The Egyptian Financial Supervisory Authority (EFSA) rejected investors’ demands to abolish restrictions on international transfers of the Global Depositary Receipts (GDR) and double-entry stocks registered in foreign markets. Although the Central Bank of Egypt (CBE) is prepared to waive foreign currency related restrictions, the EFSA attributed its rejection to bad timing.
These restrictions date back to March 2015, when the EFSA imposed a number of new rules and procedures governing the process of repatriating double-entry securities which are registered on the Egyptian Exchange (EGX) and foreign markets, whether as stocks or GDR.
The rules stipulated the repatriation of securities must take place through the Misr for Central Clearing, Depository, and Registry (MCDR) which will keep them in the company’s account at one of the international clearing companies or international custodians.
When these securities are sold overseas, the operation is settled for MCDR, and not directly for the client. The profits are then transferred into MCDR’s account in Egypt, which, in turn, will transfer those profits to the client’s bank account in Egypt.
EFSA chairman Sherif Samy told Daily News Egypt that the abolition of these measures is not a priority for the authority during the current phase.
He added that the CBE’s moves towards removing all restrictions on dollar related transactions does not necessarily mean the abolition of EFSA’s restrictions, as long as they provide investors with the freedom of conversion and obtaining sale proceeds and pound, without hindering investment.
When EFSA passed those regulations, it explained that they aim to preserve the right of investors to take advantage of price discrepancies when converting stocks to GDR certificates, or vice versa, without being a back door to transfer money abroad.
The regulation also states that if owners aim to buy other securities on foreign stock markets, using the proceeds from selling double-entry securities or GDRs, investors have to conclude the purchase within 15 days of the sale date.
If the 15-day deadline is exhausted, the profits are automatically transferred from MCDR’s account to the client’s account in Egypt.
Managing director of the brokerage sector at Cairo Financial Holding (CF Holding) Ahmed Abu Hussein said local investors have demanded for the cancellation of these restrictions to offer more flexibility in transferring securities and stocks.
“The stock exchange should enjoy freedom in moving funds in and out of Egypt, as long as no violations are committed,” Abu Hussein said. He noted that GDR certificates are a way to attract foreign currency, where the proceeds of selling them are used to buying stocks on the EGX.
Chairman of EAC-Themar Securities Brokerage Adel Abdel-Fattah said that keeping the extraordinary rules governing double-entry securities trade will scare off investors.
He added that fears of using such securities to transfer funds abroad were justified when the informal market, where the value of the dollar was higher than the official rate, was active.”But the situation has changed now; the CBE is moving to abolish all restrictions associated with the withdrawal and deposit of foreign currency at banks,” he noted. “The Egyptian Exchange should follow suit.”