with new regs for the upcoming futures exchange: The Financial Regulatory Authority (FRA) has issued amendments to rules on the establishment of the company that will manage the new futures exchange and its clearing company.

REMEMBER- The futures exchange could launch by 4Q 2021. The FRA, EGX, and Misr for Central Clearing and Depository (MCDR) are aiming to launch the long-anticipated futures exchange within 6-8 months, FRA boss Mohamed Farid was reported as saying earlier this week. Some technical issues around futures contracts still need to be studied and reviewed, including “determining risk ratios and volatility rates,” Farid said. Authorities had initially hoped to launch the exchange by the end of 2021.

The amendments in short:

  • The futures exchange company will need to pay in a minimum EGP 12.5 mn in capital to register with the regulator and have a total minimum capital of EGP 50 mn (or the equivalent in hard currency);
  • The company’s board will sit for a minimum three-year term;
  • A 10% limit on the stake each shareholder can own in clearing companies has been scrapped;
  • The clearing company that will serve the futures exchange needs to pay in a minimum EGP 25 mn (or the equivalent in hard currency) in capital to register with the regulator and have a minimum capital of EGP 100 mn to start operations.

The players: The regulator has allocated at least 75% of the exchange to financial institutions that meet solvency standards and / or with experience in futures contracts. The National Bank of Egypt, Banque Misr, Banque du Caire and United Bank all reportedly want a piece of the potential exchange. State-owned banks and the EGX will also be allowed to own stakes in the clearing company for the futures exchange.

Futures trading? The plan is for the exchange to initially allow traders to buy and sell index futures contracts, before launching stock futures and stock and index options at a later date. Futures are derivative contracts where a buyer and a seller exchange an asset at a future date at a price they both agree upon in advance. Check out our explainer on all things futures here.

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