Amendment to Trading Rules of Unlis

On 29 October 2017, the Egyptian Financial Supervisory Authority (“EFSA”) issued a decision amending its rules for the trading, ownership, and disclosure of securities that are unlisted on the Egyptian Stock Exchange. The decision mainly extends the validity of sell/purchase orders signed to security brokerage companies from one week to a month.

Background

On 25 February 2017, EFSA issued new regulations for the trading of unlisted securities on the Stock Exchange (“Decision 17/2017”).[1] This followed a Constitutional Court ruling which found a related decree unconstitutional as EFSA had failed to publish said decision in the Egyptian Gazette. Consequently, EFSA issued Decision 17/2017 amalgamating the rules contained in 8 other decrees that suffered from the same grounds of unconstitutionality. Decision 17/2017 purports to lay out the regulations and procedures for the trading, transfer of ownership, and disclosure of unlisted securities using the technologies and electronic means offered by the Egyptian Stock Exchange, since the trading of unlisted securities is not subject to the same governance applied to the trading of listed securities. The decision mainly distinguishes between two manners of trading: the ownership transfer mechanism, and the electronic order acceptance mechanism. The second mechanism – the electronic order acceptance mechanism – is used for the trading of pre-approved securities that have been de-listed from the Stock Exchange. As for the ownership transfer mechanism, that is used for the transfer of ownership of all unlisted securities. You can read more about EFSA’s Rules for Trading, Ownership Transfer, and Disclosure of Unlisted Securities in our coverage of the topic in Week 1 of March 2017 Issue of the Egypt Legal Update.

EFSA Decision 124/2017[2]

The current decision amends Article 2.1 of Decision 17/2017, which stated that in proving a transfer of ownership for unlisted securities, a brokerage company must notify the Stock Exchange within one week of the signature of the sell-orders. It also stated that in the event that the one-week period lapses without effecting the transaction, the brokerage company must submit proof that the order still stands, which could be in the form of another signature from the client affirming that it does stand. In any event, the client’s second signature itself must not be more than one week old. Decision 124/2017 amends these periods to be one month instead of one week. Furthermore, Decision 124/2017 amends Article 7 of Decision 17/2017, which deals with payments made in relation to the trading and ownership transfer of unlisted securities. The Article mandates that brokerage companies only receive payments of EGP 100,000 or more from their Egypt-based clients if they are made through a licensed bank, and that they receive all payments from clients abroad through a bank regardless of the amount of the transfer. Furthermore, the Article states that the purchaser of unlisted securities may submit proof of payment within one month at most prior to the date of effecting the sell/purchase order. Decision 124/2017 now adds that a purchaser may request that the one-month period is extended, provided that EFSA approves said extension, and on the condition that the purchaser presents bank documents which prove payment of the value of the purchased securities.

Conclusion

In Decision 124/2017, EFSA seems to be improving procedures that relate to the trading of unlisted securities from a practical viewpoint. For one, the extension of the time limit on the execution of sell orders from one week to a month is only reasonable. In addition, allowing a longer period for presenting proof of payment for purchased securities also seems to provide some welcome flexibility in this regard.   [1] EFSA Board of Directors Decision No. 17/2017 on Trading, Evidencing, and Disclosure of Transactions related to the Transfer of Ownership of Non-Listed Securities, Egyptian Gazette, Issue No. 46, 25 February 2017. [2] EFSA Board of Directors Decision No. 124/2017 amending certain provisions of its Decision No. 17/2017 on Trading, Evidencing, and Disclosure of Transactions related to the Transfer of Ownership of Non-Listed Securities, dated 29 October 2017, available through this link (Arabic).