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Nile Exchange Rules Amended

Nile Exchange Rules Amended
EFSA Issues Three Decisions Affecting the Listing, Trading and Sponsorship Rules for Securities Issued by SMEs Background In 2007, new rules were issued by the Capital Market Authority with regard to the listing and trading of securities issued by small and medium enterprises (“SMEs”), and these led to the establishment of Nile Exchange (“Nilex”) which consisted of a new list on the Egyptian Exchange (and not an independent market as was often thought). In effect Nilex was not launched till late 2009. However, since that time, various practical problems became apparent, especially with respect to listing and trading, and accordingly in early November 2011 the Egyptian Financial Supervisory Authority (“EFSA”) – which replaced the Capital Market Authority – issued three decrees of particular importance, (No. 81, 83 and 738, published in the Egyptian Gazette on November 1st, 2011 Issue 251 (bis), stipulating new rules concerning listing, trading and sponsorship of securities on Nilex, described hereinafter. It is worth noting that the new rules replace and abrogate previous ones, in particular Decisions by the Capital Market Authority No. 62 and 63 of 2007. Listing Rules 1) The company whose shares are to be listed must be a joint stock company and with a minimum capital of 50 million LE and a maximum of 100 million, all of which must be fully paid up. 2) The percentage of listed shares must be at least 10% of the total company shares, and the number of listed shares no less than one hundred thousand. 3) Founders of the company or members of its board of directors should continue to hold at least 25% of the shares for two years. 4) The number of shareholders in the company must not be less than 25. 5) The company must provide audited financial statements for a full year prior to listing, approved by the General Assembly, or a five-year business plan certified by a independent financial advisor. 6) The shareholders’ rights must not fall below the company’s paid-up capital. 7) The company must have an agreement with a licensed “sponsor”, certified by the EFSA. 8) The company must provide certain documents proving the terms of engagement with the sponsor, according to which the latter has specific legal undertaking. The company may, however, list its shares even in the absence of the conditions pertaining to the minimum ownership and number of shareholders and the percentage of shares required to be owned by founders and board members, provided those terms are satisfied within six months from listing. The EFSA decree as further states that all other terms and conditions for listing on the Egyptian Stock Exchange shall be applicable provided they do not conflict with the above specific conditions. Trading Rules Significant changes were also introduced in the trading rules of Nilex, which since its establishment had been operating on an auction system. This has now been abolished and now Nilex will operate on the same trading rules otherwise applied in the Egyptian Exchange, but taking into account the following: • Trading is for one hour daily. • The closing price shall be calculated on the basis of the average price weighted by quantities at the closing of the day, provided the trading is on at least one hundred thousand papers and worth at least twenty thousand Egyptian Pounds. • Settlement is to take place on the second day of trading (T+2). The Stock Exchange is to be in charge of issuing further rules and clarifications, if needed, without prejudice to the overall trading rules applied. Sponsors Finally, the newly issued Decrees introduce an important change in the rules governing “Accredited Sponsors” applied by Niles, which requires listing companies to be under the sponsorship of specialized financial advisors (“Sponsors”) accredited for this purpose by EFSA. The Sponsor is then responsible for undertaking a number of duties, mostly pertaining to the transparency and accuracy of disclosures. However, whereas the previous rules required the Sponsors to be registered with EFSA and under its supervision, currently they shall be registered with the Egyptian Exchange and subject to rules issued by its Board of Directors, including registration, operation and cancellation of accreditation. Commentary The new three Decrees issued by EFSA resolve several problems which – after two years of operation – had to be tackled, especially with respect to the trading rules and these should have a positive impact on the operation environment of Nilex. On the other hand, the transfer of the registration and accreditation function from EFSA to the Egyptian Exchange may be a source of concern as the financial regulator is normally a tighter supervisor.
EFSA Issues Three Decisions Affecting the Listing, Trading and Sponsorship Rules for Securities Issued by SMEs Background In 2007, new rules were issued by the Capital Market Authority with regard to the listing and trading of securities issued by small and medium enterprises (“SMEs”), and these led to the establishment of Nile Exchange (“Nilex”) which consisted of a new list on the Egyptian Exchange (and not an independent market as was often thought). In effect Nilex was not launched till late 2009. However, since that time, various practical problems became apparent, especially with respect to listing and trading, and accordingly in early November 2011 the Egyptian Financial Supervisory Authority (“EFSA”) – which replaced the Capital Market Authority – issued three decrees of particular importance, (No. 81, 83 and 738, published in the Egyptian Gazette on November 1st, 2011 Issue 251 (bis), stipulating new rules concerning listing, trading and sponsorship of securities on Nilex, described hereinafter. It is worth noting that the new rules replace and abrogate previous ones, in particular Decisions by the Capital Market Authority No. 62 and 63 of 2007. Listing Rules 1) The company whose shares are to be listed must be a joint stock company and with a minimum capital of 50 million LE and a maximum of 100 million, all of which must be fully paid up. 2) The percentage of listed shares must be at least 10% of the total company shares, and the number of listed shares no less than one hundred thousand. 3) Founders of the company or members of its board of directors should continue to hold at least 25% of the shares for two years. 4) The number of shareholders in the company must not be less than 25. 5) The company must provide audited financial statements for a full year prior to listing, approved by the General Assembly, or a five-year business plan certified by a independent financial advisor. 6) The shareholders’ rights must not fall below the company’s paid-up capital. 7) The company must have an agreement with a licensed “sponsor”, certified by the EFSA. 8) The company must provide certain documents proving the terms of engagement with the sponsor, according to which the latter has specific legal undertaking. The company may, however, list its shares even in the absence of the conditions pertaining to the minimum ownership and number of shareholders and the percentage of shares required to be owned by founders and board members, provided those terms are satisfied within six months from listing. The EFSA decree as further states that all other terms and conditions for listing on the Egyptian Stock Exchange shall be applicable provided they do not conflict with the above specific conditions. Trading Rules Significant changes were also introduced in the trading rules of Nilex, which since its establishment had been operating on an auction system. This has now been abolished and now Nilex will operate on the same trading rules otherwise applied in the Egyptian Exchange, but taking into account the following: • Trading is for one hour daily. • The closing price shall be calculated on the basis of the average price weighted by quantities at the closing of the day, provided the trading is on at least one hundred thousand papers and worth at least twenty thousand Egyptian Pounds. • Settlement is to take place on the second day of trading (T+2). The Stock Exchange is to be in charge of issuing further rules and clarifications, if needed, without prejudice to the overall trading rules applied. Sponsors Finally, the newly issued Decrees introduce an important change in the rules governing “Accredited Sponsors” applied by Niles, which requires listing companies to be under the sponsorship of specialized financial advisors (“Sponsors”) accredited for this purpose by EFSA. The Sponsor is then responsible for undertaking a number of duties, mostly pertaining to the transparency and accuracy of disclosures. However, whereas the previous rules required the Sponsors to be registered with EFSA and under its supervision, currently they shall be registered with the Egyptian Exchange and subject to rules issued by its Board of Directors, including registration, operation and cancellation of accreditation. Commentary The new three Decrees issued by EFSA resolve several problems which – after two years of operation – had to be tackled, especially with respect to the trading rules and these should have a positive impact on the operation environment of Nilex. On the other hand, the transfer of the registration and accreditation function from EFSA to the Egyptian Exchange may be a source of concern as the financial regulator is normally a tighter supervisor.