The Egyptian Financial Supervisory Authority (EFSA) has approved new legislation limiting the issuance, conversion and replacement of local EGX-traded shares into internationally-traded global depository receipts (GDRs). EFSA has frozen all GDR trading temporarily until the new regulations come into effect. It will also freeze all GDR acquisitions and ‘buy' offers for the same period. An EFSA report pointed out that the new regulations will apply to security brokerage firms and asset management firms which trade GDRs in exchange for shares traded on the Egyptian Exchange (EGX). Once the regulations come into effect, only those companies with EFSA approval to trade GDRs will be able to do so. Unlicensed companies will no longer be able to trade GDRs. The above EFSA approval requires that the value of the total issued and paid capital for any companies trading GDRs must exceed EGP 20m. The company's solvency cannot be less than 10%, and it must also form a dedicated GDR trading department, with a management team comprising a minimum of two members. The EFSA report has laid down strict activity regulations including those related to contracting with clients, with a new dedicated contract form introduced to inform clients about all the possible risks related to trading GDRs. Also, cash settlements must be completed according to Central Bank-issued rules and regulations regarding overseas foreign exchange remittances. The new regulations also include obligations on the internal auditor in securities brokerage firms to reduce manipulations on such transactions. CEO of EAC Securities Brokerage Adel Abdel Fatah said that EFSA's decisions will protect minority investors of companies that deal without EFSA approval in GDR trading. Economic expert and Managing Director of IDT Consulting and Information Systems Company Mohamed Saeed also praised the new regulations for “controlling unlicensed companies and manipulations". “These decisions will protect investors' funds, and this is role EFSA's role in the first place. They will also ensure that the trades are carried out competently and efficiently and will “cover any surprise events".
