Amendment to the Egyptian Depositor
Amendment to the Egyptian Depository Receipts Rules
The Egyptian Financial Supervisory Authority ("EFSA") has issued an amendment to the 2010 rules governing Egyptian Depository Receipts.[1]
Egyptian Depository Receipts ("EDR") are certificates issued by a foreign company whose securities are listed in a foreign stock exchange, mirroring part of those securities, so that the EDRs can be listed and traded on the Egyptian Stock Exchange ("EGX") either in local or foreign currency. The holders of the EDRs would then have the same rights as those of the foreign securities holders.
It is worth noting that the Egyptian capital market has recognised the reverse papers - Global Depository Receipts ("GDRs") - since the 1990s, which allowed Egyptian companies whose papers were listed on EGX to issue GDRs mirroring their local shares and have them listed and traded on foreign exchanges. This system provided various benefits to the issuing company, the most important of which is that their papers would be effectively traded on two exchanges and thus benefit from a higher level of liquidity that is not available for securities traded on one exchange only.
As for EDRs, these were fully organised by EFSA in 2010 in order to respond to the needs of foreign companies whose assets and activities were largely based in Egypt, to issue certificates that could be traded on EGX, thus benefiting from the additional local demand.
The issuing of EDRs goes through a number of steps, including the blocking of a certain amount of securities issued abroad and depositing them in the name of a depository bank that is licensed by EFSA, which then issues the EDRs on the basis of a conversion formula that represents the numerical relationship between the securities and the corresponding EDRs. The custodian, also licensed by EFSA, maintains and manages the books for the operation. The listing and trading of the EDRs is then conducted on the same basis and observing the same rules applied for local securities traded on EGX for local papers.
The GDR and EDR systems have the advantage of being "open" in the sense that they do not involve a fixed number of securities, but rather allow the increase or decrease of certificates depending on supply and demand and the wishes of securities and certificates holders.
As for the latest amendment issued by EFSA last week, this deals with a specific aspect of EDR trading, where Egyptian holders of EDRs wish to exchange their certificates for shares in the foreign company and then sell such shares, in which case they would have to do so through their accounts with the central securities depository company which is obliged to make the foreign currency payment into their Egyptian bank accounts.
The preceding means that Egyptian holders of EDRs cannot sell those certificates and obtain their price in foreign currency abroad nor outside of the Egyptian banking system, which makes this decree a further step in completing the Central Bank's tightening of the foreign currency transactions in Egypt.
[1] EFSA Board Decision No. 79/2016 dated 21 June 2016 regarding the amendment made to the Egyptian Depository Receipts Rules of 2010.
The Egyptian Financial Supervisory Authority ("EFSA") has issued an amendment to the 2010 rules governing Egyptian Depository Receipts.[1]
Egyptian Depository Receipts ("EDR") are certificates issued by a foreign company whose securities are listed in a foreign stock exchange, mirroring part of those securities, so that the EDRs can be listed and traded on the Egyptian Stock Exchange ("EGX") either in local or foreign currency. The holders of the EDRs would then have the same rights as those of the foreign securities holders.
It is worth noting that the Egyptian capital market has recognised the reverse papers - Global Depository Receipts ("GDRs") - since the 1990s, which allowed Egyptian companies whose papers were listed on EGX to issue GDRs mirroring their local shares and have them listed and traded on foreign exchanges. This system provided various benefits to the issuing company, the most important of which is that their papers would be effectively traded on two exchanges and thus benefit from a higher level of liquidity that is not available for securities traded on one exchange only.
As for EDRs, these were fully organised by EFSA in 2010 in order to respond to the needs of foreign companies whose assets and activities were largely based in Egypt, to issue certificates that could be traded on EGX, thus benefiting from the additional local demand.
The issuing of EDRs goes through a number of steps, including the blocking of a certain amount of securities issued abroad and depositing them in the name of a depository bank that is licensed by EFSA, which then issues the EDRs on the basis of a conversion formula that represents the numerical relationship between the securities and the corresponding EDRs. The custodian, also licensed by EFSA, maintains and manages the books for the operation. The listing and trading of the EDRs is then conducted on the same basis and observing the same rules applied for local securities traded on EGX for local papers.
The GDR and EDR systems have the advantage of being "open" in the sense that they do not involve a fixed number of securities, but rather allow the increase or decrease of certificates depending on supply and demand and the wishes of securities and certificates holders.
As for the latest amendment issued by EFSA last week, this deals with a specific aspect of EDR trading, where Egyptian holders of EDRs wish to exchange their certificates for shares in the foreign company and then sell such shares, in which case they would have to do so through their accounts with the central securities depository company which is obliged to make the foreign currency payment into their Egyptian bank accounts.
The preceding means that Egyptian holders of EDRs cannot sell those certificates and obtain their price in foreign currency abroad nor outside of the Egyptian banking system, which makes this decree a further step in completing the Central Bank's tightening of the foreign currency transactions in Egypt.
[1] EFSA Board Decision No. 79/2016 dated 21 June 2016 regarding the amendment made to the Egyptian Depository Receipts Rules of 2010.