Egypt’s FRA Issues Model Agreement for Short Selling Market

The Financial Regulatory Authority (FRA) has released a standardized agreement to govern relationships between brokerage firms and clients borrowing securities for sale. This development marks a significant step toward the official launch of short selling in the Egyptian market, following the regulatory framework established by FRA Board Decision No. 155 of 2026.

Defining Market Rules

Under the new guidelines, issued via FRA Chairperson Decision No. 3350 of 2026, the agreement outlines the contractual framework for clients to borrow securities through the central system operated by Misr for Central Clearing, Depository and Registry (MCDR). Short selling allows a borrower to sell borrowed securities, with the expectation of repurchasing them at a lower price to return to the lender, thereby profiting from the price difference.

The model agreement details the rights and responsibilities of both brokerage firms and clients. It covers procedural duties, commission structures, and the handling of returns generated from cash collateral margins. The authority developed these rules after consulting with market participants to ensure the regulations address practical implementation needs while managing associated risks.

Collateral and Risk Management

Risk mitigation remains a central component of the new framework. The agreement mandates that borrowing clients provide collateral margins at specific rates before executing any transaction, adhering to minimum ratios set by the FRA. Brokerage firms are required to hold cash collateral in dedicated, separate accounts.

The contract also establishes protocols for monitoring these margins and procedures for closing positions if specific contractual or regulatory conditions are met. The FRA states this approach aims to protect market participants while fostering a transparent environment for the new financial mechanism.

Why it matters: This regulatory update is a prerequisite for activating short selling in Egypt. By formalizing the relationship between brokers and borrowers, the FRA aims to introduce liquidity and sophisticated trading tools to the Egyptian Exchange, potentially attracting more diverse investment activity.