FRA to create lending pool to resuscitate short selling

Fatma Salah
7 Min Read

Mohamed Farid, Chairperson of the Financial Regulatory Authority, has revealed that it could within days create a central “lending pool” in cooperation with “concerned parties” through which investors can engage in short selling. The Misr for Central Clearing Depository and Registry (MCDR) is set to manage the new pool.

The Short Selling mechanism is selling a security before you own it with the aim of buying it later at a lower value, and then making a profit equal to the difference between the open sale price and the purchase price minus the interest that the investor pays for borrowing the security during the period between buying and selling.

Farid added to Daily News Egypt that the central repository allows the client to deal with the repository individually, while the secondary repository allows dealers to use the old method, which represents the short selling, a tripartite contract between the broker, the custodian, and the customer, which has not been widespread.

Farid continued that the authority issued the organizing decision of the committee concerned with setting controls for voluntary carbon certificates, explaining that carbon requirements include the presence of verification and certification companies that do not exist locally, as the rules will encourage verification and certification licenses and allow foreign companies to operate inside Egypt under legal cover.

He added that a study is underway to provide verification and certification requirements for international companies to be present in the Egyptian market under legal cover, until Egyptian companies obtain a license.

He added that the requirements also include two types of ISO certificates that are not applied in Egypt, as the authority contacted the “National Accreditation Council (EGAC) affiliated with the Ministry of Trade and Industry to apply to the international ISO accreditation body to issue the required certificates, and it is supposed to be approved by next July to facilitate the process of issuing a verification and authentication license for Egyptian companies.

Regarding the crowdfunding law, Farid revealed that there are discussions with the Central Bank about the provisions of the legislation for the crowdfunding law, indicating that there is agreement on some points, while some files still need to be researched.

In a related context, he said that the Egyptian Exchange applied for initial approval to establish a futures contract settlement company to complete the procedures and documents, as it applied after the Authority recently amended the regulations of settlement companies.

The financial derivatives market is an exchange during which contracts are traded whose value is derived from financial or in-kind assets, price indices, commodities, or others determined by the Authority.

In a related context, the authority is still in the stage of discussions with the Ministry of Finance regarding the accounting treatment of the change in the exchange rate of foreign currencies against the Egyptian pound, as it is scheduled to extend the period of adjusting the accounting treatment to the end of 2023 instead of 2022.

The Official Gazette published last August an addition to the decision of the Chairperson of the Financial Regulatory Authority to obtain the authority’s prior approval in this regard, with regard to companies whose business results were affected by the net profits of the evaluation differences of the balances of assets and liabilities of a monetary nature in foreign currencies, whether allocated or not, provided that it is included among the other comprehensive income items in a special reserve item within the shareholders’ rights items, and it may not be distributed or disposed of except in accordance with the controls specified by the Authority in this regard and after reference to it.

In the event that there are carried forward losses from previous financial years, and the company achieves profits from translating the balances of assets and liabilities of a monetary nature into foreign currencies, then the entire profits of the foreign currency assessment assumptions are presented within the other comprehensive income items, provided that those profits are included in the carried forward profits and losses carried forward from the previous year, and any increase in foreign currency valuation profits.

In a related context, he explained that the legislative amendments regarding the maximum and minimum limits for private insurance funds await the final approval of the House of Representatives.

Insurance funds related to the insurance sector, which are a form of savings tools, and they are special insurance systems, which are registered in the register established for this purpose in the Authority, so that they become separate from the entity that establishes them, and they are formed for the purposes of granting benefits to a group of workers in the entity establishing the fund, and they are In the form of insurance benefits, additional pensions, social benefits, or healthcare.

It is mentioned that the private insurance fund is every system in any association, syndicate, body, or individuals linked by one profession, one work, or any other social connection that consists of no capital, and the purpose of which, according to its articles of association, is to pay compensation or beneficiaries to its members or beneficiaries.

It is noteworthy that the number of registered private insurance funds amounted to 764 funds at the end of 2021, of which the worker reached 694 funds, in addition to 70 funds under liquidation, benefiting about 5 million members, with total annual subscriptions of EGP 13.6bn at the end of 2021, and the value of investments amounted to private insurance funds at the end of 2021 amounted to EGP 102.3bn, with a growth rate of 19.5% compared to the previous year.

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