FRA Issues New Regulatory Framework to Activate Short Selling in the Egyptian Exchange
The Board of Directors of the Financial Regulatory Authority (FRA), chaired by Dr. Islam Azzam, has issued Decision No. 155 of 2026 to officially regulate short selling operations (borrowing securities for the purpose of selling them) in the Egyptian capital market.
The decision follows a series of extensive dialogues and discussions held by the FRA with the Egyptian Exchange (EGX), Misr for Central Clearing, Depository and Registry (MCDR), brokerage firms, and various active market players.
This move is part of a comprehensive trajectory to modernize the capital market's instruments. It follows the launch of the financial derivatives market last March and the new regulations allowing the establishment of hedge funds for the first time. These funds are now permitted to engage in short selling and invest in financial derivatives and other highly traded instruments, in compliance with the provisions of Capital Market Law No. 95 of 1992 and its executive regulations.
The launch of this new regulatory framework is considered a landmark event, paving the way for the actual activation of the short-selling mechanism on the EGX in the near future.
Introduction of the Central Lending System
The new decision introduces a "Central Lending System," developed and managed by the central depository company, MCDR. This system will maintain the balances of securities available for lending under new rules designed to ensure full transparency, governance, and the protection of all parties' rights. The system operates in accordance with global best practices and under the complete supervision of the FRA.
"The launch of the new regulatory framework came after exhaustive discussions with market participants, taking into account the concerns of all relevant entities and brokerage firms," stated Dr. Islam Azzam, Chairman of the FRA. "This is a model of constructive community dialogue through which the Authority balanced regulatory requirements, international experiences, and the historical obstacles that prevented the activation of short selling in previous years."
Dr. Azzam added that the preparatory work involved documenting all workflow stages within the Central Lending System. This includes verifying securities available for lending, displaying the names, quantities, lending periods, and acceptable rates on the system, as well as tracking borrowing transactions, open position closures, and defining the precise responsibilities of MCDR, brokerage firms, and custodians.
How the New Short Selling Mechanism Works
The newly regulated mechanism relies on two main parties: the Lender (the original owner of the securities) and the Borrower (an investor expecting a price decline).
The table below breaks down the operational workflow and financial scenarios for both parties:
Market ScenarioBorrower's Action & OutcomeLender's Outcome
Initial ActionBorrows shares, sells them at the current market price, and deposits a cash margin.Lends a portion of their owned shares through the central system.
If Stock Price Drops (Profitable Scenario)Repurchases the shares at the new lower price, returns them to the lender, and pockets the difference as profit (minus borrowing costs).Receives the shares back, plus a return close to the risk-free rate, while retaining ownership benefits.
If Stock Price Rises (Loss Scenario)Forced to repurchase the shares at a higher price to stop losses, returns them to the lender, absorbing the financial loss and borrowing costs.Receives the shares back, plus the agreed-upon lending yield and ownership benefits.