Egypt: Egypt Sets 50 Percent Cash Collateral Limit in New Rules for Short Selling

The Egyptian Exchange has introduced new regulations for short selling, mandating investors to provide cash collateral equivalent to a minimum of 50% of the market value of the securities borrowed. The Financial Regulatory Authority adopted these measures in Resolution No. 155 of 2026, aiming to expand trading opportunities and investment tools on the market.

Short selling enables investors to borrow shares, sell them, and repurchase them later, profiting from falling prices while incurring losses if the price rises. Misr for Central Clearing, Depository and Registry (MCDR) will hold the earnings from the share sale, while brokers must collect the additional 50% cash collateral before executing the trade, resulting in an initial coverage of 150% of the borrowed shares' value.

MCDR will oversee a central lending platform connecting the exchange, brokers, and custodians, tracking transactions, enforcing limits, and daily revaluation of the borrowed shares and collateral. The rules also cap the quantity of shares that can be borrowed, with short positions not surpassing 40% of a company's free-float shares, and a single lending arrangement limited to 5%, with a maximum of 2% for any individual investor or their associates.

Only securities meeting specified criteria approved by the EGX and the FRA will be eligible for short selling. Brokers must hold at least EGP 5 million in shareholders' equity for short selling and EGP 10 million if they offer margin trading as well. They must maintain a net liquid capital ratio of at least 15%. Existing approved firms have one month to implement the necessary systems after the rules' publication before they take effect.

Short selling introduces a tool previously absent from Egypt's stock market, enabling investors to take positions when they anticipate specific stocks to decline, while providing lenders with an additional income source from shares they already own. The 50% cash requirement aims to mitigate risk, as investors must deposit this collateral while MCDR retains the entire proceeds from selling the borrowed shares, establishing initial coverage equal to 150% of the position.

Daily revaluation ensures that losses resulting from a share price increase must also be covered as they occur. The limits on individual investors, brokers, and total borrowed shares seek to prevent short positions from becoming overly concentrated. The overarching objective of the EGX is to enhance liquidity and pricing; short sellers can inject trading activity and provide buyers when positions are closed, and allow investors to express adverse views on a company without withdrawing from the market.

The reform builds upon Egypt's efforts in creating a broader set of tools for local and foreign investors, encompassing hedge funds, derivatives, and market makers. AllAfrica, a platform publishing around 500 reports daily from over 90 news organizations and additional sources, covers a wide range of perspectives on every topic.

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