FRA Implements New Regulations for Egypt’s Settlement Guarantee Fund

The FRA has approved new rules for Egypt’s Settlement Guarantee Fund to enhance capital market stability and manage counterparty risks in alignment with global best practices. The measures include increasing the Fund’s resources and allowing members to settle transactions against their subscriptions, while governance practices ensure accountability and representation in decision-making processes.

The Financial Regulatory Authority (FRA) of Egypt has approved new executive rules for the Settlement Guarantee Fund. These rules are designed to align the Fund’s operations with global best practices, thereby enhancing the financial stability of capital markets. The revised procedures, issued by Misr for Central Clearing, Depository and Registry (MCDR), address risks associated with counterparty representation in settlements, aiming to fortify regulatory oversight.

The FRA’s initiatives include increasing the resources of the Fund to 650% of the value of member subscriptions to effectively manage counterparty risks. This enhancement uses a “Waterfall” approach to ensure a systematic use of resources in times of financial distress. Allocations will be established from various sources, including the Central Securities Depository and the Investor Protection Fund for Non-Commercial Risks, thus deepening the Fund’s risk mitigation strategies.

In addition, the FRA has permitted Fund members to settle rights and obligations from transactions on the Egyptian Stock Exchange, allowing for settlements of up to six times their subscription amounts for transactions within a shorter settlement period than the standard T+2 cycle. This authorization aims to effectively lower counterparty risks associated with securities transactions.

The Settlement Guarantee Fund plays a crucial role in assuring the fulfillment of obligations linked to trading securities on the Egyptian Stock Exchange. Membership in the Fund includes all settlement members managing settlements through MCDR and corresponding clearing banks, either in their own capacity or on behalf of others. The MCDR oversees the securities needed to meet these obligations through a dedicated system.

Governance of the Fund’s management is structured through a Management Committee composed of seven members. This committee is led by the Managing Director of MCDR and includes representatives from securities brokerage firms, custodians, MCDR, and the Egyptian Exchange. Members serve a three-year term following FRA approval, ensuring representation from various stakeholders in the financial sector.

These regulatory measures by the FRA are part of ongoing efforts to maintain stability in non-banking financial markets and safeguard stakeholder interests. The comprehensive approach reflects a commitment to aligning domestic practices with international standards, promoting a robust and reliable financial environment for all participants in the market.

The Financial Regulatory Authority has established new rules for the Settlement Guarantee Fund to enhance financial stability in Egypt’s capital markets. By increasing the Fund’s resources and allowing for efficient settlement mechanisms, the FRA aims to mitigate counterparty risks effectively. The governance structure of the Fund further ensures representation and oversight from key stakeholders, reinforcing the integrity of the Egyptian financial system.

Original Source: www.zawya.com