Chairman of the Financial Regulatory Authority:

  • Technical tests with MCDR and the Exchange extend the constructive public dialogue on the mechanism with market participants

  • We aim to boost transparency and enable borrowers and lenders to follow transactions in real time

  • The system documents every stage and procedure and lets clients see all available offers

The Financial Regulatory Authority (FRA), together with Misr for Central Clearing, Depository and Registry (MCDR) and the Egyptian Exchange, is running live tests of the central lending system ahead of the expected official launch of the "short selling" mechanism (borrowing securities in order to sell them / selling borrowed securities), under the new regulatory framework recently issued by FRA Board Decree No. (155) of 2026.

The technical departments of the three bodies reviewed the latest developments in the operating infrastructure and the electronic systems required. These ensure a full real-time connection between MCDR and brokerage firms and document every stage and procedure, allowing borrowing clients (short sellers) to see all lending offers available from lending clients (lenders) and choose those that fit their investment goals, while also allowing a lending client to see all other lending offers registered on the system.

Several brokerage firms licensed to carry out short selling took part in the latest technical tests of the operating infrastructure, to ensure the mechanism runs smoothly and efficiently from launch and to confirm that the firms have put in place the technology needed to carry out the transactions, connect to the central lending system and give clients up-to-date tracking.

FRA Chairman Dr. Islam Azzam said the central lending system, developed and operated by MCDR, will hold the balances of securities available for lending, under new rules that ensure full transparency and governance and protect the rights of all parties, in line with international best practice and under the FRA's full supervision.

He added that the live technical tests now under way extend the constructive public dialogue the FRA has held with market participants ahead of launching the new regulatory framework, underlining the importance of balancing regulatory requirements, international experience and the need to overcome the obstacles that prevented short selling from being activated in previous years.

Dr. Islam Azzam explained that the live tests of the central lending system aim to boost transparency and enable borrowing and lending participants to follow transactions in real time. The system documents every stage and procedure, in particular the recording of securities available for lending; the display of securities on the system by name, quantity and lending period; transaction and client data; and the closing of open positions, thereby protecting the rights of all parties to the transaction.

The parties to the short selling mechanism are: the lender, an investor who wishes to make securities they own available for lending; the borrower, an investor who wishes to borrow securities in order to sell them and return them later under an agreement with a brokerage firm; the licensed brokerage firm; the custodian, which receives the request to make securities available for lending; and the central depository and registry company (MCDR).

The lending client is entitled to the financial rights and other benefits of the borrowed securities, such as cash and stock dividends, subscription rights and other entitlements arising during the lending period, while the right to vote at the company's general assembly meetings belongs to whoever owns the borrowed security on the date of the meeting.

No more than 40% of a listed company's total free-float securities may be lent, and each client and their related parties may borrow no more than 2% of the listed company's total free-float securities. A maximum of 5% is allocated to direct contracts concluded between the brokerage firm, the lender and the borrower, which the brokerage firm holds under its own responsibility.

The central depository and registry company must monitor lending and borrowing limits and ratios to ensure the set ceilings are not exceeded, and value the borrowed securities and total collateral at the end of each business day based on the security's latest closing price. It must also settle the difference daily from the brokerage firm's settlement account and take steps to return the securities to the lending client if the brokerage firm fails to do so. It must at all times retain the full proceeds from the sale of the borrowed securities and invest them for the lending client, from the sale settlement date, in fixed-income instruments or any other investments the FRA specifies, and pay the lending fee and investment return to the lending client within the two business days following the closing of the position.

Brokerage firms and custodians must provide the FRA and the Exchange with all requested data, information and documents relating to the transactions. In turn, the FRA may take swift measures to preserve the stability of trading and prevent harm to the market and its participants, up to revoking a brokerage firm's approval to carry out short selling.