The Egyptian Financial Supervisory Authority (EFSA)

Chairman of the Board

Decision of the Board of Directors of the Egyptian Financial Supervisory Authority

No. (80) of 2011 Dated 28/9/2011

Regarding the Regulations Governing the Registration of Execution and Marketing Branches of Securities Brokerage Companies in the Authority's Register

---

The Board of Directors of the Egyptian Financial Supervisory Authority

Having reviewed:

• The Law on Joint Stock Companies, Companies with Limited Liability by Shares, and Limited Liability Companies issued by Law No. 109 of 1981, its executive regulations, and the decisions issued in implementation thereof;
• The Capital Market Law issued by Law No. 90 of 1997, its executive regulations, and the decisions issued in implementation thereof;
• Law No. 10 of 2009 on the Regulation of Supervision over Non-Banking Financial Markets and Instruments;
• The Statutes of the Egyptian Financial Supervisory Authority issued by Presidential Decision No. 192 of 2009;
• The Decision of the Chairman of the General Authority for the Capital Market No. 49 of 2006 regarding the requirements for establishing securities brokerage companies and licensing them to conduct business;
• The Decision of the Chairman of the General Authority for the Capital Market No. 50 of 2006 regarding the system for trading securities through the Internet;
• The Decision of the Chairman of the General Authority for the Capital Market No. 24 of 2007 regarding the licensing controls for employees working in securities brokerage companies;
• The Decision of the Chairman of the Board of Directors of the Authority No. 68 of 2010 regarding licensing controls for branches of brokerage companies and licensing the marketing of trading on the Egyptian Exchange via the Internet;
• The Decision of the Chairman of the Board of Directors of the Authority No. 407 of 2010 regarding the executive procedures for registering and documenting branch types in the Branch Register of the Authority;

And having reviewed the Decision of the Chairman of the Board of Directors of the Authority No. 507 of 2010 regarding facilitating the executive procedures for registering and documenting branches in the Branch Register of the Authority;

And having obtained the approval of the Board of Directors in its session No. (13) of 2011 dated 28/9/2011;

Decision

(Article One)

Securities brokerage companies licensed to conduct marketing, receive orders, or execute trades through locations other than the company's headquarters are not permitted to do so without obtaining prior approval from the Authority to register the branch in the designated register, based on a request submitted by the company demonstrating compliance with the conditions set forth in this Decision.

Securities brokerage companies are prohibited from dealing with agencies to market their services in any form, except for contracts entered into for advertising purposes, provided that the Authority is notified thereof.

A special register shall be established by the Authority for the registration of branches, each assigned a serial number linked to the brokerage company's license number. Approval for the registration, closure, or transfer of a branch shall be issued via a decision by the Chairman of the Authority.

(Article Two)

The Authority shall issue its decision approving or rejecting the registration of branches in the designated register based on market needs, the geographical distribution of the activity, and the applicant's ability to manage and address risks associated with expansion.

(Article Three)

Branches approved for registration in the designated register are classified as follows:

First: Execution Branch - Category One:

This branch assumes all authorities exercised by the headquarters, including receiving and executing orders via the Order Entry System, and executing transactions directly through the Matching System (TWS) and the Order Management System (OMS). This is conditional upon (TWS) being operated by registered execution venues, and order entry and execution via the (OMS) being conducted by an account manager licensed by the Authority, provided they have passed the Execution Venue Test from an Authority-approved entity.

Second: Execution Branch - Category Two:

This branch assumes the authority to receive orders and transmit them via the Order Management System (OMS) to the Exchange. This is conditional upon order entry being conducted by an account manager licensed by the Authority, provided they have passed the Execution Venue Test from an Authority-approved entity.

Third: Marketing Branch:

Its activities are limited to marketing and promoting the company's services, attracting clients, and informing them of the company's policies and regulations governing capital markets generally, within the scope of the company's licensed purpose.

(Article Four)

Securities brokerage companies are required to implement an internal control system covering the headquarters and all registered branches to ensure the integrity of activities and protect client rights. Specifically, they must ensure:

1. The availability of an internal control system at the company level, covering the headquarters and its branches.
2. That branch employees adhere to the rules and procedures governing trading in the securities market, and that the company's internal auditor conducts field inspections within branches to verify the correctness and integrity of procedures, in coordination with internal control officials at the branches.

(Article Five)

The following general conditions are required for registration in the Branch Register:

1. The minimum paid-up capital of the applicant securities brokerage company must not be less than five million Egyptian pounds. If a new branch is registered after the fourth branch, the paid-up capital must be increased by 500,000 pounds for approval of a Category One Execution Branch, by 400,000 pounds for each Category Two Execution Branch, and by 200,000 pounds for each Marketing Branch, to cover liabilities and risks arising from such expansion.

   An exception to the capital increase requirement applies if the new branch is located in a governorate where the number of securities brokerage company branches is less than 10, according to the Authority's register. This exception is limited to one branch per company in that governorate.

2. Implementation of back-office automated systems and activation of the automated order book in accordance with the Decision of the Chairman of the Board of Directors of the Authority No. 49 of 2006.

3. Submission of a certificate from the Egyptian Exchange confirming the company's compliance with financial solvency standards during the three months preceding the registration request, specifying the ratio of net liquid capital daily during that period.

4. Fulfillment of licensing requirements for employees at the branches.

5. The Authority may, if the number of a company's branches exceeds three, mandate the appointment of a Managing Director to supervise the branches, based on the company's internal control system.

6. Fulfillment of physical and electronic infrastructure requirements appropriate to the nature of each branch. For Execution Branches, a dedicated customer hall must be available for trading via the Internet using customers' own devices, with security tools required and access restricted to customers using their own names and passwords.

7. Payment of a service fee for the study and examination of branch registration approval requests, amounting to 1,000 pounds for an Execution Branch and 1,000 pounds for a Marketing Branch.

8. Payment of an annual service fee to the Authority, amounting to 1,000 pounds for an Execution Branch and 1,000 pounds for a Marketing Branch.

(Article Six)

Approval for the registration of a Category One Execution Branch requires the company to demonstrate compliance with the requirements for conducting securities brokerage activities for the requested branch, in addition to the following:

1. The presence of a Branch Manager, a Branch Internal Auditor, and an Account Manager licensed by the Authority. The Account Manager must have passed the Execution Venue Test from an Authority-approved entity if order entry and execution are conducted via the Order Management System (OMS) and by an execution venue.

2. Implementation of the final registration system for customer orders and the practical application of the automated order book.

3. Availability of an internal control system ensuring the protection of client rights at the branch.

4. Commitment to providing capabilities for direct order entry and execution via the Automated Matching System (TWS) (remote execution screens). The company may use the Order Management System (OMS). Commitment is also required that orders (TWS) are not entered or executed except through a venue, and for the Automated Matching System (TWS), execution must be conducted by an Account Manager licensed by the Authority who has passed the Execution Venue Test according to the prevailing order execution system.

(Article Seven)

Approval for the registration of a Category Two Execution Branch requires the company to demonstrate compliance with the requirements for conducting securities brokerage activities for the requested branch, in addition to the following:

1. The presence of a Branch Manager and an Account Manager licensed by the Authority. The Account Manager must have passed the execution tests if order entry and execution are conducted via the Order Management System (OMS).

2. Implementation of the final registration system for customer orders and the practical application of the automated order book.

3. Availability of an internal control system ensuring the protection of client rights at the branch.

4. Commitment that in the event of receiving or disbursing cash or checks, a dedicated cashier must be appointed, reporting to the Financial Director at the headquarters. Transactions must be conducted using named receipts signed by the cashier, specifying the amount in numbers and words, the purpose of the receipt, and the date of issuance. All receipts must be stamped with the company seal clearly. This must comply with legally prescribed anti-money laundering controls.

5. Provision of a mechanism to prove orders received and deliver original orders or proof of receipt, regardless of the method of receipt, to the headquarters at least weekly.

(Article Eight)

Securities brokerage companies conducting trading via the Internet under the Decision of the Chairman of the General Authority for the Capital Market No. (50) of 2006 (ON LINE TRADING) are particularly required to verify the delivery to the customer of the tool for user identification and confirmation, and the user's identification code in a secure manner. Transactions via the Internet must use legally approved electronic signature tools.

The term "electronic signature tools" refers to security protection systems linked to electronic signatures, which enable the verification and confirmation of user identity when trading via the Internet (ON LINE TRADING). These tools are obtained by the securities brokerage company from one of the licensed entities.

These companies and their employees are prohibited from using the tool for identification and confirmation of any of their clients to enter orders or execute transactions on the Exchange.

Furthermore, the company is obligated to submit to the Authority documentation confirming...