Egypt’s Financial Regulatory Authority has approved new rules to enhance the Settlement Guarantee Fund, aligning it with global standards. These rules increase fund resources significantly, facilitate quicker transactions, and establish a strong governance structure to mitigate counterparty risks and maintain market stability.
The Financial Regulatory Authority (FRA) of Egypt has approved new executive rules for the Settlement Guarantee Fund, designed to enhance capital market stability. These rules, developed by the Board of Directors of Misr for Central Clearing, Depository and Registry (MCDR), comply with FRA Board Resolution No. 68 of 2024, and aim to reduce risks associated with counterparty representation during settlements.
The FRA seeks to fortify MCDR’s operational mechanisms so they align with those of global central securities clearing entities, commonly known as Central Counterparties (CCPs). To support this initiative, the FRA has increased the Fund’s resources by 650% of the members’ total subscriptions, employing a structured “Waterfall” approach to manage counterparty risks effectively, drawing upon diverse financial resources, including the Central Securities Depository and the Investor Protection Fund.
Furthermore, the FRA now permits Fund members to settle their rights and obligations arising from transactions executed on the Egyptian Stock Exchange up to six times their subscription amount, applicable to transactions with shorter settlement periods. The Settlement Guarantee Fund will ensure the fulfillment of obligations from trading securities, thereby significantly mitigating counterparty risks.
Membership to the Fund includes all settlement members executing direct settlements with MCDR and clearing banks. A structured system set by MCDR facilitates the securities required for meeting these obligations. The governance of the Fund includes a Management Committee comprised of seven members, with representation from various stakeholders, ensuring a balanced and effective oversight mechanism.
The Management Committee consists of representatives from securities brokerage companies, custodians, MCDR, the Egyptian Exchange, and the Investor Protection Fund. This committee, chaired by MCDR’s Managing Director, is tasked with overseeing the Fund’s operations and will serve terms of three years, contingent upon the FRA’s authorization of appointments. The FRA emphasizes that these measures are integral to safeguarding the stability of non-banking financial markets and protecting stakeholder rights.
In summary, the FRA’s recent approval of new rules for the Settlement Guarantee Fund represents a significant advancement in enhancing the financial stability of Egypt’s capital markets. By aligning with international best practices, increasing resource allocations, and establishing thorough governance measures, the FRA is committed to mitigating counterparty risks and ensuring the fulfillment of trading obligations within the Egyptian financial landscape.
Original Source: www.zawya.com
