How short selling will work on Egypt's exchange, with the lending system in live trials

Egypt's Financial Regulatory Authority (FRA) said on 13 October that it is running live technical trials of a Central Lending System with Misr for Central Clearing, Depository and Registry (MCDR) and the Egyptian Exchange (EGX), describing the tests as "a final operational phase preceding short selling rollout". The release gave no launch date. The rules that the authority says will activate short selling on the EGX for the first time were announced on 19 August as Resolution No. 155 of 2026.

Who does what

The FRA lists five participants in the mechanism: lenders who offer securities, borrowers who obtain them to sell short and return them later, licensed brokerage firms that execute the trades, custodians that handle clients' lending requests, and MCDR, the central depository, according to its 13 October release. MCDR develops and manages the Central Lending System, which will hold all balances available for lending. Short sellers can see every lending offer and pick one that suits their strategy, while lenders can see competing offers.

Lenders keep the economic benefits of the shares they lend, including cash dividends, bonus issues and pre-emptive rights, while voting rights stay with the shareholder of record on the date of the general assembly, the FRA said. In a lecture on 7 September, the chairman, Islam Azzam, set out the differences between securities lending for short sales and margin trading and underscored the advantages of combining both on the EGX, according to the authority's summary.

Limits, collateral and margin calls

Aggregate lending cannot exceed 40 per cent of a listed company's free float. A single client together with related parties cannot borrow more than 2 per cent of it, and direct bilateral contracts arranged by a broker are capped at 5 per cent, according to Resolution No. 155. A broker must collect an initial cash margin of at least 50 per cent of the market value of the borrowed shares before execution, and short sales must follow an uptick rule, meaning the price must be above the last traded price, or equal to it after an upward move.

MCDR revalues borrowed shares and collateral at the end of each day and settles differences through the broker's settlement account. If collateral falls to 140 per cent of the market value of the borrowed shares, the broker must issue a margin call, and the borrower has two business days to restore collateral to 150 per cent. If it does not, the broker must buy the shares back and return them without the client's consent, the resolution says. MCDR keeps 100 per cent of the proceeds of the sale, invests them for the lender in fixed-income instruments or other FRA-approved vehicles, and pays the lending fee and investment yield within two business days of the position closing. It also carries out buy-ins if a broker fails to do so.

Eligibility and regulatory powers

Brokerage firms need shareholders' equity of at least EGP 5 million, or EGP 10 million if they also offer margin trading, and an average net liquid capital ratio of at least 15 per cent over the six months before applying, according to the resolution. They must also have no adverse judicial rulings in the previous six months, FRA-certified IT systems and a dedicated officer for short selling. The FRA can remove securities from the eligible list, change the discount rates applied to collateral, bar named clients or brokers from new short sales for a set period and revoke a broker's authorisation.

The FRA's 19 August release said MCDR would draft technical procedures that take effect only once the FRA chairman approves them, and that brokers already authorised for short selling had one month to put the required IT infrastructure in place. After a 26 August review of operational readiness with the EGX and MCDR, the FRA said in its 13 October release that several licensed brokers had joined the latest trials to test connectivity for real-time order tracking. The authority describes short selling as part of a wider roadmap that includes the derivatives market launched in March and new hedge fund rules, which it says allow those funds to engage in short selling. None of the releases says which securities will be eligible or when the first short sale can be placed.