FRA Enhances Egypt’s Settlement Guarantee Fund Regulations

The FRA in Egypt has approved executive rules for the Settlement Guarantee Fund to align with global practices and stabilize capital markets. In coordination with MCDR, the FRA has increased the Fund’s resources and enhanced governance structures to better mitigate counterparty risks in securities settlements, while allowing members broader settlement rights.

The Financial Regulatory Authority (FRA) of Egypt has adopted new rules for the Settlement Guarantee Fund to enhance the stability of the financial capital market. This development follows the coordination of the Board of Directors of Misr for Central Clearing, Depository and Registry (MCDR) with the Fund’s Management Committee under FRA Board Resolution No. 68 of 2024, aimed at minimizing risks in securities settlements.

The FRA’s initiative is designed to modernize the mechanisms of the MCDR, aligning them with international practices upheld by central securities clearing and settlement entities globally. The focus is primarily on managing counterparty risks and enhancing operational effectiveness.

To further support these efforts, the FRA has expanded the Fund’s resources to 650% of the total value of members’ subscriptions. This expansion incorporates a structured approach to counterparty risk management known as the “Waterfall” approach, which specifies how various financial resources will be utilized to deal with potential financial crises.

Membership of the Settlement Guarantee Fund includes all settlement members whose transactions are directly processed through MCDR and clearing banks. This structure bolsters the assurance that obligations related to securities trading on the Egyptian Stock Exchange are effectively fulfilled, thereby mitigating counterparty risks.

The governance of the Fund is managed through a dedicated committee consisting of seven members, chaired by the Managing Director of MCDR. Members of this committee will include representatives from securities brokerage firms, custodians involved in settlements, and the Egyptian Exchange, among others, ensuring a diverse oversight structure.

Moreover, the FRA has granted Fund members the authority to request the settlement of rights and obligations linked to specific transactions, allowing for settlements six times the amount of their subscriptions for transactions with a quicker settlement period than the standard T+2 cycle. This permission is expected to enhance liquidity and efficiency in trading operations.

These regulatory advancements by the FRA illustrate its commitment to maintaining stability within non-banking financial markets while ensuring that stakeholder interests are preserved. By reinforcing risk management frameworks and governance structures, the FRA aims to protect investors and enhance the overall integrity of the market.

In summary, the FRA’s new rules for the Settlement Guarantee Fund aim to strengthen counterparty risk management and align local practices with international standards. By increasing resources and refining governance, the FRA enhances operational stability within Egypt’s capital markets. These measures not only secure market integrity but also protect the rights of all stakeholders involved.

Original Source: www.zawya.com