After Issuing New Rules in 2017, FR

On 6 June 2018, the Financial Regulatory Authority (“FRA”) issued decision No. 94 of 2018 on dealing in unlisted securities (“Decision 94/2018”),[1] replacing decision No. 17 of 2017 on the same subject, but without introducing any new mechanisms. Rather, Decision 94/2018 changes the timeframes for reporting transactions in unlisted securities and stipulates that the FRA’s consent is now required for transactions over EGP 20 million, and for accepting receipts in related party transactions (other than intra family) as proof of payment. In addition, Decision 94/2018 limits the transfer of unlisted securities via the electronic transfer mechanism to three years.  

Background

In February 2017, FRA issued new regulations for the trading of unlisted securities on the Stock Exchange (“Decision 17/2017”).[2] Decision 17/2017 laid 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 (“EGX”). This is since the trading of unlisted securities is not subject to the same governance applied to the trading of listed securities. Decision 17/2017 mainly introduced and described two methods of trading: the ownership transfer mechanism, and the electronic order acceptance mechanism. The electronic order acceptance mechanism is used for the trading of pre-approved securities that have been de-listed from the Stock Exchange, allowing trading using the over the counter system, whereas the ownership transfer mechanism is used for the transfer of ownership of all unlisted securities.

• Ownership Transfer Market

Non-listed securities traded on the Ownership Transfer Market include all other non-listed joint stock companies. Decision 17/2017 required that brokerage companies inform EGX of any transactions that occur within seven days from the date the buy and sell orders are signed. The brokerage company must obtain confirmation from the seller that the sell order continues to be valid if more than seven days pass. This was of great relevance as many structured transactions include signed sell orders, the execution of which at EGX was typically postponed until the materialization of specific conditions. Further to the above, Decision 17/2017 required that any one or more related transactions the total value of which exceeds 20 million Egyptian pounds be presented to the EGX’s Operations Committee prior to execution. Following that in October 2017, FRA issued a decision amending its rules for the trading, of unlisted securities that mainly extended the validity of sell/purchase orders signed to security brokerage companies from one week to a month.

• Over-the-Counter Market (“OTC”)

Decision 17/2017 required EGX approval for a delisted company to be able to trade on the OTC. The approval was to be granted based on specific information which EGX requests. Decision 17/2017 also required EGX to suspend trading on any securities the related information of which is amended. The Chairman of EGX (as opposed to FRA previously) was entitled under Decision 17/2017 to allow the continued trading of said securities as long as the issuer provides sufficient comfort to EGX and pledges to undertake the necessary procedures to re-list its securities.

Decision 94/2018

The new Decision 94/2018 extends the time that brokerage companies have to inform EGX of any transactions that occur to one month from the date the buy and sell orders are signed. Brokerage companies are required to submit evidence that the sale order is still valid in the event that more than one month passes from the date of signing the sale order. However, FRA must now give prior consent to the execution of one or more related transactions the total value of which exceeds 20 million Egyptian pounds, whereas previously they were only presented to the EGX Operation Committee. Decision 94/2018 also placed a time limit to the use of the electronic order acceptance mechanism, whereby a given security may only be traded via this system for three years, after which it must be traded via the ownership transfer system, and the electronic acceptance system is now available throughout the trading week rather than for only two days. Decision 94/2018 also extends the ban on the acceptance of receipts as proof of payment to all parties, including intragroup transactions, limiting the exception to family members only, except with FRA consent, and extends the FRA’s oversight over the systems by requiring the EGX to report transactions on a daily, rather than monthly, basis.   [1]  FRA Board of Directors Decision No. 94/2018 on the rules for trading unlisted securities and the procedures of transferring its ownership, Egyptian Gazette, Issue No. 136 (cont.) (a), June 13, 2018. [2] FRA Board of Directors Decision No. 17/2017 on trading and the transfer of ownership of unlisted securities, Egyptian Gazette, Issue No.46, 25 February 2017.