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EFSA’s New Disclosure Rules Publish

EFSA’s New Disclosure Rules Published in Gazette, Officially Entered into Force
As covered in the May 2016 – Week 1 Issue of the Egypt Legal Update, the Egyptian Financial Supervisory Authority (“EFSA”) issued a new decision with regard to rules for listing and delisting securities on the Egyptian Stock Exchange (“ESE”). The decision introduced amendments to disclosure requirements.[1] It held listed companies bound to notify ESE where a court or arbitration decision has been made against the company in case such a decision implies an obligation to pay an amount that exceeds 2% of the company’s equity rights. The same obligation applies where a prison sentence has been made against a board member or a principal executive of the company, even if the sentence has been made for reasons independent of the activities of the company. The Egyptian Gazette, however, published the decision only on 22 May 2016, establishing that its effects should enter into force on 23 May 2016.
Context
The rules of disclosure approved by EFSA in 2014 had established that listed companies should send a notification immediately after a court decision has been made, as long as such a decision would have an effect over the financial position of the company, shareholders’ rights or the investment decision of traders. The obligation was, hence, unclear. First, implied no determination of the entity entitled to evaluate whether or not the court decision had any effect on the financial position, shareholders rights, or investment decisions. Second, the obligation, on one hand, was “immediate”, but, on the other hand, we would have to allow some time in order to determine whether the court decision had any effect. Third, the old stipulation held no differing rules depending on whether the court decision had a significant or rather a trivial effect on the company’s financial position. Fourth, listed companies had no obligation to notify ESE where an arbitration decision has been made, as the amended obligation addressed only the case of court decision. This clearly excluded an important category of events that might have an immense effect on a company’s financial position and on the investment decisions. Finally, some problems also appeared in the application of the obligation to disclose “substantial information” to ESE. The stipulation had obliged listed companies to publicize on their websites and on screen exchange once, a development that implies “substantial information” has happened to the company. The definition of “substantial information”, according to the Executive Regulations of the Capital Market Law,[2] refers to information that have a real effect on the price of securities, the investment decision of traders, or the trading tendencies in the market. The rules of listing and delisting established by EFSA clearly considered brining a case against the listed company, a board member or an executive thereof, with regard to the activities of the companies, a “substantial information” that has to be disclosed immediately to ESE as well as the public.
Latest Amendments
The latest amendments were introduced by EFSA to deal with the problems the old formulation caused. The recent decision established that the obligation to notify should be carried out one a court or arbitration decision has been made. This clearly aims to keep ESE as well as traders well informed of all the important developments respecting legal disputes of the company. EFSA also introduced a new amendment with the purpose of differentiating between important decisions, and those decisions that have no significant effect. It established that the obligation to notify shall be implemented if the court or arbitration decision implies an obligation to pay an amount that exceeds 2% of the company’s equity rights in accordance with the latest approved financial statements (annual or quarterly statements). EFSA also held listed companies bound to notify in case a prison sentence has been made against a board member or a principal executive of the company. The recent decision also held listed companies obliged to disclose to ESE where a cases has been brought against them before a court or an arbitration centre, where the value of such a case exceeds 2% of the company’s equity rights in accordance with the latest approved financial statements (annual or quarterly statements). Finally, the decision added that “substantial information” also should refer to bringing a case against a board member or an executive of the company, where such a case is related to the company. It is worth nothing that the obligation to disclose the “substantial information” related to bringing a case a board member or an executive shall by applicable where the case is related to the company. On the other hand, the obligation to disclose any prison sentence made by a court against a board member or an executive is absolute; namely, it is applicable notwithstanding the subject of the case reviewed by the court, related to the activities of the company or otherwise independent thereof.
Conclusion
EFSA’s amendments aim at keeping the public well informed of important information on all factors that may affect trading decisions. EFSA, in these amendments, shows clear interest in the real effect of matters. Therefore, it considered it important to disclose to the public all information related to legal disputes in which listed companies are involved, regardless of the nature of such a dispute, judicial or non-judicial. By determining that court or arbitration decisions or cases should only be disclosed in case their financial effect exceeds 2% of the equity right of the company, EFSA sought to spare traders the burden of following unneeded information, and to achieve balance between the need to provide information and the need to minimize the cost of disclosure for companies.   [1] EFSA's Board of Directors' Decision No. 47/2016 amending the Board's Decision No. 11/2014 on Rules for Listing and Delisting Securities on the Egyptian Stoch Exchange, Egyptian Gazette, Issue No. 11, 22 May  2016. [2] Minister of Economy's Decision No. 135/1993 enacting the Executive Regulations of the Capital Market Law No. 95/1992, Egyptian Gazette, Issue No. 81 (bis), 8 April 1993.
As covered in the May 2016 – Week 1 Issue of the Egypt Legal Update, the Egyptian Financial Supervisory Authority (“EFSA”) issued a new decision with regard to rules for listing and delisting securities on the Egyptian Stock Exchange (“ESE”). The decision introduced amendments to disclosure requirements.[1] It held listed companies bound to notify ESE where a court or arbitration decision has been made against the company in case such a decision implies an obligation to pay an amount that exceeds 2% of the company’s equity rights. The same obligation applies where a prison sentence has been made against a board member or a principal executive of the company, even if the sentence has been made for reasons independent of the activities of the company. The Egyptian Gazette, however, published the decision only on 22 May 2016, establishing that its effects should enter into force on 23 May 2016.
Context
The rules of disclosure approved by EFSA in 2014 had established that listed companies should send a notification immediately after a court decision has been made, as long as such a decision would have an effect over the financial position of the company, shareholders’ rights or the investment decision of traders. The obligation was, hence, unclear. First, implied no determination of the entity entitled to evaluate whether or not the court decision had any effect on the financial position, shareholders rights, or investment decisions. Second, the obligation, on one hand, was “immediate”, but, on the other hand, we would have to allow some time in order to determine whether the court decision had any effect. Third, the old stipulation held no differing rules depending on whether the court decision had a significant or rather a trivial effect on the company’s financial position. Fourth, listed companies had no obligation to notify ESE where an arbitration decision has been made, as the amended obligation addressed only the case of court decision. This clearly excluded an important category of events that might have an immense effect on a company’s financial position and on the investment decisions. Finally, some problems also appeared in the application of the obligation to disclose “substantial information” to ESE. The stipulation had obliged listed companies to publicize on their websites and on screen exchange once, a development that implies “substantial information” has happened to the company. The definition of “substantial information”, according to the Executive Regulations of the Capital Market Law,[2] refers to information that have a real effect on the price of securities, the investment decision of traders, or the trading tendencies in the market. The rules of listing and delisting established by EFSA clearly considered brining a case against the listed company, a board member or an executive thereof, with regard to the activities of the companies, a “substantial information” that has to be disclosed immediately to ESE as well as the public.
Latest Amendments
The latest amendments were introduced by EFSA to deal with the problems the old formulation caused. The recent decision established that the obligation to notify should be carried out one a court or arbitration decision has been made. This clearly aims to keep ESE as well as traders well informed of all the important developments respecting legal disputes of the company. EFSA also introduced a new amendment with the purpose of differentiating between important decisions, and those decisions that have no significant effect. It established that the obligation to notify shall be implemented if the court or arbitration decision implies an obligation to pay an amount that exceeds 2% of the company’s equity rights in accordance with the latest approved financial statements (annual or quarterly statements). EFSA also held listed companies bound to notify in case a prison sentence has been made against a board member or a principal executive of the company. The recent decision also held listed companies obliged to disclose to ESE where a cases has been brought against them before a court or an arbitration centre, where the value of such a case exceeds 2% of the company’s equity rights in accordance with the latest approved financial statements (annual or quarterly statements). Finally, the decision added that “substantial information” also should refer to bringing a case against a board member or an executive of the company, where such a case is related to the company. It is worth nothing that the obligation to disclose the “substantial information” related to bringing a case a board member or an executive shall by applicable where the case is related to the company. On the other hand, the obligation to disclose any prison sentence made by a court against a board member or an executive is absolute; namely, it is applicable notwithstanding the subject of the case reviewed by the court, related to the activities of the company or otherwise independent thereof.
Conclusion
EFSA’s amendments aim at keeping the public well informed of important information on all factors that may affect trading decisions. EFSA, in these amendments, shows clear interest in the real effect of matters. Therefore, it considered it important to disclose to the public all information related to legal disputes in which listed companies are involved, regardless of the nature of such a dispute, judicial or non-judicial. By determining that court or arbitration decisions or cases should only be disclosed in case their financial effect exceeds 2% of the equity right of the company, EFSA sought to spare traders the burden of following unneeded information, and to achieve balance between the need to provide information and the need to minimize the cost of disclosure for companies.   [1] EFSA's Board of Directors' Decision No. 47/2016 amending the Board's Decision No. 11/2014 on Rules for Listing and Delisting Securities on the Egyptian Stoch Exchange, Egyptian Gazette, Issue No. 11, 22 May  2016. [2] Minister of Economy's Decision No. 135/1993 enacting the Executive Regulations of the Capital Market Law No. 95/1992, Egyptian Gazette, Issue No. 81 (bis), 8 April 1993.