The Financial Regulatory Authority (FRA) has issued a new regulatory decision governing the process of lending securities for short selling, with a main aim of enhancing market efficiency, increasing liquidity and market depth, supporting transaction stability, and safeguarding investor rights.
The decision introduces a centralised lending system executed exclusively through Misr for Central Clearing, Depository and Registry (Misr Clearing), according to a statement on Sunday.
The system ensures transparency and real-time monitoring of transactions, the authority said in a statement.
Lending requests will be prioritised based on the lowest lending rate offered, followed by the longest lending term, and then the order of entry into the system.
The regulation requires borrowers to provide cash collateral equal to 150 per cent of the open position value — comprising 100 per cent of the borrowed shares’ value plus an additional 50 per cent cash margin, with other guarantees permitted under applicable rules.
The framework also establishes strict requirements for brokerage firms wishing to participate in the activity. Firms must maintain minimum shareholders’ equity of LE5 million for a single activity or LE10 million if combining short selling with margin trading, in addition to sustaining an average liquid capital ratio of at least 15 per cent over the six months preceding the application.
Operationally, firms must form a specialised management team of at least three qualified professionals who have passed the required examinations and completed accredited training programmes.
They must also maintain advanced accounting systems verified by an external auditor, alongside robust internal control and record-keeping mechanisms.
To ensure market stability, the decision sets regulatory limits, including a cap of 25 per cent of a company’s free-float shares available for lending.
A single lender and its related parties may not exceed 5 per cent of a company’s free float, while a single borrower and related parties are limited to approximately 2 per cent.
The regulation introduces daily monitoring mechanisms, requiring revaluation of borrowed securities and collateral based on stock exchange closing prices.
If collateral falls below 140 per cent, the client must restore it to 150 per cent within two business days, otherwise the shares will be returned automatically.
The decision further protects lenders’ financial rights, ensuring they retain all benefits associated with share ownership—including cash dividends, bonus shares, subscription rights, and other financial or in-kind entitlements—throughout the lending period.
Shares may be returned either through the borrower’s balance or via repurchase from the open market.
