الهيئة العامة للرقابة المالية

• EGX-listed companies can now buy or sell treasury shares on the open or secondary markets

FRA Board of Directors headed by Dr. Mohamed Farid, issued Decision No. 77 of 2024, amending Decision No. (11) of 2014 on listing and delisting rules , with the aim of facilitating treasury shares trading.

The new decision gives listed companies the green light to buy back their own shares (invest in themselves) to capitalize on future growth. They can do this by purchasing shares on the stock exchange (open market) or through secondary market, all within the set regulations.

This new amendment  aligns with the Authority’s broader efforts to create a supportive environment for non-bank financial institutions (NBFIs) to thrive. The Authority empowers NBFIs to utilize various tools and strategies for growth.

Companies shall  inform the Stock Exchange if they want to buy back or sell some of their own shares (treasury shares). This notification shall be submitted on a specific form provided by the Exchange and approved by the Authority.

In addition to notifying the Exchange about buying or selling treasury shares, companies must also provide a copy of the board meeting minutes where this decision was made. This document shall be submitted before the company can actually buy or sell the shares.

It’s important to note that treasury shares are outstanding stock that was bought back from stockholders by the issuing company. Repurchasing shares can increase the company’s ownership stake and potentially boost the share’s price . This action can also signal confidence in the company’s long-term growth potential.

The decision includes number of rules related to purchasing and selling of treasury shares ,

first:  companies shall only purchase local shares

second: Companies shall  hold repurchased treasury shares for at least 3 months and no more than 1 year. If they fail to do so, they shall reduce their capital by the initial value (nominal value) of those shares.

Third: The new rules set a limit on how many treasury shares a company can hold. This limit is set at 10% of the  listed company’s total outstanding shares.

Fourth: Companies can’t buy back treasury shares if it would reduce the number of freely available shares (free-floating shares) below a minimum set by the regulations.

Fifth: The decision allows companies to buy or sell treasury shares in two ways. The first option is through the open market, within one month from the date of notifying the Exchange.

If a company can’t buy 50% of the treasury shares they planned within the one-month window , they have to wait at least 3 months from the initial purchase attempt and get the Stock Exchange’s approval with a valid justification for the failed purchase.

Trading and orders for treasury shares is limited   to the  main trading session, excluding the Pre-opening Session and the closing auction session

The other way for companies to buy or sell treasury shares is through secondary market, However, there are specific rules for PTM transactions:

The entire transaction must be completed within 5 business days. An extension may be granted by the stock exchange, but only if the company provides a valid justification.

Rules for buying treasury shares through secondary market allow  insider participation, but with limitations. Specifically: Board members and their associates, company’s subsidiaries can also sell shares back to the parent company.

The company must use its own existing funds to buy back treasury shares. They are not allowed to take out loans to finance these purchases.

Along with the notification submitted to the Exchange , the company needs to provide proof of sufficient financial resources. This can be either a confirmation from their legal representative or a recent report from their auditor.

Companies shall report the number of treasury shares bought or sold at the end of each trading day . The Stock Exchange will then make this information publicly available through their designated channels.

If a shareholder or their associates exceed the set ratio for the mandatory purchasing offer, they had to abstain from voting on the topics to be discussed at the Company’s General Assembly.  This helps ensure fair voting practices and prevents manipulation by major shareholders.

In addition,  increasing the percentage of ownership of those shares are not allowed, unless those exceeding shares are disposed of or excluded from submitting a compulsory purchase offer.

In response to the COVID-19 outbreak in 2020, FRA introduced temporary measures. These changes allowed  listed companies listed to notify the Exchange about buying back treasury shares on the same day, rather than following the usual three-day advance notice requirement. FRA cancelled this temporary measure at the beginning of the pervious year.

It is worth mentioning that Decision No. (210) of 2023) by  FRA’s Board  allow companies to  buy or sell treasury shares through the open market only  and companies  were no longer need to wait at least three days between notifying the stock exchange about a planned buyback and actually buying the shares. Also, the decision stipulated that the minutes of the Board  that approved purchasing or buying the shares shall be submitted before transactions held.

For his part, Dr. Mohamed Farid states that  the  new decision aims at facilitating trading  of Treasury shares by  listed companies . Stressing the Authority  seeks  to develop listing and delisting rules , introduce mechanisms that help companies develop their businesses, sustain the growth of their activities and achieve their objectives, and explore further opportunities and solutions for growth through the non-banking financial sector.

Dr. Farid emphasizes  that under those amendments aimed at facilitating trading of  treasury shares, listed  companies will be able to redirect some surpluses or the company’s own cash resources to invest in their shares easily.

The new amendments  seem designed to make it easier for companies to trade their treasury shares. Specifically, they allow companies to buy back the entire amount of desired shares they initially planned.