FRA approves new rules for Egypt’s settlement guarantee fund
Egypt’s Financial Regulatory Authority (FRA) has approved executive rules and procedures governing the operation of the Settlement Guarantee Fund, aiming to align with global best practices and bolster capital market financial stability.
The rules and procedures were issued by the Board of Directors of Misr for Central Clearing, Depository and Registry (MCDR), in coordination with the Fund’s Management Committee, pursuant to FRA Board Resolution No. 68 of 2024. The resolution aims to regulate the Settlement Guarantee Fund’s operations and mitigate risks arising from counterparty representation in settlements.
The FRA’s objective is to enhance MCDR’s mechanisms to align with those of central securities clearing and settlement entities (Central Counterparties – CCPs) in global markets, effectively addressing counterparty risk.
To further develop the Fund, the FRA has increased its resources to 650% of the value of members’ subscriptions. This was achieved by implementing a “Waterfall” approach to counterparty risk management, ensuring a clear sequence for utilising financial resources to address potential financial distress. This involves establishing allocations from various sources, including the Central Securities Depository, the Investor Protection Fund from Non-Commercial Risks, and additional funds that Fund members are obligated to provide if needed.
According to the FRA, this strengthens the Fund’s ability to hedge against potential risks, which is in line with international practices followed by all central securities clearing and settlement entities.
Additionally, the FRA has authorised Fund members to request the settlement of rights and obligations arising from transactions executed on securities listed on the Egyptian Stock Exchange, up to six times their subscription amount. This authorisation applies to transactions with a settlement period shorter than the standard T+2 cycle.
The Settlement Guarantee Fund is responsible for ensuring the fulfilment of obligations arising from trading securities listed on the Egyptian Stock Exchange, as well as the financial and paper settlements resulting from these transactions. This, according to the FRA, effectively reduces counterparty risk.
The Fund’s membership comprises all settlement members who have settlements made directly on their accounts with MCDR and with clearing banks, whether for their own account or on behalf of others. The securities required to fulfil these obligations are provided through a system established by MCDR.
Governance controls for the Fund’s management are outlined in the resolution. It establishes a Management Committee of seven members. The committee is chaired by the Managing Director of MCDR and includes three representatives of the Fund’s members: two from securities brokerage companies, one from custodians performing settlements, one representative from MCDR (selected by its Board of Directors based on the Managing Director’s nomination), one representative from the Egyptian Exchange (nominated by its Chairperson), and one representative from the Investor Protection Fund from Non-Commercial Risks (nominated by its Chairperson).
Representatives from MCDR, the Egyptian Exchange, and the Investor Protection Fund are appointed after the FRA issues a non-objection. Committee members serve a three-year term from the date the FRA approves the company’s board resolution forming the committee. The Committee may also invite individuals to attend meetings as deemed appropriate, without granting them voting rights.
The FRA stated that these measures are part of its ongoing efforts to ensure the stability of non-banking financial markets and protect the rights of all stakeholders.
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