Amendment of Listing and Delisting

The Financial Regulatory Authority (“FRA”) has issued Decisions No 82 and 92 of 2018 amending the Listing Rules issued by FRA Decision No 11 of 2014 (the “Listing Rules”). FRA Decision No. 82 of 2018 (“Decision 82/2018”)[1] adds two more items to the list of documents required to be submitted along with the listing application and FRA Decision No. 92 of 2018 (“Decision 92/2018”)[2] integrates the cumulative voting system as well as the system of proportional representation of capital on the board of directors in the Listing Rules and introduces two other amendments.

The New Decisions in Detail

In its Decision 82/2018, the FRA adds two more documents to the list of documents to be included in the application a company submits to be listed on the Egyptian Stock Exchange. The two additional documents are:

• A declaration from the legal counsel of the company confirming that (i) no judgements have been issued against any of the board members of the company during the previous five years in a felony or an honour-misdemeanour or a capital market crime (unless rehabilitated), or (ii) a sentence has been served and three years have passed since then, or (iii) there were no repetitive accusations of material violations of the capital market law during the previous three years unless discharged.

• A declaration from the company confirming that it will notify the FRA in the event that any of the above situations materialize and change the relevant board member within the timeframe determined by the FRA.

As to Decision 92/2018, it adds two further requirements to the general requirements for listing securities on the Egyptian Stock Exchange: (i) that the articles of association stipulates the use of the “Cumulative Voting” system for electing board members; and (ii) that the articles of association provides for a minimum percentage for the “Proportional Representation of Capital on the Board of Directors”. Cumulative Voting is defined as “granting each shareholder a number of votes equivalent to the number of shares owned for use during the vote on the membership of the board of directors. The shareholder is entitled to use all his votes in favour of one candidate or to use them in favour of more than one candidate.” Proportional Representation of Capital on the Board of Directors on the other hand is defined as “a guarantee for the representation of a minimum percentage of capital on the board of directors so that a maximum of one seat is allocated to each 10 percent of the capital.” These definitions are also added to Article 4 of the Listing Rules. Decision 92/2018 also amends Article 35 of the Listing Rules requiring listed companies to notify the FRA – at least one month prior to the date of the annual general assembly meeting – of the annual financial statements and the auditor’s report. The FRA gives itself the right to review these documents and to make the comments it finds necessary while requiring the company to take such comments into consideration. Failure to do so will impose on the company another liability and that is to publish the FRA’s comments and the amendments requested thereby at company’s cost. Finally, Decision 92/2018 also amends Article 41 of the Listing Rules by adding to it a right to shareholders who may have queries to the general assembly to submit such queries at least three days prior to the date of the meeting in writing to the company or by email or registered mail or by hand delivery along with proof of freezing their shares with the custodian.

Conclusion

The amendments of the FRA to the Listing Rules are part of the integration process of the cumulative voting system and the proportional representation of capital on the board of directors into the governance of capital market companies. As covered in our previous ELU issue, the FRA issued Decision No. 93 of 2018 which also requires all capital market companies to uphold these two systems in order to obtain and/or maintain capital market licenses.   [1] FRA Board of Directors Decision No. 82/2018 amending Decision No. 11/2014 on the Rules for Listing and Delisting of Securities on the Egyptian Stock Exchange, Egyptian Gazette, Issue No. 136 (cont.) (a), 13 June 2018. [2] FRA Board of Directors Decision No. 92/2018 amending Decision No. 11/2014 on the Rules for Listing and Delisting of Securities on the Egyptian Stock Exchange, Egyptian Gazette, Issue No. 136 (cont.) (a), 13 June 2018.