General Authority for Financial Supervision

Board of Directors Decision No. 33 of 2019

Dated 19/3/2019

Regarding the provisions, conditions, and procedures for licensing the activity of futures exchanges to trade derivatives of securities listed on a securities exchange

The Chairman

After reviewing Law No. 159 of 1981 on Joint Stock Companies, Limited Partnerships, Limited Liability Companies, and Single-Person Companies, and its executive regulations; And the Capital Market Law No. 95 of 1992, and its executive regulations; And Law No. 93 of 2000 on Central Depository and Registration of Securities, and its executive regulations; And Law No. 10 of 2009 regulating supervision over non-Egyptian markets and financial instruments; And Presidential Decree No. 191 of 2009 organizing the Egyptian Exchange and its financial affairs; And Presidential Decree No. 197 of 2009 issuing the Basic Statute of the General Authority for Financial Supervision; And FRA Board of Directors Decision No. 107 of 2016 regarding corporate governance rules for securities companies; And FRA Board of Directors Decision No. 162 of 2018 regarding conditions for board members of companies re-listing securities or under FRA supervision; And upon approval by the FRA Board of Directors in its meeting held on 19/3/2019:

Decided:

Article One

The Authority may license joint stock companies to engage in the activity of futures exchanges trading derivatives of securities listed on a securities exchange, after verifying compliance with legal provisions, procedures, and conditions for establishing securities companies, and upon issuance of a Board approval based on a request submitted by the founding representative, accompanied by proof of meeting the following requirements:

(a) The issued and fully paid-up capital must not be less than twenty million Egyptian pounds or its equivalent in foreign currencies at the exchange rate issued by the Central Bank of Egypt.

(b) The company's headquarters must be in the Arab Republic of Egypt, with the right to conduct its activity through other branches within Egypt upon obtaining Authority approval.

(c) The ownership share of financial institutions, exchanges, or licensed financial market companies must be less than (5%) of the shareholding structure of the futures exchange company.

(d) The Board of Directors must be formed for a three-year term, renewable, adhering to the conditions in FRA Board Decision No. 107 of 2016 on corporate governance rules.

(e) Without prejudice to FRA Board Decision No. 162 of 2018, the founder, board members, and proposed executive directors must have a good reputation. No one among them should have been convicted in the five years preceding the application for a felony or misdemeanor involving moral turpitude or breach of trust, or any crime stipulated in laws regulating non-Egyptian financial activities, unless their reputation has been restored or the sentence has been served and three years have passed since its execution.

(f) Compliance with the provisions of FRA Board Decision No. 107 of 2016 on corporate governance rules.

(g) Nomination of a sufficient number of executive directors possessing the necessary expertise for the technical and administrative affairs of the exchange company.

(h) Submission of a study detailing technical, administrative, and financial aspects aligned with the exchange's activity in trading derivatives of securities listed on a securities exchange.

(i) Adherence to the Authority's decision regarding the model initial contract and bylaws for a futures exchange company trading derivatives of securities and financial markets listed on a securities exchange.

Article Two

Licensing for companies wishing to engage in the futures exchange activity trading derivatives of listed securities shall be issued based on a Board of Directors decision, after verifying the following conditions:

1. Compliance with the requirements stipulated in Article (26 bis) of the Capital Market Law.
2. Payment of a licensing fee of one hundred thousand Egyptian pounds.
3. Payment of the insurance amount as specified in this Decision.
4. Availability of necessary technical requirements for the company's headquarters and branches (if any).
5. Existence of an electronic trading system and a work procedures manual ensuring transparency.
6. Provision of sufficient and clear information to market participants to ensure the safety and stability of transactions in the market.
7. Availability of electronic connection lines with the Authority, the Clearing and Settlement Company, brokerage firms, and other relevant entities.
8. Availability of necessary electronic software to conduct the activity, particularly regarding electronic custody and monitoring of trading operations.
9. Existence of an operational risk management manual ensuring identification of potential risks, adaptation of response measures to mitigate their impact if realized, and monitoring and reporting mechanisms, ensuring continuity of trading operations.
10. Establishment of systems to ensure sound and efficient technical operation of work systems, including data security and protection systems for information, communication, and networking systems, and emergency measures to handle risks of system failures.
11. Appointment of executive directors and a sufficient number of experienced technical and administrative staff, particularly a Risk Manager, Credit Manager, and Internal Audit Manager.
12. Compliance with regulatory rules, procedures, and requirements approved by the Authority regarding internal control and internal audit functions.
13. Approval by the Authority of all aforementioned rules, procedures, and systems prior to implementation.

Article Three

The Authority may license the Egyptian Exchange to directly engage in trading derivatives of securities listed on it without requiring the establishment of a joint stock company. Licensing in this case shall be issued based on a Board decision after verifying the following:

1. Compliance with licensing conditions stipulated in Article Two of this Decision.
2. Allocation of an amount not less than twenty million Egyptian pounds to conduct the activity.
3. Implementing necessary administrative and technical modifications to separate its securities activity from its derivatives trading activity functionally, financially, and technically.
4. Maintaining independent accounts for conducting the activity and preparing independent financial statements.
5. Forming a committee to supervise the activity, consisting of at least seven and at most eleven members meeting the conditions in paragraph (e) of Article One. Their names, qualifications, and experience must be disclosed upon appointment. The committee shall have the powers and authorities of the Board of Directors of licensed futures exchange companies trading derivatives of listed securities.
6. Appointment of a full-time executive director to manage the trading activity of derivatives of listed securities.

Article Four

The Chairman of the Board of Directors of the futures exchange shall manage its affairs and represent it before courts and authorities. The Vice Chairman shall substitute the Chairman in all their powers in case of absence or impediment preventing them from performing their duties.

Article Five

The futures exchange is committed to taking all necessary measures to track, monitor, and address any violations of market rules and regulations, and to rectify them and counter their consequences.

Article Six

The Chairman of the Board of Directors of the exchange company or the executive director responsible for managing the activity at the Egyptian Exchange, as applicable, must notify the Authority Chairman of any developments or events affecting the trading activity immediately upon occurrence, as well as any violations or excesses by brokerage firms or other companies trading derivatives, particularly in the following cases:

(a) Any fundamental changes or developments in the shareholding structure of the exchange company, any deficiency affecting its financial stability, or any mortgage or attachment on its assets.

(b) Any modifications to the information or data contained in the licensing application and its attachments.

(c) Any lawsuit involving the exchange or its employees arising from exchange activities, or which could affect its financial position.

(d) If a board member or committee member loses eligibility to continue serving due to circumstances stipulated in FRA Board Decision No. 162 of 2018.

(e) If an impediment affects any of its trading members or affiliated brokerage firms, preventing them from continuing to comply with rules, systems, licensing requirements, or financial obligations.

(f) If they become aware of a conflict of interest regarding transactions conducted through the exchange.

(g) If they become aware of violations by market participants or brokerage firms against applicable laws, regulations, bylaws, or decisions of the exchange or Authority.

The Authority shall have the right to review and request data and documents related to the futures exchange activity and verify its compliance with the law, its executive regulations, and implementing decisions.

Article Seven

Without prejudice to the Capital Market Law and its implementing decisions, the Authority's approval is required for decisions by the futures exchange Board of Directors or the supervision committee at the Egyptian Exchange regarding trading rules, membership rules, and other market organization rules. These decisions shall not take effect until approved by the Authority.

Article Eight

The futures exchange shall have two auditors registered with the Authority. Their appointment and fees shall be decided by the General Assembly of the licensed company or by the Authority Chairman if the Egyptian Exchange conducts the activity directly, for one fiscal year renewable, subject to the following:

1. Preparation of annual and periodic financial statements in accordance with Egyptian Accounting Standards.
2. The auditors shall perform their duties in accordance with Egyptian Auditing Standards, ensuring annual financial statements are prepared within three months from the end of the fiscal year.
3. Notification to the Authority of annual financial statements accompanied by the auditors' report one month prior to the scheduled General Assembly meeting or the Egyptian Exchange Board meeting to discuss the statements, as applicable. The Authority may review the documents and reports and notify the company or exchange of its comments (if any) and request reconsideration consistent with audit findings. If the company or exchange fails to comply, it must publish the Authority's comments and requested amendments alongside the financial statements and auditors' report.
4. Notification to the Authority of periodic financial statements regarding performance and operational results, accompanied by the auditors' limited assurance report, ensuring fair and accurate disclosure of the financial position and risk management measures taken, within a maximum of 45 days from the end of the reporting period.

Article Nine

Exchange companies are committed to paying the Authority a cash insurance amount equal to five per thousand of the issued and fully paid-up capital. If the capital increases, the company must top up the insurance amount according to the stated ratio. The Egyptian Exchange shall pay a cash insurance amount equal to five per thousand of the amount allocated for trading derivatives of listed securities. The insurance amounts mentioned in the preceding two paragraphs shall be deposited in a special account in the Authority's name at the Central Bank of Egypt.