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Egypt’s Financial Regulatory Authority (FRA), in coordination with the Egyptian Exchange (EGX), is reviewing the criteria and requirements for selecting shares eligible for lending under the short selling mechanism, ahead of its planned official launch. The approved list of eligible stocks will be announced alongside the activation of the new mechanism.

The move is part of the final preparations for implementing the system. The FRA, chaired by Dr. Islam Azzam, has held intensive consultative meetings with representatives of the EGX, Misr for Central Clearing, Depository and Registry (MCDR), brokerage firms, and custodians to review operational procedures and technical requirements under the new regulatory framework issued through FRA Board Decision No. 155 of 2026.

Stock Eligibility and System Testing

Current discussions are focused on establishing the rules governing the selection of stocks available for lending and defining which securities can be traded through the new mechanism. The FRA has not yet disclosed the detailed eligibility criteria or the list of qualifying shares.

Meanwhile, the participating entities have conducted live technical tests of the central lending system to assess real-time connectivity between MCDR and brokerage firms and ensure that all stages of lending and borrowing transactions are properly documented.

The new platform will allow clients seeking to borrow shares to review lending offers submitted by lenders and select those that match their investment objectives. Lenders will also be able to monitor other offers registered through the system.

Assessing Brokerage Firms’ Technical Readiness

The meetings also addressed the technological infrastructure of brokerage firms and their readiness to conduct transactions, as well as their connectivity with the central lending system. Discussions included preparing an operational procedures manual outlining the responsibilities and obligations of all parties, including brokerage firms and MCDR.

Dr. Islam Azzam, FRA Chairman, said that technical trials of the central lending system were progressing satisfactorily. He noted that the tests had demonstrated the system’s efficiency and the new regulatory framework’s ability to balance the promotion of securities lending and borrowing with greater flexibility for market participants, while maintaining risk oversight and market stability.

Azzam added that consultations with market participants are intended to gather feedback and proposals to ensure a comprehensive launch that supports higher liquidity, more efficient pricing, and deeper capital markets in Egypt.

How Short Selling Works

Short selling allows an investor to borrow shares from another investor through a licensed brokerage firm, sell those shares in the market, and subsequently repurchase them to return them to the lender.

The strategy aims to generate a profit from a decline in the share price, with the investor seeking to benefit from the difference between the initial selling price and the later repurchase price.

Training and Contractual Framework

As part of preparations for the mechanism, the FRA, through the Financial Services Institute, organized a training program for brokerage firms, financial institutions, and custodians. The program covered operating requirements, lending and borrowing limits and ratios, collateral and margin management, the rights and obligations of transaction parties, and the procedures for closing borrowing positions and returning securities.

The authority also issued a model agreement between brokerage firms and borrowing clients under FRA Chairman Decision No. 3350 of 2026. The agreement is designed to regulate contractual rights and obligations, operational procedures, expenses, commissions, and returns generated from investing collateral margins, providing greater clarity and reducing implementation risks.