Egyptian Financial Regulatory Authority

Decision No. 61 of 2017 of the Board of Directors of the Authority

Dated 19/4/2017

Regarding Procedures to Enhance the Protection of Clients' Accounts with Securities Market Companies

The Board of Directors of the Egyptian Financial Regulatory Authority Having reviewed the Capital Market Law No. 95 of 1997 and its Executive Regulations and decisions issued in implementation thereof; And the Central Depository and Registration of Securities Law No. 93 of 2000 and its Executive Regulations; And the Law Regulating Supervision over Foreign Securities and Financial Instruments No. 10 of 2009; And Law No. 119 of 1952 regarding Guardianship over Property; And Law No. 1 of 2000 issuing the Law Regulating Certain Procedural Rules in Personal Status Matters; And Presidential Decree No. 191 of 2009 regarding the Rules Governing the Management of the Egyptian Exchange and Its Financial Affairs; And Presidential Decree No. 192 of 2009 issuing the Statute of the Egyptian Financial Regulatory Authority; And Board Decision No. 67 of 2017 regarding the mechanism for trading shares in the same session and its amendments; And Board Decision No. 67 of 2014 regarding the regulation of margin trading in securities; And upon the approval of the Board of Directors in its session held on 19/4/2017:

Decided:

(Article 1) Securities market companies are required to observe all procedures set forth in this Decision, each according to its respective scope.

(Part One) Rules Governing the Opening of Accounts, Trading in Securities, and Distribution of Dividends

(Article 2) All securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity are prohibited from entering into any contracts or opening accounts for natural persons on their behalf except directly through the client. A power of attorney issued to any person shall not be considered valid for the purpose of opening client accounts. Notwithstanding the preceding paragraph, it is permissible to execute securities buy/sell transactions, deposit and withdraw checks and advances, acknowledge the validity of transactions and data, and certify account statements through a special official power of attorney or a general official power of attorney, provided it includes the phrase "Trading on an account with securities market companies". In all cases, margin buy transactions or same-session trading shall not be executed through a power of attorney.

The companies referred to in the first paragraph of this Article are also prohibited from entering into any contracts, opening accounts, or trading in securities for legal persons on their behalf except through the person legally authorized to execute legal transactions on behalf of the legal person or through someone duly authorized to do so.

(Article 3) Securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity shall not rely on powers of attorney issued by clients that were issued or last updated more than five years ago. They must take necessary steps to renew such powers of attorney before the end of the specified period. If a company is unable to renew the trading powers of attorney by the date mentioned in the preceding paragraph, the company must suspend trading on these clients' accounts via the powers of attorney and notify them thereof within at most one week from the date the triggering event occurs, as well as notify the Authority at the end of each month of the accounts on which trading was suspended by the company in the preceding month.

(Article 4) Without prejudice to the obligations of custodians under the provisions of the Central Depository and Registration of Securities Law, its Executive Regulations, and relevant Authority decisions, all custodians licensed by the Authority shall comply with the following:

1. Entering into a securities custody agreement directly with each of its clients prior to safeguarding their securities.
2. Not executing the physical delivery or unfreezing of securities held with them by securities brokerage firms unless confirmation is obtained that the client consents to trading through those firms, while observing the client's obligations to inform the company or entity and the trading venue of the activities involved.

(Article 5) The Central Depository and Registration of Securities company is required to restrict the distribution of dividends or returns that companies and entities centrally distribute to their shareholders or security holders to the method specified by the client through one of the following methods:

1. Transfer to the client's bank account at one of the banks.
2. Issuance of a bank check payable to the client, payable only to the first beneficiary.
3. An automated teller card specifically designated for distributing securities dividends.

Notwithstanding the foregoing, the aforementioned dividends or returns may be distributed to the accounts of companies and entities licensed for the margin trading activity, provided the following conditions are met: (a) The dividends or returns originate from securities purchased on margin for their clients or pledged as collateral for such purchase. (b) The contract concluded between the companies and entities licensed for margin trading and the client explicitly includes a clause granting the company or entity the right to distribute these dividends and returns on the securities to reduce the debt owed by the client under the margin trading system.

The Central Depository and Registration of Securities company may request the company or entity applying to distribute dividends or returns on securities owned on its behalf to its account, pursuant to the preceding paragraph, to submit a signed declaration by the company or entity confirming the acquisition of the purchased or pledged securities under the margin trading system for which dividends or returns are requested for each of its clients, and that its margin trading contract with the client - or any annex thereto - guarantees its right to distribute these dividends and returns on the securities to reduce the debt owed to it under the margin trading system.

(Article 6) Rules Governing the Trading on Clients' Accounts

(Article 7) A client's account shall be considered dormant with a brokerage firm or a company/entity licensed for the custody activity after twelve full months have passed without any deposit of funds into the client's account, withdrawal from it, or trading in securities. A client's account shall be considered dormant with a securities portfolio formation and management company after one month has passed following the expiration of the portfolio management contract with the company.

Securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity are required to prepare a register (paper/electronic) in which dormant accounts are recorded at the end of each month.

Reactivating the account and resuming trading through it shall only be permitted in accordance with the provisions of Article 9 of this Decision.

(Article 8) A client's account shall be considered dormant at the market level as per the data of the Central Depository and Registration of Securities company after twelve full months have passed since the last buy or sell transaction through any securities brokerage firm (excluding stock splits or receiving free shares).

The Central Depository and Registration of Securities company shall classify the account in its database as dormant at the end of each month following the expiration of the aforementioned period.

Reactivating the account and resuming trading through it shall only be permitted in accordance with the provisions of Article 9 of this Decision.

(Article 9) The dormant account shall be activated to prepare for resuming trading upon request by the client or their agent, subject to the following controls:

1. The Board of Directors of each securities brokerage firm, securities portfolio formation and management company, or company/entity licensed for the custody activity shall approve a list containing the name, job title, and signature of each person authorized by the company to certify the results of client account activations. It is required that those forms be approved by two authorized persons from the aforementioned list, and the Central Depository company shall be notified of that list, which shall be updated annually during the first half of January each year, or whenever required during the year.
2. Securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity shall, when the client/agent wishes to conduct the first transaction on the dormant account held with them (buy or sell) or submit a request referred to as "account activation", adhere to the form attached to this Decision, which must be signed by two authorized persons, and be recorded in the register referred to in Article 6 in front of the account on the date of its activation.

(Article 10) All securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity are required to comply with the following:

1. Their procedures manual must include instructions regarding the opening of accounts, trading on them, as well as the treatment of dormant accounts and their activation procedures, without prejudice to the procedures set forth in this Decision.
2. The internal auditor's duties must include monitoring, at least monthly, the compliance of the company's or entity's various departments with the provisions of this Decision.
3. The mandates and duties of the audit committee emanating from the Board of Directors must include verifying all procedures related to the opening of accounts, trading on them, as well as monitoring dormant accounts and their activation, and ensuring that periodic internal audit reports confirm that it has conducted such inspections.

(Article 11) The Central Depository and Registration of Securities company shall electronically submit to the Authority, by the end of the first week of each month, a report containing dormant accounts at the beginning of the preceding month that were activated during the preceding month. The report shall be classified by brokerage firm or custodian and shall include the client's code/name, the account activation date, and the value of transactions executed on it.

(Part Three) General Provisions

(Article 12) The following powers of attorney shall be repealed in the field of trading in securities and related activities such as buying or selling securities, distributing funds, or other forms for natural persons, effective from January 1, 2018. Powers of attorney that were issued or last updated more than five years ago may continue to be relied upon until January 1, 2018.

All securities brokerage firms, securities portfolio formation and management companies, or companies and entities licensed for the custody activity shall take the necessary measures to comply with the provisions of this Decision no later than July 1, 2017.

(Article 13) This Decision shall be published in the Egyptian Gazette and on the websites of the Authority and the Egyptian Exchange.

The Central Depository and Registration of Securities company shall be notified, and it shall take effect from the date of its publication in the Egyptian Gazette.

Chairman of the Board of Directors Sherif Samy