The Financial Regulatory Authority (FRA) has approved the executive rules put forward by the Misr for Central Clearing, Depository, and Registry (MCDR) in coordination with the Egyptian Exchange (EGX) to settle the corporate bond transactions on the EGX in the same trading session.
The market shareholders unanimously agreed on the importance of this decision in activating the secondary market for bonds, and increasing liquidity rates.
Khaled Rashid, the Managing Director of the MCDR, said that the step would contribute to reducing the time for corporate bond transactions settlement as well as the cost and risks of financing.
He added that the decision to allow dealing on bonds more than once in the same session will lead to increasing liquidity and thus revitalizing the bond market.
In the preamble of the approved executive rules, the clearing and settlement process for the operations that take place on the bonds of companies listed in the Egyptian Exchange shall be carried out starting from the same trading day (T+0) when the cash balance in the account designated for that and the paper balance of the two parties to the transaction is available.
Khalil Al-Bawab, the Managing Director and CEO of Misr Capital, said that the FRA’s rapid response to the company’s proposals and all relevant parties, whether investment banks or asset management companies, in addition to investors in debt instruments.
He added that the decision would effectively contribute to revitalizing the secondary market for bonds and might be the biggest motivator for more investors to deal on bonds listed on the Egyptian Exchange. He also thanked the EGX and the MCDR for their fruitful cooperation and their effective role in implementing the mechanisms required for the success of the decision.
Mohamed Farid, the Chairperson of the FRA, explained that the MCDR will receive trading operations in the same “Intra Day” session that take place on these bonds immediately after their implementation and in the same way as receiving operations that take place on shares allowed to be traded in the same session, bearing in mind that the settlement process for cash differences resulting from selling operations will take place all or part of what was purchased in the same session on bonds with the same controls in force for shares allowed to be traded in the same session.
Farid stressed that the brokerage companies, on the same day of implementation, verify that there is a cash balance in the account designated for that at the clearing bank sufficient to settle purchases, so that the entire purchase value is deducted from the cash balance available in the clearing bank, and in the event of selling again, the sale value is added to the same account.
He added that in the event that the brokerage company wants to sell all or part of what was purchased in the same session, the seller’s custodian must be notified of the process (the original sale process) to approve and send it so that it is allowed to seize from the balances of what was purchased in the same session (the sale system from today’s purchase).
Farid explained that the decision aims to eliminate the cost of interim financing for the period between trading and settlement, and then reduce the cost of trading on bonds.