Chapter Ten: Prohibition of Speculation in Precious Metals and in Foreign Exchange Spot Transactions and on the Egyptian Pound Using Financial Derivatives and Prohibition of Opening Accounts in Egyptian Pounds for Banks Operating Abroad

1. It is not permissible for banks to deal in or speculate in precious metals in any form, whether for their own account or for the account of their clients.

2. The dealings of banks operating in the Arab Republic of Egypt in the field of foreign exchange spot transactions are limited to the operations necessary for the bank to conduct its business, and no operations involving speculation in the aforementioned market are permitted for these banks, whether for their own account or for the account of their clients.

3. It is confirmed not to allow banks operating in the foreign exchange spot market to carry out any margin trading (Trading Margin) operations on the various transactions and precious metals for their clients, and the Central Bank of Egypt emphasizes that non-compliance with this renders the concerned bank subject to the measures that the CBE Board of Directors may take.

4. The Central Bank has decided the following regarding exchange rate operations linked to the Egyptian Pound:

First: Forward FX Operations:

-1 Allowing banks to conduct forward FX operations for corporate clients, provided that the purpose is to hedge the clients' positions resulting from any of the following commercial transactions carried out through the bank itself:

• Documentary credits.

Reference: Circular Letter No. 287 issued on June 4, 1985 (CBE Board of Directors Resolution No. 1 dated May 23, 1985).

Reference: Circular Letter No. 305 issued on July 16, 1989 (CBE Board of Directors Resolution No. 2 dated June 8, 1989).

Reference: Letter from the Deputy Governor of the Central Bank of Egypt dated July 8, 2009.

Reference: Circular Letter dated October 27, 2022 regarding financial derivatives linked to exchange rates.

• Collection documents.
• Supplier facilities.
• Remittances of foreign shareholders' profits abroad, with specified dates.
• Proceeds from commodity and service exports received by bank clients, provided the bank obtains confirmation that the transaction is commercial.

It must be ensured that clients are not allowed to conduct these operations for speculative purposes.

-2 Allowing banks to conduct forward FX operations with local banks for non-speculative purposes.

Second: Allowing banks to conduct Foreign Exchange Swap (SWAPs FX) operations for corporate clients, provided that the purpose is to hedge the clients' positions resulting from any of the commercial operations previously mentioned in Item (4/First/1) above and carried out through the bank itself, with emphasis on the possibility of conducting the same operations with local banks only.

Third: Non-Deliverable Forward FX Operations:

-1 Allowing banks to conduct non-deliverable forward FX operations for corporate clients only, and not for individuals, provided that the purpose is to hedge the clients' positions resulting from any of the commercial operations previously mentioned in Item (4/Third/1) above and carried out through the bank itself, with due care not to allow these operations for speculative purposes.

-2 Allowing banks to conduct the same operations with local banks for non-speculative purposes.

-3 Settlement of these operations in the local currency only.

This, while observing what was stated in the credit granting guidelines regarding the non-provision of any credit facilities to clients in foreign currency or financing any activity in foreign currency unless it is fully confirmed that the clients have repayment sources in foreign currency with their commitment to use them for repayment.

5. Conducting financial derivative operations linked to the Egyptian Pound:

It is strictly prohibited for any bank to conduct financial derivative operations linked to the Egyptian Pound with Egyptian residents and non-residents and foreign banks, except for the purpose of avoiding the performance of the required reserve ratio and avoiding the prohibition of dealing in the local currency against a foreign currency, and its use is limited only to genuine hedging needs in accordance with the rules and supplementary regulations issued by the Central Bank of Egypt regarding the foreign exchange market on December 21, 2004, and non-compliance with the foregoing renders the bank subject to the measures that the CBE Board of Directors may take.

Reference: Letter from the Governor of the Central Bank of Egypt dated April 29, 2007.

6. Prohibition of opening accounts in Egyptian Pounds for banks operating abroad for speculative purposes:

In light of what has been observed of banks operating abroad opening accounts in Egyptian Pounds for Egyptian banks, which are used to cover foreign exchange transactions carried out by these banks abroad, banks must not open such accounts in all banks, but they are permitted to hold positions in Egyptian Pounds in these accounts and settle the existing balances as soon as possible.

Reference: Meeting of the Governor of the Central Bank of Egypt with the heads of banks held on October 4, 2000.