FRA allows factoring companies to finance purchase of securities on margin

CAIRO – 2 March 2021: Financial Regulatory Authority (FRA) approved the creation of a new source to finance the activity of buying securities on margin, FRA’s Chairman Mohamed Omran announced Tuesday.

Omran clarified that this will take place by allowing factoring companies to provide the service of deduction of the future financial rights of stock brokerage companies arising from engaging in the activity of buying securities on margin.

Factoring will provide brokerage firms with new sources of financing that would enable them to expand the activity of buying on margin, and what would consequently lead to further revitalization of trading in securities on the Egyptian Stock Exchange.

Omran said that this step comes within the framework of achieving integration between non-banking financial activities, and that the Authority’s Decision No. 25 of 2021 includes in its second article the obligations and conditions that must be met by the practitioner of factoring companies for the factoring activity of financial rights arising from the margin purchases.

He added that at the forefront of the article was the obligation to practice the activity in accordance with the provisions of Chapter Three (on factoring activity) of Law No. 176 of 2018 regulating the activities of financial leasing and factoring, as well as the Authority’s Board of Directors’s Decision No. (163) of 2018 regarding the executive controls for practicing factoring activities .

FRA Chairman explained that factoring companies will be committed to developing an integrated system for practicing the activity of deducting financial rights arising from practicing the activity of buying securities on margin, which includes the rules for practicing the activity of factoring the financial rights arising from margin purchases, and a model for the contract for practicing this activity with the brokerage company, including the rights and obligations of both parties, according to the indicative contract form issued by the authority

Factoring activity is one of the pillars of providing working capital and accelerating its cycle, especially in the deduction of short-term financial rights. The volume of discounted securities amounted to more than LE 11 billion at the end of 2020 compared to 10.6 billion pounds from 2019, with an increase of 6.6 percent.