Financial Regulatory Authority Board Resolution No. (146) of 2021 Regarding the Regulations Governing the Deposit and Registration of Government Financial Instruments and Settlement of Financial Positions Arising from Their Trading

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FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

Financial Regulatory Authority Board Resolution No. (146) of 2021 dated 29/09/2021 Regarding the Regulations Governing the Deposit and Registration of Government Financial Instruments and Settlement of Financial Positions Arising from Their Trading

The Board of Directors of the Financial Regulatory Authority Having reviewed the Capital Market Law issued by Law No. (95) of 1992; And the Central Deposit and Registration of Financial Instruments Law issued by Law No. (93) of 2000; And Law No. (10) of 2009 regulating supervision over non-banking financial markets and instruments; And after obtaining the opinion of the Central Bank of Egypt and the Ministry of Finance; And after approval by the Authority's Board of Directors in its meeting held on 29/09/2021;

Resolved:
(Article 1)
Definitions
The following words and expressions shall have the meanings set forth beside each of them when applying the provisions of this Resolution:
The Authority: The Financial Regulatory Authority.
The Company: The Central Deposit and Registration Company for Government Financial Instruments.
The Clearing Bank: The Central Bank of Egypt with respect to banks licensed by the CBE, and foreign companies and entities engaged in securities deposit activities, or any of the banks registered with the CBE with respect to other clearing and settlement members. Clearing and Settlement Members: All banks licensed by the CBE, including primary dealers, as well as entities and companies authorized to conduct activities in accordance with the Authority's prevailing rules. Execution Day: The day on which trading operations are executed. Settlement Day: Shall be a maximum of five working days as agreed upon by the parties to the transaction.

Client: Any person, natural or legal, who invests in government financial instruments through a clearing and settlement member. (Beneficial Owner) Early Redemption: The request by the issuer of the government financial instrument (Ministry of Finance) for repayment of part or all of the value of the instrument, as applicable, on a date prior to the actual maturity date stated in the issuance circular.

(Article 2)
Central Deposit and Registration Rules for Government Financial Instruments The Central Bank of Egypt, in its capacity as agent for the Government, conducts the issuance operations of government financial instruments, and the Company performs the registration and deposit of these instruments after the Central Bank conducts auctions in the issuance market (primary market), provided that the registration and deposit process includes all data and information related to the issuance of the financial instrument, as well as the registered owner and beneficial owner data for each government financial instrument. The Company's Board of Directors establishes the executive procedures for depositing government financial instruments, as well as execution requirements, data, and documents required for registering a financial instrument, steps for verifying the registration process in the deposit system, operating schedules of the central registration and deposit system, methods and tools for connecting clearing and settlement members to the central deposit system, and obligations of clearing and settlement members arising therefrom. This shall not take effect until the Company notifies the Authority thereof, and seven working days elapse without any objection.

(Article 3)
Membership Regulations with the Company and Obligations of Clearing and Settlement Members

Clearing and settlement members may be among the following entities:

1. Banks and branches of foreign banks registered with the Central Bank of Egypt.
2. Companies operating in the securities field according to activities specified by the Authority's Board of Directors.
3. Foreign companies and entities engaged in central securities deposit activities.
4. Other entities accepted by the Company's Board of Directors as members in accordance with rules determined by the Authority's Board.

The clearing and settlement member must possess the standards specified by the Company and approved by the Authority's Board, specifically as follows:

1. Sufficient financial resources to meet its obligations arising from membership and to face clearing and settlement risks in government financial instruments.
2. Human resources, technical capabilities, books, records, systems, and procedures necessary to handle central deposit and registration activities.

Any person who does not meet the aforementioned rules and standards may obtain central deposit services through a clearing and settlement member.
In all cases, the clearing and settlement member is bound by the central deposit rules and procedures, and the Company shall ensure equality among members with similar circumstances, including regarding fees and charges levied and services provided.

The clearing and settlement member is also bound by the following:

1. Opening a cash settlement account with the Clearing Bank.
2. Opening a securities account with the Company for both the clearing and settlement member itself and each of its clients (unified code), through which all executed operations are conducted, whether sale, purchase, or transfer of the same client's portfolio from one deposit member to another.
   As an exception, a clearing and settlement member that is one of the international deposit banks may open a single securities account at the Company level encompassing all its clients' transactions in government financial instruments, provided that it maintains a beneficial ownership register on its side and the Company has the right to request such data.
3. Authorizing the Company to debit and credit its accounts with the Clearing Bank for settling financial positions arising from operations executed on government financial instruments of the clearing and settlement member and its clients.

(Article 4)
Clearing and Settlement Rules and Procedures

First: Basic Principles of the Clearing and Settlement System

• The Company adheres to the Delivery Versus Payment (DVP) principle for DVP operations, or Free of Payment (FoP) for FoP operations.
• The Company completes clearing and settlement operations for transactions executed on government financial instruments within their specified deadlines.
• The Company settles the financial positions of government financial instruments arising from trading operations.

Second: Clearing and Settlement Rules for Secondary Market Trading Operations The Company's Board of Directors issues executive procedures for executing financial and paper settlement instructions for government financial instruments, which shall not take effect until the Company notifies the Authority thereof and seven working days elapse without objection. The Company performs financial and paper clearing and settlement through the Delivery Versus Payment (DVP) principle for DVP operations or Free of Payment (FoP) for FoP operations, at the beneficial owner level, debited from the cash accounts of clearing and settlement members with the Clearing Bank. Clearing and settlement operations are conducted as follows:

• Financial Settlement: Settling financial positions arising from trading operations executed on government financial instruments for clients belonging to each clearing and settlement member, in the cash account of the clearing and settlement member with the Clearing Bank. Operations are settled instantly for each transaction individually according to the agreed settlement date, with taxes related to executed transactions withheld at source for each individual transaction.
• Paper Settlement: Completing the transfer of ownership procedures for government financial instruments between clearing and settlement members' accounts, debited and credited according to executed operations. Paper settlement is conducted at the beneficial owners level.
  As an exception to the above, the Company may conduct paper settlement only without cash settlement in case of transferring the same client's portfolio from one deposit member to another.

In all cases, financial and paper settlement is conducted according to the agreed settlement instructions between the parties to the transaction, as submitted by clearing and settlement members and the Egyptian Exchange, respectively. Operations cannot be cancelled or modified once settlement is completed.

Third: The Company's Settlement Mechanism for Certain Operations

1. Maturity Settlement for Government Financial Instruments
   It is the cash payment process for the nominal value of a government financial instrument on the maturity date to members' accounts (Registered Owner), followed by their crediting of such values internally to their clients' accounts (Beneficial Owner) if applicable.
2. Early Redemption Settlement for Government Financial Instruments, whether regarding private or public issuances:
   It is the process by which the issuer of the financial instrument (Ministry of Finance) repays part or all of its value, as applicable, on a date prior to the actual maturity date stated in the issuance circular. This is based on a letter addressed by the Ministry of Finance to the Company, Clearing Bank, and clearing and settlement members on the early repayment date. Consequently, the clearing and settlement member settles its clients' accounts (Beneficial Owner) internally if applicable, provided that this clause exists in the original circular of the issued tranche.
3. Coupon Payment Maturity Settlement for Government Financial Instruments:
   It is the financial settlement process for the coupon value on its maturity date according to the yield frequency specified in the issuance circular for members' accounts (Registered Owner), after which the Registered Owner settles its clients' accounts (Beneficial Owner) internally if applicable.
4. Tax Proceeds Settlement for Government Financial Instruments:
   It is the calculation of taxes due on (returns during the holding period upon sale and coupon maturity returns), withholding them at source for each transaction individually, and then remitting them to the tax authority account at the Central Bank of Egypt. This is conducted at the beneficial owner level, with the Ministry of Finance receiving all basic and financial data.

(Article 5)
Electronic Systems and Connection Steps with Clearing and Settlement Members The Company is obligated to equip electronic systems and connection steps with clearing and settlement members to ensure the completion of settlement and clearing operations for executed transactions on government financial instruments. The Company's Board of Directors shall issue the following:

1. Procedures and conditions for member registration and account opening procedures.
2. Procedures to be taken in case of insufficient balance of government financial instruments or amounts required for completing financial settlement in the clearing accounts of clearing and settlement members on the settlement day, or in case of their non-compliance with the Company's operating systems.
3. Schedule of fees and commissions received by the Company from clearing and settlement members.
4. Procedures regarding pledging and freezing of financial instruments, as well as sale and repurchase agreements, in coordination with the Central Bank of Egypt.

The regulations and rules issued by the Company's Board of Directors shall not take effect until approved by the Authority's Board of Directors.

(Article 6)
This Resolution shall be published in the Egyptian Gazette and on the Authority's website, and shall take effect from the day following its publication in the Egyptian Gazette.

Chairman of the Board of Directors
Dr. Mohamed Omran