Financial Regulatory Authority Board Decision No. 117 of 2022 Amending Decision No. 29 of 2004 on the Clearing Settlement Guarantee Fund

Egyptian Gazette - No. 218 (Continued B) dated October 2, 2022 Financial Regulatory Authority Board of Directors Decision No. (117) of 2022 Dated September 27, 2022 Amending the Board of Directors Decision of the Financial Market Authority No. 29 of 2004 regarding the regulation of the Clearing Settlement Guarantee Fund

The Board of Directors of the Financial Regulatory Authority, Having reviewed the Capital Market Law issued by Law No. 95 of 1992 and its Executive Regulations; And the Clearing and Central Registration of Securities and Financial Instruments Law issued by Law No. 93 of 2000 and its Executive Regulations; And Law No. 10 of 2009 regulating supervision over non-banking financial markets and instruments; And the Board of Directors Decision of the Financial Market Authority No. 29 of 2004 regarding the regulation of the Clearing Settlement Guarantee Fund; And after approval by the Board of Directors in its session held on September 27, 2022; Has decided:

Article (1)
The text of Article (12) of the aforementioned Board of Directors Decision of the Financial Market Authority No. 29 of 2004 is hereby replaced with the following:

Article (12) Payment of Members' Contributions to the Fund's Capital or Completion Thereof:
The member shall pay the value of his contribution to the fund or complete it in the following cases:

1. If the re-evaluation of the fund's capital results in an increase to members' contributions, members shall complete their required contribution within five working days at most from the date of notification. In case of non-payment within this period, the member shall pay a daily late fee at a rate of (two and a half per thousand) for each day of delay from the day following notification, on the unpaid contribution amount. The late fee calculation continues until the contribution value is paid or completed.
2. When the member's contribution value decreases due to the fund deducting it, whether to fulfill the member's obligations on his behalf or against accrued late fees, or when the securities settlement system deducts from the member's contribution in the fund's capital due to his failure to deliver or transfer securities executed through him within specified deadlines, or due to insufficient cash balance in the clearing bank for settling purchase operations settled through him, the member shall complete the contribution value within two working days at most from the settlement date. The member shall pay a daily late fee at a rate of (two and a half per thousand) for each day of delay starting from the settlement date, on the contribution value or the amount deducted due to his failure. The defaulting member shall pay the late fee in the same trading currency, and the late fee calculation continues until the contribution value is completed, without prejudice to taking the procedures stipulated in the second paragraph of Article (18) of the aforementioned Clearing and Central Registration of Securities and Financial Instruments Law.

Article (2)
This decision shall be published in Al-Waqae' Al-Masriyya, and on the electronic websites of both the Authority, the Egyptian Exchange, and the Clearing and Central Registration Company for Securities. It shall be effective from the day following its publication in Al-Waqae' Al-Masriyya.

Chairman of the Board of Directors of the Financial Regulatory Authority Dr. Mohamed Fared Saleh

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Board of Directors Decision of the Authority No. (29) of 2004 dated August 5, 2004 Regarding the Regulation of the Clearing Settlement Guarantee Fund As amended by virtue of the Financial Regulatory Authority's Board Decision No. 117 of 2022

Chairman of the Board of Directors of the Financial Market Authority Having reviewed the Capital Market Law issued by Law No. 95 of 1992 and its Executive Regulations, And the Clearing and Central Registration of Securities Law issued by Law No. 93 of 2000 and its Executive Regulations, Based on the report submitted by the Board of Directors of Egypt Clearing and Central Registration Company, And upon the Financial Market Authority's Board Decision No. (29) issued in its session held on August 5, 2004, Has decided:

Article (1)
A fund is established within the Clearing and Central Registration Company to guarantee obligations arising from securities operations, with the delivery of delivered securities to fulfill them being undertaken by the Company in accordance with Article 16 of the aforementioned Clearing and Central Registration Law.

Article (2)
The rights and obligations of settlement members transfer to the fund at their existing values upon the establishment of the attached rules, subject to modification of those rights and obligations in light of these rules.

Article (3)
Members' contributions to the fund continue as stipulated in the Clearing Settlement Guarantee Fund during the period between its commencement and the beginning of October 2004. The fund's first operational period begins on this date, and contributions during it are calculated based on the member's activity and his specific risk rate over the preceding three months according to the attached rules.

Article (4)
In establishing the provisions of this decision:
"Member" means a fund member, and "Fund" means the Clearing Settlement Guarantee Fund.
"Committee" means the Fund Management Committee, and "Authority" means the Financial Market Authority.
"Company" means Egypt Clearing and Central Registration Company, and "Exchanges" mean the Cairo and Alexandria Securities Exchanges.
"Brokerage Company" means a securities brokerage company, and "T" denotes trading dates, while the symbol "SD" denotes settlement dates.
And "Risk Rate" means a member's rating based on his specific risk rate, calculated according to the number of times he defaulted on fulfilling his fund obligations during the period.
And "Paper Delivery" means the fund delivering or transferring deposited securities on behalf of the seller, and "Cash Settlement" means the fund fulfilling the purchase value on behalf of the buyer.

Article (5)
The Company's Board directs the Fund Management Committee to implement the executive rules and procedures of this decision.

Article (6)
This decision takes effect from August 22, 2004.
The Clearing and Central Registration Company shall implement it.

Article (1): First: Establishment of the Fund
A Clearing Settlement Guarantee Fund is established within the Clearing and Central Registration Company to guarantee obligations arising from securities operations. The fund comprises all settlement members whose settlements are directly cleared through the Company and Egypt Clearing, whether for third parties or on their own behalf.

Article (2)
The fund and its investments are separate from the Company's assets.
The Company shall allocate independent accounts for the fund, separate from its operating accounts, and maintain necessary books and records for the fund's operations through dedicated management. The fund's accounts shall be distinguished in the Company's consolidated financial statements.

Article (3)
The Company opens one or more accounts named "Clearing Settlement Guarantee Fund" into which members' contributions and other funds generated from the fund's activities are deposited.

Article (4)
The Company takes necessary measures to preserve the confidentiality of the fund's data and keeps its accounts exclusively for accounting purposes in accordance with the law, without prejudice to the Authority's right to inspect loans and documents related to the fund's activities.

Article (5)
The Fund Management Committee consists of six members, as follows:

• One representative from the Cairo and Alexandria Securities Exchanges.
• Two representatives from the Company.
• Two representatives from settlement members.
• One representative from custodians.
  The Committee is chaired by one of the Company's representatives as determined by its Board.
• 2 Committee members are elected by secret ballot conducted by each category under the Company's supervision, and the Authority and Exchanges appoint their representatives to the Committee.
  The Financial Market Authority receives a list of committee members and their qualifications within three weeks from the issuance of their appointment decision, and the Authority may object to any member if their appointment or continued membership harms the fund, its members, or market participants. The Committee may invite experts to attend its meetings without them having voting rights counted in its decisions. The Committee's term is three years, renewable for one or more additional terms.

Article (6)
The Committee manages the fund with due diligence, and in addition to this, it has the following powers:

• 1. Proposing investment policies for fund assets.
• 2. Proposing amendments to the fund's operating rules to keep pace with developments in securities markets or to address incorrect practices by fund members.
• 3. Taking measures against defaulting members in accordance with this decision.
• 4. Resolving disputes that may arise between fund members.
     Committee proposals are presented to the Company's Board for study and legal action as required. The Committee prepares an annual financial report for the Company, which sends a copy to the Authority.

Article (7)
The Authority works to resolve disputes arising between the Committee and fund members.
(Footnote: Article amended by deleting the first paragraph via Authority Board Decision No. 39 of 2020 dated March 2, 2020, followed by a representative of the General Financial Market Authority in the Fund Management Committee.)

Article (8): Second: Rules Governing Members' Contributions
How to determine contribution value:

• 1. A member's contribution value is determined as follows:
     Member Contribution Value = Member's Participation Ratio in the Fund × Fund Capital × Member's Specific Risk Rate
• 2. The member's participation ratio is determined based on his average daily activity (average total executed sales and purchases with him) over the three months preceding the period requiring fund capital determination, relative to the total average activities of all members during the same period, as follows:
     Member's Average Daily Activity = (Total value of member's sales and purchases over three months) / (2 × number of trading days for the member over three months) Member's Participation Ratio in Fund Capital = (Member's Average Daily Activity) / (Total average daily activity of all members)
• 3. Fund capital is determined as follows:
     Fund Capital = (Highest average daily activity of the member over three months) × (Maximum settlement limit per day) × 35% (risk rate)
• 4. In all cases, the fund capital shall not be less than the average of previous periods and rounded to the nearest million.
• 5. Contribution values are 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 ten thousand Egyptian pounds or the contribution of the member falling in the lowest tenth percentile of members' contributions, whichever is greater.
• 7. Fund capital and members' contributions are re-evaluated every three months.
• 8. The member's specific risk rate is calculated based on the number of settlement defaults, according to the following table:
     Settlement Date Risk Factor | Relative Importance Coefficient for Risk Rate Settlement Date (SD) | 2.50 points SD + 1 | 5 points SD + 2 | 10 points Fund's Cash Settlements | 20 points
• 9. Fund members are divided into different categories according to their specific risk, and the fund's risk rate is determined by aggregating the points for each risk item. The member's specific risk rate is determined and added to his capital share value to determine his contribution, as follows:
     Category | Reference Risk Rate | Specific Risk Rate A | Less than or equal to 30 points | 1.0 times B | Greater than 30 points and less than or equal to 60 points | 1.25 times C | Greater than 60 points and less than or equal to 90 points | 1.50 times D | Greater than 90 points | 2.0 times
• 10. Fund members subject to suspension or license revocation decisions shall pay the same contribution value stipulated for them in the fund upon returning to practice, with a minimum not less than the prescribed minimum.

Article (9)
When re-evaluating fund capital according to the preceding article, fund management notifies members of their new contribution values, considering the following:

• 1. If a member's contribution decreases from the previous period, no additional increase is charged, provided he has fulfilled his obligations to the Company and Fund. This difference is refunded to the member within ten working days from receiving his notification, considering any existing obligations. In case of a decrease during this period, it is considered the member's written consent to add that difference to his contribution for the new period.
• 2. If a member's fund membership expires, he may recover his entitlements from the fund after ninety days of membership termination. These entitlements are refunded after the Company verifies the member's completion of all transactions and fulfillment of obligations to the Company and Fund. The member remains liable for any deductions even after recovering his entitlements, with the Company having recourse against him, considering Article 33 of the aforementioned Capital Market Law.

Article (10)
Fund capital is used only for settling rights and obligations arising from securities operations listed on the Exchange. The fund's operating rules are determined as follows:

• 1. Fulfilling the purchase value of securities on behalf of the buyer in case he fails to fulfill this value partially or fully at the specified settlement date.
• 2. Delivering or transferring deposited securities on behalf of the seller in case he fails to deliver or transfer them at the specified settlement date, after the fund settles the transaction.
• 3. The fund may pay the defaulting member's obligations on his behalf at the settlement date, even if the amount paid by the fund exceeds the member's contribution in the fund.
• 4. Any amount paid by the fund on behalf of a member and any late fees charged against his contribution are included in the fund, with the member required to pay or complete it within the period and under the conditions stipulated in this decision.
• 5. The fund may advance funds to fulfill settlement obligations on behalf of defaulting members, with each member bearing his share of these advances.

Article (11)
Procedures for Deducting Members' Contributions from Fund Capital:
At the specified settlement date (SD), operations where the seller or buyer failed to fulfill their obligations are cleared, and the following procedures are taken within specified periods:

• 1. At 9:00 AM, the fund pays the defaulting member's obligations not fulfilled for settlement, deducted from his contribution in the fund capital. If the defaulting member is the seller, the fund transfers securities to his account; if the defaulting member is the buyer, the fund receives the value of the securities from the buyer. The seller bears the price difference.
• 2. Fund management notifies the defaulting member that the fund has substituted him in fulfilling his settlement obligations, that these obligations have been deducted from his capital contribution, and that he must fulfill those obligations and pay the stipulated late fee.
• 3. Fund management notifies the Authority of operations where the member failed to fulfill his obligations, and takes appropriate legal measures against him.
• 4. Egypt Clearing may issue a notice to the member defaulting on obligations, under conditions specified by the Authority Chairman in application of Article 30 of the Capital Market Law.
• 5. Fund management grants a grace period of two working days starting from the settlement date for the defaulting member to fulfill his settlement obligations. If he fails, fund management issues an order to brokerage companies operating in the market, according to a method determined by the Committee, to execute sales or purchases of the securities in question for the fund's account starting from the next working day after the two-day period.
• 6. After execution, the executing brokerage company notifies fund management of completion.
• 7. Fund management notifies the defaulting member of order execution and charges him with total deducted amounts resulting from securities price changes, brokerage commissions, and any other additional late fees due to the fund upon maturity.
• 8. When the fund substitutes for a seller who failed to deliver or transfer securities, it takes purchase procedures. If these securities are not available in the trading market within three working days, the Authority and Exchanges are notified to consider taking necessary procedures to cancel the transaction.

Article (12)
Payment of Members' Contributions to Fund Capital or Completion Thereof:
The member shall pay the value of his contribution to the fund or complete it in the following cases:

• 1. If re-evaluating fund capital results in an increase to members' contributions, members shall complete their required contribution within five working days at most from notification. In case of non-payment, the member pays a daily late fee at a rate of (two and a half per thousand) for each day of delay from the day following notification, on the unpaid contribution amount. The late fee calculation continues until the contribution is paid or completed.
• 2. When a member's contribution decreases due to the fund deducting it, whether to fulfill his obligations on his behalf or against accrued late fees, or when the securities settlement system deducts from his contribution in the fund's capital due to failure to deliver or transfer executed securities within specified deadlines, or due to insufficient cash balance in the clearing bank for settling purchases settled through him, he shall complete the contribution value within two working days at most from the settlement date. The member pays a daily late fee at a rate of (two and a half per thousand) for each day of delay starting from the settlement date, on the contribution value or deducted amount. The defaulting member pays the late fee in the same trading currency, and calculation continues until completion, without prejudice to procedures stipulated in the second paragraph of Article (18) of the Clearing and Central Registration Law.

Article (13)
Payment Deadlines and Late Fees:
A. In all cases in the preceding article, the member shall complete his contribution to fund capital within the periods specified.
In case of failure, the following measures are taken:
A- Late fees are calculated according to the preceding article.
B- Measures stipulated by the Company under Article 23 of the Clearing and Central Registration Law are taken.
C- If the member fails within two working days from notification to fulfill his obligations to settlement and the fund, the Authority is notified to take necessary legal measures.

Article (14)

• 1. The Company invests fund assets to ensure their growth, in short-term financial instruments or securities.
• 2. At the end of each financial year, returns on members' accounts are distributed according to what the Company's General Assembly decides, proportional to each member's share relative to total contributions of all members, considering the member's obligations from his default in settling fund entitlements. Returns are not distributed on capital value based on the member's risk rate. In all cases, late fees collected from members and investment returns are not distributed.
• 3. The fund bears all its operational and administrative expenses.

Article (15)
Fund accounts are reviewed and audited by external auditors appointed by the Company's General Assembly, selected from a register maintained by the Authority.

Article (16)
The fund's financial year begins and ends with the Company's financial year, and its accounting is governed by Articles 136 and 162 of the Executive Regulations of the Clearing and Central Registration Law.

Article (17)
The Company receives a share of the fund's total revenues as administrative compensation, according to what the General Assembly decides. The Authority issues a decision on the Assembly's decision; if the Authority does not object within fifteen days of its issuance, it becomes effective.