The Financial Regulatory Authority (FRA), in cooperation with Misr for Central Clearing, Depository and Registry (MCDR) and the Egyptian Exchange (EGX), is conducting live technical tests of the centralised lending system ahead of the anticipated launch of short-selling under the new regulatory framework introduced by FRA Board Decision No. 155 of 2026.
Technical teams from the three institutions have reviewed the latest updates to the operational infrastructure and electronic systems needed to ensure seamless, real-time connectivity between MCDR and brokerage firms, as well as the documentation of all operational stages and procedures.
The system will enable borrowing clients, or short sellers, to view all available lending offers from lending clients and select those that match their investment objectives. It will also allow lenders to view other lending offers registered on the system.
Several brokerage firms licensed to conduct short-selling operations participated in the latest technical trials. The tests aim to ensure that the mechanism operates smoothly and efficiently from launch, while verifying that participating firms have established the necessary technological infrastructure, connected to the centralised lending system and enabled the provision of real-time transaction updates to clients.
Islam Azzam, chairperson of the FRA, said the centralised lending system, developed and operated by MCDR, would maintain records of securities available for lending under the new rules. The framework is designed to ensure transparency, robust governance and the protection of all parties’ rights, in line with international best practices and under the FRA’s full supervision.
He added that the ongoing live technical trials build on the constructive dialogue the FRA has conducted with market participants ahead of the launch of the new regulatory framework, reflecting the importance of balancing regulatory requirements with international experience.
Azzam explained that the live tests aim to enhance transparency and enable borrowers and lenders to monitor transactions in real time. The system will also ensure that all operational stages and procedures are documented, particularly the verification and registration of securities available for lending. Records will include the names and quantities of securities offered, lending periods, transaction and client details, and the closure of open positions. These measures are intended to safeguard the rights of all parties involved.
The parties involved in short-selling include the lender, an investor willing to make securities they own available for lending; the borrower, an investor who borrows securities to sell them and subsequently return them in accordance with the applicable arrangements; the licensed brokerage firm facilitating the transaction; the custodian, which receives requests to make securities available for lending; and MCDR, which operates the centralised lending system and serves as the central securities depository and registry.
The lending client remains entitled to the financial benefits and other rights attached to the lent securities throughout the lending period, including cash and in-kind dividends, subscription rights and other entitlements. Voting rights at the company’s general assembly, however, remain with the owner of record on the relevant date for the meeting.
The regulatory framework also establishes limits on securities lending and borrowing. The aggregate amount of shares lent may not exceed 40% of a listed company’s total free-float shares, while the amount borrowed by an individual client and their related parties may not exceed 2% of the company’s total free float. Direct contracts between a brokerage firm, lender and borrower are subject to a separate cap of 5% of the total free float, with the brokerage firm retaining responsibility for such contracts.
MCDR is required to monitor lending and borrowing limits and ratios to ensure that the prescribed thresholds are not exceeded. It must also revalue borrowed securities and total collateral at the end of each business day using the latest closing price of each security. Any resulting valuation difference must be settled daily through the brokerage firm’s settlement account, in accordance with the applicable procedures.
If a brokerage firm fails to return the borrowed securities, MCDR must take the necessary steps to recover and return them to the lending client. MCDR is also required to retain the full proceeds from the sale of borrowed securities and invest them for the benefit of the lender, starting from the settlement date of the sale, in fixed-income instruments or other investment vehicles approved by the FRA. The lending fee and investment return due to the lender must be paid within two business days of the closure of the centralised position.
Brokerage firms and custodians must provide the FRA and EGX with any data, information and documents requested in connection with these transactions. The FRA, in turn, has the authority to take prompt measures to preserve market stability and prevent harm to the market and its participants. Such measures may include revoking a brokerage firm’s authorisation to conduct short-selling operations.