The Board of Directors of the Financial Supervisory Authority issued Resolution No. (72) amending Resolution No. (67) of 2014, and canceling Resolution No. (61) of 2021, regarding the regulation of the rules regulating the practice of brokerage firms in securities and custodians for the purchase of securities on margin, within The Authority’s strategy to maximize the role played by risk managers in brokerage firms to support market stability.
The new decision included canceling Article 6 of Resolution No. (67) regarding the maximum margin purchases on the company’s security being (30%) of the company’s free-tradable shares or (15%) of the company’s total shares, whichever is higher, as well as the maximum transaction limit. Margin buying for a single client and his associated group on a security (5%) of the company’s free-trading shares or (3%) of the company’s total shares, whichever is higher, and that the stockbroking companies and custodians are obligated not to make margin purchases on securities when Reaching the maximum limits stipulated in this Article.
The new decision also canceled the second paragraph of Article Ten of Resolution No. (67) regarding obligating central depository and registry companies to prepare automated systems and connection lines necessary to implement the provisions stipulated in the previous decision, and to periodically disclose the percentages of securities purchased on margin on each company. To stop the possibility of making margin purchases on the automated systems prepared for this when the maximum limits for margin purchases are reached, as stipulated in Article VI bis of this decision.
While the new decision, in accordance with the text of Article 4, obligates companies licensed to practice the activity to conduct a thorough study of the situation of clients before granting them marginal financing, through the following: Studying and analyzing the risks associated with dealing on each security listed in the list of acceptable securities and allowed to engage in margin purchases. .
It is necessary to verify the ability of clients to fulfill their obligations resulting from margin purchases, the sources of financing available to them, their financial solvency and investment objectives, and to identify the pattern of their previous transactions and analyze such data.
Inquire through the bodies specified by the Authority about the amount of financing granted to clients and their groups linked at the market level, the percentage of guarantees to the total financing, and the extent of their exposure during the period prior to granting them financing to the inability to pay the obligations resulting from their margin purchases.
The company and the custodian shall keep this study in the client’s file and update it at least once every twelve months or whenever necessary, and shall provide the Egyptian Authority and the Egyptian Stock Exchange with any data or documents they request in accordance with this clause.
These amendments came as a result of following up the actual practices of the parties that obtained the approval of the Authority to engage in the purchase of securities on margin, and evaluating the extent of commitment to studying and analyzing risks before granting marginal financing according to the client’s condition and the performance of the security, where many cases were monitored that those entities had to do Conducting a thorough study of the clients’ condition before granting them financing to make purchases on margin, which led to a high risk rate, which was reflected in the performance of transactions on the Egyptian Stock Exchange.
The new decision included the addition of a new paragraph in Article Eleven, allowing the Egyptian Authority or the Egyptian Stock Exchange to take one or more of several measures, such as excluding one or more securities from the list of securities allowed for margin purchases, or reducing the approval percentage of the securities referred to in the previous clause as a guarantee for operations. Margin buying, or reducing the permissible price limits, without prejudice to the existing legal positions prior to the date of taking any of the aforementioned measures.
This is according to the results of the analysis of the risks associated with the amount of funding granted and the extent of its current and potential impact on the stability of transactions in the market, in light of a number of determinants such as the concentration of margin purchases at the level of the security, the concentration of margin purchases at the level of clients and related groups, and the concentration of margin purchases at the level of companies donating the financing. .
For his part, Dr. Mohamed Farid, Chairman of the Financial Supervisory Authority, said that the development of the rules for practicing margin comes within the authority’s efforts to support market stability and protect the rights of dealers in order to avoid the markets any systemic risks through the application of proactive risk management models and methods.