CMA Board of Directors Decision No. 29 of 2004 Regarding the Regulation of the Settlement Guarantee Fund

Decision of the Board of Directors of the Authority No. (29) of the year 2004 dated 2004/8/5 Regarding the regulation of the work of the Settlement Guarantee Fund 1 According to the last amendment dated 2022-9-27

President of the Board of Directors of the General Authority for the Capital Market

After reviewing the Capital Market Market Law issued by Law No. 95 of 1992 and its Executive Regulations, And the Central Depository and Registration of Securities Law issued by Law No. 93 of 2000 and its Executive Regulations, And based on what was presented by the Board of Directors of the Egyptian Clearing, Depository and Central Registration Company, And on the decision of the Board of Directors of the General Authority for the Capital Market No. (29) issued at its meeting held on 2004/8/5,

Decided

(Article 1)
A fund is established within the Depository and Central Registration Company to guarantee the fulfillment of obligations arising from securities transactions, with the transfer of securities for settlement being subject to the provisions of Article 16 of the aforementioned Central Depository and Registration of Securities Law.

(Article 2)
The rights and obligations of the clearing members of the Fund shall transfer to the Fund with the same status existing at the time of the issuance of the attached rules, with the modification of those rights and obligations in light of these rules.

(Article 3)
The members' contributions to the Fund shall continue as stipulated in the Settlement Guarantee Fund during the period between the start of its activity and the beginning of October 2004, and the first period of the Fund's activity shall commence on this date. Contributions during this period shall be calculated based on the member's activity and their specific risk rate during the three months preceding this period, according to the attached rules.

(Article 4)
In the implementation of the provisions of this Decision:
The term "Member" refers to "Fund Member," the Fund refers to "Settlement Guarantee Fund," the Committee refers to "Fund Management Committee," the Authority refers to "General Authority for the Capital Market," the Company refers to "Egyptian Clearing, Depository and Central Registration Company," the Exchange refers to "Cairo and Alexandria Securities Exchanges," the Intermediary Company refers to "Securities Intermediation Company," the symbol "T" refers to the Trading Day, and the symbol "SD" refers to the Settlement Day. And the "Risk Rate" refers to the member's rating from their specific risk rate, calculated based on the number of times they failed to fulfill their obligations to the Fund during the period. And "Paper Settlement" refers to the Fund delivering or transferring deposited securities on behalf of the seller, and "Cash Settlement" refers to the Fund fulfilling the purchase value on behalf of the buyer.

(Article 5)
The Company's Board of Directors shall supervise the Fund Management Committee in issuing the rules and executive procedures for this Decision.

(Article 6)
This Decision shall be implemented with effect from 22/8/2004.
And the Depository and Central Registration Company shall implement it.

Article (1)
First: The Fund
A Settlement Guarantee Fund is established within the Depository and Central Registration Company to guarantee the fulfillment of obligations arising from securities transactions. The Fund shall consist of all clearing members whose clearing is conducted directly through the Company and its clearing branches, whether for the account of others or for their own account.

Article (2)
The Fund and its investments shall be separate from the Company's activities.
The Company shall allocate separate accounts for the Fund distinct from its own activities, and it shall keep separate books and records necessary for the Fund's activity through a dedicated management system for this purpose. In addition to the Fund's accounts, they shall be presented in the Company's consolidated financial statements.

Article (3)
The Company shall open one or more accounts in the name of "Settlement Guarantee Fund," into which members' contributions and other funds resulting from the Fund's activity shall be deposited.

Article (4)
The Company shall take the necessary measures to preserve the confidentiality of the Fund's data and shall not disclose them except to those entitled according to the law, without prejudice to the Authority's right to request reports and documents related to the Fund's activity.

Article (5)
-1 The Fund Management Committee shall consist of six members, as follows:

• One representative from the Cairo and Alexandria Securities Exchanges.
• Two representatives from the Company.
• Two representatives from the clearing members.
• One representative from the custodians.
  The Committee shall be chaired by one of the Company's representatives as determined by its Board of Directors.
  -2 Committee members shall be elected by direct secret ballot conducted by each category of members under the supervision of the Company. The Authority and the Exchange shall appoint their representatives on the Committee.
  The General Authority for the Capital Market shall be notified of the Committee members and their terms within ten days from the date of their appointment decision. The Authority may object to any of them if their appointment or continued membership would harm the Fund, its members, or participants in the capital market. The Committee may invite experts to attend its meetings without them having voting rights in its decisions. The Committee's term shall be three years, renewable for one or more additional terms.

Article (6)
The Committee shall manage the Fund with the diligence of a prudent manager, and in this regard, it shall:
-1 Propose investment policies for the Fund's funds.
-2 Propose amendments to the Fund's rules to keep pace with developments in the securities market or to address incorrect practices by Fund members.
-3 Take measures against non-compliant members in accordance with this Decision.
-4 Resolve disputes that may arise between Fund members.
Committee proposals shall be presented to the Company's Board of Directors for study and for taking the necessary legal actions regarding them.
The Committee shall prepare a quarterly financial report for the Fund, which shall be presented to the Company's Board of Directors, with a copy sent to the Authority.

Article (7)
The Authority shall work to resolve disputes arising between the Committee and Fund members.

Article (8)
Second: Rules Governing Members' Contributions Method of Determining Contribution Value:
-1 The member's contribution value shall be determined as follows:
Member's Contribution Value = Member's Share in the Fund × Fund Capital × Member's Specific Risk Rate -2 The member's share in the Fund shall be determined based on their average daily activity (average total value of buy and sell orders executed through them) during the three months preceding the period for which the Fund's capital is required, relative to the total average activities of all members during the same period, as follows:
Total value of buy and sell orders for the member during the three months Average Daily Activity of the Member = --------------------------------------- × 2 Number of execution days for the member during the three months

Average Daily Activity of the Member
Member's Share in Fund Capital = --------------------------------------- Total Average Daily Activity of All Members

-3 The Fund's capital shall be determined as follows:
Highest Average
Daily Activity of the Member
During the Three Months
×
Maximum Number of
Settlement Days
×
35%
(Risk Rate)

-4 In all cases, the Fund's capital shall not be less than the average profit of the previous periods, rounded to the nearest million.
-5 The contribution value shall be increased according to the member's specific risk rate during the period for which the contribution is calculated.
-6 The minimum contribution for any member shall not be less than 10,000 Egyptian pounds or the contribution of the member ranked lowest in the bottom ten percent of members' contribution rankings, whichever is higher.
-7 The Fund's capital and its members' contributions shall be recalculated every three months.
-8 The specific risk rate for each member is calculated based on the number of settlement defaults, according to the following table:

Relative Importance Factor for Risk Rate
Settlement Day 2.50 Points
Settlement Day + 1 5 Points
Settlement Day + 2 10 Points
Fund's Cash Settlement 20 Points

-9 Fund members shall be divided into different categories according to the risk specific to each category, and the risk rate for each category shall be determined by aggregating the points for each risk item. The risk rate for each member shall be determined and added to their share value in the Fund's capital to determine their contribution value, as follows:

Category Referenced Risk Rate Risk Rate
A Less than or equal to 30 points 1 time
B More than 30 points and less than or equal to 60 points 1.25 times C More than 60 points and less than or equal to 90 points 1.50 times D More than 90 points 2 times

-10 Members of the Fund subject to decisions of suspension or revocation of their license to conduct activity shall pay the same contribution value that was stipulated for them in the Fund upon returning to conduct activity, with the contribution not being less than the stipulated minimum.

Article (9)
When the Fund's capital is recalculated according to the preceding Article, the Fund Management shall notify members of their new contribution value, taking into account the following:
-1 If the member's contribution value decreases compared to the previous period, the member may request a refund of the increase, provided that they have fulfilled all their obligations to the Company and the Fund. This refund shall be paid to the member within ten working days from the date of their request submission, taking into account any outstanding obligations of the member to the Company or the Fund. If the member does not submit a refund request within this period, it shall be considered as their implicit consent to add that amount to their contribution for the new period. -2 If the membership of any member of the Fund expires, they may recover their entitlements from the Fund after ninety days from the end of their membership. These entitlements shall be refunded after the Company verifies that the member has settled their transactions and fulfilled their obligations to the Company and the Fund. The member shall remain liable for any debts owed to them even after recovering their entitlements, and the Company shall have the right to recourse against them, taking into account Article 33 of the aforementioned Capital Market Law.

Article (10)
The Fund's capital shall not be used except for settling rights and obligations arising from securities transactions listed on the Exchange. The Fund's operations shall be determined as follows:
-1 Fulfilling the purchase value of securities on behalf of the buyer if they fail to fulfill this value partially or fully at the specified settlement time.
-2 Delivering or transferring deposited securities on behalf of the seller if they fail to deliver or transfer them at the specified settlement time, without prejudice to the transfer of securities for settlement to settle the transaction.
-3 The Fund shall pay the non-compliant member's obligations on their behalf at the specified settlement time, even if the amount paid by the Fund on behalf of the member exceeds their contribution to the Fund.
-4 Any amount paid by the Fund on behalf of the member and any amount calculated against them as a penalty shall be deducted from their contribution to the Fund, and the member must pay the contribution or restore it within the period and conditions stipulated in this Decision. -5 The Fund may request compensation from the debtor to fulfill settlement obligations on behalf of non-compliant members, and each member shall bear their share of these debts.

Article (11)
Procedures for Deducting Members' Contributions from the Fund's Capital:
At the specified settlement time (SD), operations for which the seller or buyer failed to fulfill their settlement obligations shall be processed, and the following procedures shall be carried out within the specified deadlines:
-1 At 9:00 AM, the Fund shall pay the obligations of the non-compliant member who failed to fulfill their settlement obligations, deducting this from their contribution value in the Fund's capital. If the non-compliant member is the buyer, the Fund shall sell the securities for its account. If the non-compliant member is the seller, the Fund shall collect the value of the securities from the buyer, and the non-compliant member shall bear the price difference of the securities. -2 The Fund Management shall notify the non-compliant member that the Fund has substituted them in paying the obligations arising from the operations they failed to fulfill, and that the value of these obligations has been deducted from their contribution in the Fund's capital, and shall inform them of the necessity to fulfill those obligations and pay the penalty stipulated on the value of those operations. -3 The Fund Management shall notify the Authority of the operations for which the member failed to fulfill the arising obligations, to take whatever measures it deems appropriate against them according to the law. -4 The Egyptian Clearing Company may warn the member who failed to fulfill their obligations, under the conditions specified by the Authority's President, in implementation of Article 30 of the aforementioned Capital Market Law. -5 The Fund Management shall grant the non-compliant member a grace period of two working days starting from the settlement day to fulfill their settlement obligations. If the non-compliant member fails to fulfill their settlement obligations, the Fund Management shall issue an order to the intermediary companies operating in the market, according to the method determined by the Committee, to start, from the next working day after the two-day period, executing the sale or purchase of the securities subject to the obligation for the Fund's account. -6 After execution, the intermediary company executing the sale or purchase shall notify the Fund Management of the completion of the execution. -7 The Fund Management shall notify the non-compliant member of the completion of the execution and inform them of the total loss amount resulting from the change in the price of the securities, brokerage commissions, and any other additional costs, as well as the penalty amount required to be paid to the Fund upon its due date. -8 When the Fund substitutes for the seller who failed to deliver or transfer the deposited securities, the Fund may take purchase procedures. If the Fund fails to obtain the security within ten working days due to the non-availability of this security in the trading market, it shall notify the Authority and the Exchange to consider taking necessary procedures to cancel the transaction.

Article (12)
Payment of Members' Contributions to the Fund's Capital or Restoring Them:
The member must pay their contribution to the Fund or restore it in the following cases:
-1 If the recalculation of the Fund's capital results in an increase in members' contributions, members must restore the required contribution within five working days at most from the date of their notification. If they fail to pay within this period, the member shall pay a daily penalty of (two and a half percent) for each day of delay starting from the day following the notification, on the value of the unpaid contribution. The penalty shall continue to accrue until the contribution value is paid or restored. -2 If the member's contribution value decreases due to deductions by the Fund, whether to fulfill the member's obligations on their behalf or for the calculated penalty, or when the transfer of securities for settlement deducts from the member's contribution linked to the securities in the Fund's capital due to their failure to deliver or transfer the securities executed through them within the specified deadlines, or due to the insufficiency of their cash balance in the Clearing Bank to settle purchase operations settled through them, the member must restore the contribution value within two working days at most from the settlement date. The member shall pay a daily penalty of (two and a half percent) for each day of delay starting from the settlement date, on the value of the contribution or the amount deducted from it due to their failure to fulfill. The non-compliant member shall pay the penalty in the same currency of trading, and the penalty shall continue to accrue until the contribution value is restored, without prejudice to taking the procedures stipulated in the second paragraph of Article (18) of the aforementioned Central Depository and Registration of Securities and Financial Instruments Law.

Article (13)
Payment Deadlines and Penalty Amount:
A- In all cases mentioned in the preceding Article, the member must restore their contribution value to the Fund's capital within the periods specified in the preceding Article.
If the member fails to pay within the specified periods, the following measures shall be taken:
A-1 The penalty shall continue to accrue according to the preceding Article.
A-2 The Company shall take measures stipulated in Article 23 of the aforementioned Central Depository and Registration of Securities Law.
A-3 If the member fails to fulfill the stipulated obligations to the settlement and the Fund within two working days at most from the date of their warning, the Authority shall be notified to take the necessary legal actions.

Article (14)
-1 The Company shall invest the Fund's funds in a manner that ensures their growth, either in short-term financial instruments or in securities and money market instruments.
-2 At the end of each financial year, the return on members' shares in the Fund shall be distributed according to what the Company's General Assembly decides in this regard, proportional to the member's share relative to the total contributions of all members in the Fund, taking into account the member's obligations resulting from their failure to pay the Fund's entitlements. No return shall be distributed on the value of the member's specific risk rate. In all cases, no penalty collected from members or investment returns shall be distributed. -3 The Fund shall bear all its activity and administrative expenses.

Article (15)
The review and audit of the Fund's accounts shall be conducted by an auditor appointed by a decision from the Company's General Assembly, elected from the register prepared by the Authority for this purpose.

Article (16)
The Fund's financial year shall begin and end with the beginning and end of the Company's financial year, and the provisions regarding it shall be those stipulated in Articles 13 and 62 of the Executive Regulations of the aforementioned Central Depository and Registration of Securities Law.

Article (17)
The Company shall receive a percentage of the Fund's total revenues in consideration for its administration, according to what the Company's General Assembly decides in this regard. The Authority shall be notified of the General Assembly's decision, and if the Authority does not object to the decision within fifteen days from its issuance, it shall become effective.