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Securities Regulator Forbids Dealin

Securities Regulator Forbids Dealing in Foreign Securities
The Executive Regulations of the Capital Market Law – issued by Ministerial Decree in 1993 and amended various times since that time – provides the detailed rules for implementing the Capital Market Law No. 95 of 1992. Among the subjects covered by that Law are the various activities to be undertaken by brokerage and asset management companies, and the supervision imposed on them by the Egyptian Financial Supervision Authority (“EFSA”) which replaced the Capital Market Authority in 2009.
Dealing in Foreign Securities
Under the previous regulations in the Executive Regulations, brokerage and portfolio management companies dealt on behalf of their clients in foreign securities through registered and licensed brokers in foreign markets – in the absence of a clear text prohibiting such dealing. However, following the turmoil in foreign securities markets in the last couple of years, as well as the strict restrictions imposed by the Central Bank of Egypt (“CBE”) on the repatriation of foreign currency outside of Egypt, the Prime Minister (being the competent minister in capital market matters) issued decree No. 572 of 2012 amending the Executive Regulations of the Capital Market Law with respect to dealing in foreign securities (the “Decree”).[1]
The New Provisions
  • It is now stated clearly in Article (259) that brokerage companies may not deal in foreign securities, except in Global Depository Receipts (“GDRs”) for companies listed on the Egyptian Exchange and in accordance with rules to be issued by the EFSA’s Board of Directors.
  • It is also now clearly stated in Article (249) that portfolio management companies may not deal in foreign securities, for their own account or on behalf of their clients, except in GDRs for companies listed on the Egyptian Exchange and in accordance with rules to be issued by the EFSA’s Board of Directors.
  • In the contract entered into between the portfolio management company and its client, it is no longer possible to state that foreign securities may be purchased.
  • The Decree states that it shall come into force as of the day following its publication (which means May 25th, 2012) and that companies subject to its provisions will need to rectify their positions within six months from such publication (which is November 25th, 2012). This will create some confusion as to what companies and their clients should do immediately and what they should rectify within six months.
Conclusion
There is no doubt that some intervention was required by EFSA in light of international markets disturbance and in order to better apply CBE’s rules on the repatriation of foreign currency. However, instead of intervening by a blanket restriction on dealing in foreign securities, it would have been advisable to regulate and impose an overall supervisory process on foreign securities transactions, as a blanket restriction will drive Egyptian investors to seek foreign brokers, which will take those transactions further from regulatory oversight and deprive Egyptian companies from part of their business.   [1] Prime Minister’s Decree No. 572/2012 amending certain provisions of the Executive Regulations of the Capital Market Law No. 95/1992, Egyptian Gazette, Issue No. 119 (cont.), 24 May 2012.
The Executive Regulations of the Capital Market Law – issued by Ministerial Decree in 1993 and amended various times since that time – provides the detailed rules for implementing the Capital Market Law No. 95 of 1992. Among the subjects covered by that Law are the various activities to be undertaken by brokerage and asset management companies, and the supervision imposed on them by the Egyptian Financial Supervision Authority (“EFSA”) which replaced the Capital Market Authority in 2009.
Dealing in Foreign Securities
Under the previous regulations in the Executive Regulations, brokerage and portfolio management companies dealt on behalf of their clients in foreign securities through registered and licensed brokers in foreign markets – in the absence of a clear text prohibiting such dealing. However, following the turmoil in foreign securities markets in the last couple of years, as well as the strict restrictions imposed by the Central Bank of Egypt (“CBE”) on the repatriation of foreign currency outside of Egypt, the Prime Minister (being the competent minister in capital market matters) issued decree No. 572 of 2012 amending the Executive Regulations of the Capital Market Law with respect to dealing in foreign securities (the “Decree”).[1]
The New Provisions
  • It is now stated clearly in Article (259) that brokerage companies may not deal in foreign securities, except in Global Depository Receipts (“GDRs”) for companies listed on the Egyptian Exchange and in accordance with rules to be issued by the EFSA’s Board of Directors.
  • It is also now clearly stated in Article (249) that portfolio management companies may not deal in foreign securities, for their own account or on behalf of their clients, except in GDRs for companies listed on the Egyptian Exchange and in accordance with rules to be issued by the EFSA’s Board of Directors.
  • In the contract entered into between the portfolio management company and its client, it is no longer possible to state that foreign securities may be purchased.
  • The Decree states that it shall come into force as of the day following its publication (which means May 25th, 2012) and that companies subject to its provisions will need to rectify their positions within six months from such publication (which is November 25th, 2012). This will create some confusion as to what companies and their clients should do immediately and what they should rectify within six months.
Conclusion
There is no doubt that some intervention was required by EFSA in light of international markets disturbance and in order to better apply CBE’s rules on the repatriation of foreign currency. However, instead of intervening by a blanket restriction on dealing in foreign securities, it would have been advisable to regulate and impose an overall supervisory process on foreign securities transactions, as a blanket restriction will drive Egyptian investors to seek foreign brokers, which will take those transactions further from regulatory oversight and deprive Egyptian companies from part of their business.   [1] Prime Minister’s Decree No. 572/2012 amending certain provisions of the Executive Regulations of the Capital Market Law No. 95/1992, Egyptian Gazette, Issue No. 119 (cont.), 24 May 2012.