Egypt's FRA allows investment fund companies to finance purchases of securities on margin

CAIRO – 4 April 2021: Chairman of the Financial Regulatory Authority (FRA), Mohamed Omran, issued Executive Decision No. 46 of 2021 to allow companies licensed to practice the activity of managing investment funds to manage the financing of purchases of securities on margin.

Omran explained in a statement, Sunday, that this is aimed at maximizing the efficiency of the capital market and achieving transparency in the mechanisms of dealing with activities specialized in securities, following the approval of the Authority’s Board of Directors in its remote meeting.

He said that the company licensed to practice the activity of managing investment funds must commit to contracting with securities brokerage companies that have obtained the approval of the Authority to engage in the activity of buying on margin for securities and to determine the rights and obligations of each party.

“Taking into account that the contract includes means of avoiding interests, the most important of which is the extent to which the brokerage companies that are considered to be among the persons associated with the investment manager can be financed, in addition to a statement of the guarantees that the investment manager must obtain from the brokerage companies obtaining the financing,” he noted.

The Chairman of FRA stressed that the financing of brokerage companies when practicing margin purchases should be limited to the list of securities that meet the conditions and standards set by the Stock Exchange and approved by the Authority.

FRA’s records reveal that 64 companies have obtained a license to practice the activity of managing investment funds.

In March, FRA  allowed factoring companies to provide the service of deducting future financial rights to brokerage firms in securities arising from engaging in the activity of buying securities on margin, in a way that provides brokerage companies with new sources of financing that enable them to expand the activity of buying on margin, and what will consequently lead to further activation of trading operations in securities on the Egyptian Stock Exchange.