الهيئة العامة للرقابة المالية

• New decision paves the way to activate short selling on the Egyptian Exchange (EGX) for the first time.
• Centralized Lending System established through full coordination between FRA, MCDR and EGX.
• Investors can view all available lending offers to match their investment goals.
• Updated activity conditions and strict obligations to ensure market stability.
• The new decision sets maximum lending/borrowing caps, collateral management rules, Margin Call triggers and position closure procedures.

• FRA Board of Directors chaired by Dr. Islam Azzam, has issued Resolution No. 155 of 2026 regulating short-selling operations (borrowing securities for the purpose of selling / selling borrowed securities). The new Resolution follows a series of extensive panel sessions and discussions held by the Authority with the Egyptian Exchange (EGX), Misr for Central Clearing, Depository and Registry (MCDR), brokerage firms and key capital market stakeholders.

  This comes as part of a comprehensive roadmap to update Capital Market tools. It follows the launch of the financial derivatives market last March and the new regulations governing hedge funds—allowing their establishment for the first time—which enable these funds to engage in short-selling, trade financial derivatives and invest in high-frequency financial instruments in compliance with Capital Market Law No. 95 of 1992 and its executive regulations.

  The launch of the new regulatory framework for short-selling marks a major milestone, paving the way for the imminent first-time activation of the mechanism on the EGX. Under the new rules, a Centralized Lending System has been established—developed and managed by MCDR—to hold the pools of securities available for lending. Operating under new guidelines that align with global best practices, the system ensures full transparency, governance and protection of all parties’ rights under direct FRA oversight.

• Dr. Islam Azzam, FRA Chairman, stated that the new framework resulted from exhaustive discussions with market participants, taking into account the concerns of relevant entities and brokerage firms. He highlighted this constructive public dialogue as a model where FRA successfully balanced regulatory requirements, international precedent and hurdles that previously blocked short-selling from taking off.

   

  He added that preparatory work leading up to the decision involved a thorough review of the Centralized Lending System to document every stage of the operational workflow. This specifically includes logging available securities on the platform with names, quantities, lending tenors and accepted rates, alongside record keeping for borrowing transactions, lender/borrower details, and open-position closures. The framework also explicitly defines the rights of all involved parties and outlines the detailed responsibilities assigned to MCDR, brokerage firms and custodians.

   

  Below are the key technical and regulatory details outlined in the new decision:

   

  • Mechanics of Short-Selling Operations
  • The mechanism relies on a Lender (the original owner of the securities) and a Borrower (an investor who borrows securities to execute sell and buy transactions based on the expectation of a price decline).
  • The borrower earns a profit from the price differential between the selling price and the repurchasing price, based on market projections for the security’s movement.
  • An investor expecting a stock price drop borrows shares from an owner willing to lend a portion of their holdings (the lender) and sells them on the market at the prevailing market price, posting cash collateral to secure the transaction.
  • If the stock price declines as anticipated, the borrower repurchases the shares at the lower price—locking in a net profit after deducting borrowing fees—and returns the shares to the lender.

  If the stock price rises and the borrower decides to cut losses, they repurchase the shares at the higher market price—incurring a financial loss plus the cost of borrowing—and return the shares to the lender.

  • In both scenarios, the lender earns a fee for lending their shares—yielding a return close to the risk-free rate—while retaining all other benefits associated with stock ownership.

• Aggregate securities lending cannot exceed 40% of a listed company’s total free-float shares.
• Single client together with their related parties may not borrow more than 2% of a listed company’s total free-float shares.
• Direct bilateral contracts arranged between a brokerage firm, lender, and borrower—retained by the brokerage under its direct liability—are capped at a maximum of 5% of free float.

• Obligations of MCDR
• Continuous monitoring of lending and borrowing caps to prevent position limit breaches.
• MCDR must retain 100% of the proceeds generated from selling borrowed securities and reinvest them for the benefit of the lending client starting from the settlement date, this is for fixed-income instruments or other FRA-approved investment vehicles.
• Payout of the lending rate and investment yield to the lender within two business days following open-position closure.
• End-of-day revaluation of borrowed securities and total collateral held, calculated based on the security’s latest closing price.
• If the borrowed security’s price rises, MCDR settles the valuation differential daily from the brokerage firm’s settlement account. Any net proceeds exceeding the original sale value must be reinvested for the borrower’s benefit in approved investment vehicles.
• If the market price declines following a previous spike, MCDR refunds the market value differential back to the brokerage firm.
• MCDR executes necessary buy-in and return procedures to recover borrowed securities for the lender if the brokerage firm fails to do so.

• Key Brokerage Firm Eligibility Requirements
• Shareholders’ equity must not be less than EGP 5 million, increasing to EGP 10 million for firms combining margin trading and short-selling.
• Maintain an average Net Liquid Capital ratio of at least 15% over the 6 months prior to application.
• No judicial judgments or adverse legal rulings issued against the firm in the preceding 6 months.
• Maintain fully compliant IT infrastructure certified and approved by FRA for short-selling activities.

• Maintain complete transaction registries, document archiving procedures, robust internal control systems and financial auditing baselines.
• Appoint at least one dedicated officer solely responsible for short-selling operations, meeting specific eligibility conditions set under the decision.

• Key Brokerage Firm Obligations
• Maintain and manage an integrated account tracking system for borrowing clients, documenting every operational stage and transaction log.
• Execute a binding contract with the borrowing client based on FRA-issued model agreement, providing a fully signed copy to the client.
• Exercise due professional care to verify clients’ financial capacity and creditworthiness relative to their investment objectives, ensuring borrowing volumes remain commensurate with the firm’s overall financial strength.
• Short-sale execution prices must strictly follow the Uptick Rule: priced either higher than the last traded price, or equal to the last traded price provided the preceding price movement was an upward tick.
• Collect an initial cash margin of at least 50% of the market value of the borrowed securities prior to trade execution.
• Deposit and maintain cash collateral in dedicated, segregated client accounts exclusively for short-selling transactions.
• Apply formal encumbrances/pledges on securities or financial instruments whenever non-cash collateral is pledged by the borrower (where permitted).
• Reinvest cash margin for the borrower’s benefit, with provisions allowing the brokerage firm to retain an agreed-upon percentage of yield by mutual agreement.
• Continuously monitor all cash inflows and outflows passing through the firm’s central settlement account.
• Revalue borrowed securities based on the real-time intraday closing price during the trading session.
• Execute the return of borrowed securities upon the borrower’s request to close open positions or when prescribed borrowing limits are breached, ensuring full settlement of accrued lending fees.

Transfer borrowing client positions and collateral to another FRA-authorized broker—or liquidate

• positions per client instructions—within 5 business days if the firm’s license is revoked or suspended.
• If transfers or closures are not completed within the 5-day window, MCDR steps in to liquidate positions directly through the defaulting brokerage within 2 business days, notifying FRA and EGX while the broker notifies affected clients.

• Collateral Tracking & Mark-to-Market Settlement
• The market value of borrowed securities is calculated using real-time intraday closing prices during trading sessions.
• If total collateral value drops to 140% of the borrowed securities’ market value, the broker must immediately trigger a Margin Call. The borrower is formally notified to top up collateral back to 150% within two business days and all new borrowing transactions are suspended until collateral ratios are fully restored.
• If the borrower fails to satisfy the Margin Call within two business days, the brokerage firm executes a mandatory repurchase and returns the borrowed securities without prior client consent.
• If a client executes multiple short-selling transactions across different securities through the same brokerage firm, all positions and collateral are aggregated and treated as a single unified account.

• Rights and Corporate Actions Attached to Borrowed Securities
• The lender retains all economic benefits and corporate actions attached to the borrowed securities, including cash dividends, stock dividends, rights issues, and other entitlement distributions.
• Voting rights belong to the recorded owner of the security as of the record date for the General Assembly meeting.
• MCDR is mandated to adjust overall borrowed and lent share balances whenever corporate actions affect total outstanding shares (e.g., stock splits, bonus issues, or share consolidations).

• Position Close-Out

The borrower may instruct the brokerage firm to close or unwind a short position, in whole or in part, by delivering the borrowed securities from an existing position in the same stock.

• The borrower may also close the position, in whole or in part, by repurchasing the required shares using the short-sale proceeds. If proceeds are insufficient to cover the purchase price, the deficit is debited directly from the brokerage firm’s settlement account.
• The decision outlines specific corporate action scenarios where MCDR halts pending encumbrances and freezes new lending offers on a specific security.
• If borrowed shares are not returned within the prescribed settlement timeline, the brokerage firm must execute an open-market buy-in, adhering strictly to market settlement cycles.
• If the brokerage firm fails to execute the buy-in, MCDR directly intervenes to execute the buy-in on behalf of the broker, transferring shares to the lender’s account to close out the open position.

• Key FRA Powers for Market Stability and Investor Protection
• Remove specific securities from the list of instruments eligible for short-selling.
• Modify discount rates applied to collateral values.
• Restrict specified clients or brokerage firms from executing new short-selling transactions for a designated period.
• Revoke a brokerage firm’s authorization to conduct short-selling operations.

• Implementation Steps Following the Regulatory Framework

–  MCDR shall draft the technical procedures required to implement the decision that will take effect only upon approval by FRA Chairman.

– The Egyptian Exchange (EGX) and MCDR shall coordinate the preparation and setup of automated systems and technical requirements.

– Establish real-time automated connectivity between the trading system and the Centralized Lending System.

– Brokerage firms currently authorized to conduct short selling are granted a one-month grace period to deploy the required IT infrastructure in accordance with FRA specifications and approval.

The Resolution will be published in Alwakae Elmasriya within days and on FRA’s official website, taking effect the day after its publication.