Egypt’s Financial Regulatory Authority (FRA) has issued the comprehensive regulatory framework for short selling, paving the way for the imminent activation of the mechanism on the Egyptian Exchange (EGX) for the first time.
FRA Chairman Dr. Islam Azzam issued Resolution No. 155 of 2026 following extensive discussions with the exchange, Misr for Central Clearing, Depository and Registry (MCDR), and brokerage firms. Azzam stated the framework was developed to balance regulatory requirements, international practices, and the obstacles that prevented the activation of short selling in previous years.
The framework introduces a Central Lending System established and managed by MCDR. The system will document all available securities, quantities, lending durations, and accepted rates, providing full visibility to both lenders and borrowers to match their investment goals.
To regulate market exposure and prevent systemic risk, the resolution establishes strict lending caps. Total lending cannot exceed 40 percent of a listed company’s free-float shares, while individual borrowers and their related parties are capped at borrowing 2 percent of a company’s free float. Additionally, a maximum of 5 percent is allocated for direct contracts established between the brokerage firm, lender, and borrower.
The mechanism requires borrowers to sell borrowed securities at a price equal to or higher than the last traded price, provided the last price change was an increase. Borrowers must deposit a cash margin of at least 50 percent of the borrowed securities’ market value prior to execution. Borrowed securities are re-evaluated intraday, and if the total collateral value drops to 140 percent, brokers must issue a margin call requiring the borrower to increase it to 150 percent within two working days. Failure to comply obliges the broker to return the shares automatically.
Participating brokerage firms must maintain a minimum net equity of 5m EGP, increasing to 10m EGP for firms conducting both margin trading and short selling. They must also maintain an average liquid net capital ratio of at least 15 percent over the preceding six months.
Under the new rules, MCDR will retain the full proceeds of short sales to invest in fixed-income instruments for the lender’s benefit, with daily settlements adjusting for price fluctuations. If a broker fails to return borrowed shares to close an open position within the specified timeframe, MCDR will intervene to execute the return directly from the broker’s account.
Throughout the lending period, the original lender retains all rights associated with the securities, including cash and in-kind dividends, subscription rights, and voting rights at general assemblies.
To ensure market stability, the FRA retains the authority to exclude specific securities, adjust margin discount rates, suspend clients or brokers, and revoke short-selling licenses. Licensed brokers have been granted a one-month grace period to finalise the necessary technological infrastructure.
The introduction of short selling follows the March launch of Egypt’s financial derivatives market and new regulations permitting hedge funds, completing a broader modernisation of capital market instruments. The resolution will take effect the day following its publication in the official gazette.
