The FRA of Egypt has approved new rules for the Settlement Guarantee Fund to enhance financial stability and align with global practices. With increased resources and governance, these measures aim to mitigate counterparty risks and protect stakeholders in capital markets. Fund members are authorized to settle transactions up to six times their subscription amount, thereby strengthening financial security during trading activities.
The Financial Regulatory Authority (FRA) of Egypt has approved new executive rules for the Settlement Guarantee Fund, aimed at enhancing financial stability and aligning with global standards. These rules, issued by Misr for Central Clearing, Depository and Registry (MCDR), come under FRA Board Resolution No. 68 of 2024, which addresses risks tied to counterparty representation in settlements.
The FRA’s initiative seeks to improve MCDR’s operational mechanisms, bringing them in line with international Central Counterparty (CCP) practices to mitigate counterparty risk effectively. To bolster the Fund’s capabilities, FRA has increased its resources by 650% compared to members’ subscriptions, utilizing a “Waterfall” approach to counterparty risk management. This strategy outlines a clear protocol for accessing financial resources to manage potential financial challenges, drawing from multiple funding sources including the Central Securities Depository.
Additionally, the FRA has empowered Fund members to oversee the settlement of rights and obligations on transactions up to six times their subscription amount for securities traded on the Egyptian Stock Exchange, for transactions with a settlement cycle shorter than the usual T+2 period. The Settlement Guarantee Fund aims to ensure that trading obligations are met and thereby reduces counterparty risk across transactions.
The Fund encompasses all settlement members who directly process transactions through MCDR and designated clearing banks. Governance of the Fund will be managed by a seven-member committee, chaired by MCDR’s Managing Director, with members representing different sectors such as securities brokerage and custodians, all selected with FRA’s oversight. Committee members serve three-year terms, with provisions for inviting other attendees to meetings without voting rights.
These measures reflect the FRA’s continued effort to stabilize non-banking financial markets while safeguarding stakeholder interests, thereby enhancing the overall integrity of Egypt’s financial system.
In summary, the FRA’s approval of new rules for the Settlement Guarantee Fund signifies a robust commitment to align Egypt’s capital markets with international best practices. The augmentation of resources and governance structures aims to mitigate counterparty risks effectively and strengthen the stability of financial transactions on the Egyptian Stock Exchange, ultimately protecting all stakeholders involved.
Original Source: www.zawya.com
