Investment Minister Decision No. 84 of 2007 Amending the Executive Regulations of the Capital Market Law No. 95 of 1992

Ministry of Investment Minister

Decision of the Minister of Investment No. (84) of 2007 Amending certain provisions of the Executive Regulations of the Capital Market Law No. 95 of 1992

The Minister of Investment; Having reviewed the Capital Market Law issued by Law No. 95 of 1992 and its amendments, And the Central Depository and Registration of Securities Law issued by Law No. 93 of 2000 and its amendments, And the Presidential Decision No. 231 of 2004 organizing the Ministry of Investment, And the Minister of Economy and Foreign Trade Decision No. 135 of 1993 issuing the Executive Regulations of the Capital Market Law and its amendments, And the Minister of Foreign Trade Decision No. 906 of 2001 issuing the Executive Regulations of the Central Depository and Registration of Securities Law and its amendments, And the Minister of Investment Decision No. 192 of 2005, And based on the proposal presented by the Chairman of the General Authority for the Capital Market.

Has decided

(Article One) The Ninth Chapter of the Executive Regulations of the Capital Market Law issued by the Minister of Economy and Foreign Trade Decision No. 135 of 1993 is replaced by the attached Ninth Chapter regarding the regulation of margin securities purchase and securities borrowing for the purpose of sale, covering Articles No. (289) to (299 bis 3).

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(Article Two) The text of Article (270) of the aforementioned Executive Regulations of the Capital Market Law is replaced by the following: "The issued and paid-up capital of the company shall not be less than ten million Egyptian pounds, in addition to the minimum capital requirement prescribed for conducting other licensed activities for the company. The company must at all times maintain a net liquid capital determined according to the solvency standards issued by the Authority."

(Article Three) Article No. 89 (bis "E") of the Executive Regulations of the Capital Market Law is repealed, along with Appendices Nos. (4, 5) attached to it, and any provision conflicting with the provisions of this Decision is also repealed.

(Article Four) This Decision shall be published in the Egyptian Gazette and shall take effect from the day following its publication date.

Issued at the Ministry of Investment On 25 Safar 1428 AH Corresponding to 5 March 2007 AD

Minister of Investment Dr. Mahmoud Mohieldin

A copy sent to Mr. Deputy Minister (Sayed Soloot)

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Chapter Nine Regulation of Margin Securities Purchase and Securities Borrowing for the Purpose of Sale

Chapter One General Provisions

(Article 289) For the purpose of applying the provisions of this Chapter, "the Company" means (the securities brokerage company) and the custodian, including banks, as applicable. "Margin purchase" means an agreement between the Company and one of its clients whereby the Company undertakes to provide the necessary financing to pay for part of the price of the securities purchased on behalf of this client. "Securities borrowing for the purpose of sale" means an agreement between the securities brokerage company and one of its clients whereby the Company, on behalf of the client, borrows securities owned by a third party (the lender) through the securities lending system at the Central Depository Company, for the purpose of selling these securities and returning them at a later time under agreed terms. "Securities borrowing for the purpose of sale" also means an agreement between the custodian and one of its clients whereby the custodian offers the securities owned by the client for lending to others through the securities lending system at the Central Depository Company. Lending is conducted in exchange for a return determined according to the rules of this system. The custodian receives the return from the Central Depository Company on behalf of the client. Without prejudice to the provisions of this Regulation, the Authority shall issue rules governing margin purchase operations and securities borrowing for the purpose of sale, which shall include the maximum limit for operations that can be executed for each security and for each company conducting margin purchases or securities borrowing for the purpose of sale, and for each client or group of related clients of the company.

• 1 - Continuation of Minister of Investment Decision No. (84) of 2007

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(Article 290) Margin securities purchase operations may only be conducted through brokerage companies or one of the custodians. Securities borrowing for the purpose of sale may only be conducted through a brokerage company. This is subject to the conditions, procedures, and provisions stipulated in this Chapter, without prejudice to the provisions stipulated in the Executive Regulations of the Central Depository and Registration of Securities Law issued by the Minister of Foreign Trade Decision No. 906 of 2001.

The issued and paid-up capital of the company wishing to conduct margin purchase operations shall not be less than fifteen million pounds, and the issued and paid-up capital of the company wishing to conduct securities borrowing for the purpose of sale shall not be less than five million Egyptian pounds. If the company conducts both margin purchase and securities borrowing for the purpose of sale simultaneously, the issued and paid-up capital shall not be less than twenty million pounds.

If the custodian is a bank, the amount allocated by it to conduct margin purchase operations shall not be less than fifteen million pounds.

The company shall submit a request for approval to conduct these operations to the Authority, accompanied by the following: (a) A statement of the company's net liquid capital and total liabilities as of the last working day of the month preceding the request date, according to the form determined by the solvency standards issued by the Authority for companies operating in the securities field, signed by the Chief Financial Officer and the Managing Director of the company, accompanied by the auditor's report on reviewing this form. (b) The company's latest annual or quarterly financial statements - as applicable - accompanied by the auditor's report on reviewing or examining these financial statements. (c) A statement of the information processing technical system, confirming the existence of an electronic link between the company, the Authority, the Exchange, and the Central Depository and Registration Company to ensure monitoring and supervision, as well as confirming the existence of a telephone recording system as stipulated in Article (263) of this Regulation.

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(d) Document retention system. (e) Internal control and financial audit systems, and a certificate from the company's auditor stating that the accounting system applied ensures compliance with the requirements of the operations to be conducted. (f) A statement of the names and qualifications of the managers and employees of the company responsible for managing the operations to be conducted. (g) The model of the contract concluded by the company with its clients regarding margin purchase or securities borrowing for the purpose of sale - as applicable - according to the model issued by the Authority for this purpose.

The Authority shall issue its decision regarding the request within two weeks from the date of submission or from the date of completing the documents requested. The Authority may exempt the company from all or some of the attachments mentioned if the company is a custodian bank or a branch of a foreign bank registered with the Central Bank, or if the company has previously obtained the Authority's approval to conduct any of the mentioned operations.

(Article 291) The company must at all times maintain the minimum net liquid capital according to the solvency standards issued by the Authority.

In the event that the company's net capital falls below the specified limit, the company is obliged to stop accepting new requests for margin purchase or securities borrowing for the purpose of sale, and the company must, within a maximum of five days, increase the net liquid capital to the prescribed minimum. In case of non-compliance, the company shall be prohibited from conducting the operations, the approval issued by the Authority shall be cancelled, and necessary measures shall be taken.

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(Article 292) The company must comply with the following: (a) Exercise the care of a prudent person to verify the clients' ability to fulfill their obligations arising from margin purchase or securities borrowing operations in light of their financial status, investment objectives, available financing sources, and other information available to the company about them at the time of contracting. The company must re-evaluate the client's status whenever necessary, and at least once every twelve months. The company must keep records and documents evidencing this. (b) Enable the Authority and the Exchange to access and obtain all data and documents related to margin purchase or securities borrowing operations. Upon request by either, the company must provide such data via the electronic link. (c) Deliver to the client upon concluding the agreement with them a statement detailing the concept of margin purchase or securities borrowing for the purpose of sale - as applicable - and the basic procedures, advantages, and risks thereof. This statement must be sent to each client at least once a year and immediately upon any modification of the basic provisions contained in the statement delivered to the client. (d) Keep separate books and accounts to record margin purchase or borrowing for the purpose of sale operations.

(Article 293) Margin purchase and securities borrowing for the purpose of sale operations may only be conducted on securities that meet the standards set by the Exchange and approved by the Authority.

• 4 - Continuation of Minister of Investment Decision No. (84) of 2007

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Chapter Two Margin Securities Purchase

(Article 294) The client wishing to purchase on margin must pay the company in cash no less than (50%) of the price of the securities purchased on their behalf, and this percentage shall not be less than (20%) for government bonds, or provide the company and place at its disposal one of the following guarantees of equal value: (a) Unconditional bank guarantee letters issued in favor of the company by a bank or branch of a foreign bank subject to the supervision of the Central Bank of Egypt. (b) Deposits with a bank or branch of a bank subject to the supervision of the Central Bank of Egypt, provided that they are frozen with the bank in favor of the company and can be liquidated upon the company's request without requiring the client's consent, to be valued at (90%) of the original deposit amount.

The client may place securities at the company's disposal that meet the conditions mentioned in the previous Article and whose market value on the date of submission is no less than (100%) of the price of the securities purchased on their behalf.

The Authority may modify the mentioned percentages based on market conditions and upon the proposal of the Exchange.

The company is obliged to notify the Central Depository and Registration Company of any margin purchase operation on the same day of execution so that it can reserve the securities purchased on margin in the client's account with the custodian in favor of the company.

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(Article 295) The company must re-evaluate the securities subject to margin purchase at the end of each working day according to their market value. If it becomes apparent to the company due to a decrease in the market value of these securities that the client's debt has exceeded (60%) of their market value at the closing price announced by the Exchange; the company must notify the client to reduce this ratio either by cash payment or by providing additional guarantees. The company must take this measure if the ratio reaches (85%) for government bonds.

The company may take measures to sell the securities and liquidate the guarantees provided by the client to bring the client's debt ratio to (50%) or less of the market value of the margin-purchased securities, or (80%) or less for government bonds, in the following cases: (a) If the client fails to reduce their debt ratio to the ratio mentioned in the previous paragraph after two working days have passed since notification. (b) If the client's debt reaches (70%) of the market value of the securities or (90%) of the market value of government bonds.

The client's debt ratio to the company is reduced either by cash payment or by providing one of the following guarantees placed at the company's disposal: (a) Unconditional bank guarantee letters issued in favor of the company by a bank or branch of a foreign bank subject to the supervision of the Central Bank of Egypt. (b) Deposits with a bank or branch of a bank subject to the supervision of the Central Bank of Egypt, provided that they are frozen with the bank in favor of the company and can be liquidated upon the company's request without requiring the client's consent. They shall be valued at (90%) of the original deposit amount. (c) Securities that meet the conditions mentioned in Article (293) above.

Any security that loses one of the mentioned criteria shall be excluded from the calculation of guarantees provided by the margin purchase client, whether provided under Article (294) of this Regulation or provided as additional guarantees under the previous paragraph.

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The provisions of this Article apply when the market value of the guarantees provided by the client decreases. The Authority may modify the guarantees that can be accepted from margin purchase clients or set specific valuation ratios according to market conditions and upon the proposal of the Exchange.

(Article 296) The company is obliged to conclude a written contract with the client regarding the purchase of securities on margin according to the model issued by the Authority, which must include at least the following: (a) Determination of the type of securities the company purchases on behalf of the client and the percentage to be paid in cash or provided as financial guarantees according to Article (294) of this Regulation, provided that this percentage shall not be less than 50% unless the Authority determines another percentage based on the proposal of the Exchange. (b) The value of expenses, commissions, and financing costs due from the client for dealing in margin purchases. (c) The client's right to pay the remaining price of the securities at any time. (d) The client's commitment to pay in cash or provide additional guarantees when their debt ratio to the market value of the securities subject to purchase exceeds the limits specified in Article (295) above. (e) The client's delegation of the company to manage their accounts by selling and buying regarding the securities subject to margin purchase or provided as collateral in the event of the client's breach of obligations. (f) The client's consent to allow the company to access their securities accounts with any entity to assess their financial suitability and compliance with their commitments. (g) The client's right to recover any excess guarantees provided if their debt ratio falls below the agreed level, or to use them as collateral in new margin purchase operations, and the client's right to substitute other securities accepted by the company for the securities provided as collateral.

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(h) If the company conducting margin purchase operations is a securities brokerage company; the client is obliged to transfer the securities they provide to the company as collateral to the custodian designated by the company. (i) Determination of the dispute settlement mechanism between the parties, as well as the communication methods between the client and the company to receive the client's orders and send notifications to them. (j) The client's acknowledgment of their awareness of all risks associated with margin dealing. The contract must detail these risks.

The company must provide the Authority with the model of the contract it wishes to use to verify that it contains the conditions and provisions stipulated in this Article, before using this model. The Authority may make necessary modifications to the model.

(Article 297) The company is obliged to notify both the Authority and the Exchange on the first working day of each week or upon request by the Authority or Exchange of the following:

1. The value of amounts available for margin dealing, their sources, and the value of margin purchase operations executed.
2. The total amounts due from margin purchase clients.
3. The total market value of guarantees provided by margin purchase clients.
4. The ratio of the total amounts due from margin purchase clients to the total market value of guarantees provided by them.
5. The value of securities sold and the value of guarantee letters liquidated during the month, and the debt of clients for whom these guarantees were sold or liquidated.

The company must also comply with the reporting requirements determined by the solvency standards issued by the Authority.

The company must attach to the monthly notification a declaration by the Managing Director and Chief Financial Officer of the company or the responsible person at the bank that all provided data is correct.

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The company must also send a quarterly report containing the above, accompanied by an auditor's review report, to both the Authority and the Exchange within 45 days from the end of each quarter.

Chapter Three Securities Borrowing for the Purpose of Sale

(Article 298) The Central Depository Company shall establish and manage a system for lending securities for the purpose of sale against cash collateral determined by the rules of this system as a percentage of the market value of the borrowed securities. The Central Depository Company shall set these rules, and they shall be approved by the Authority. The securities lending system must ensure fair and equal treatment for all lenders (investors wishing to lend their securities). The brokerage company, when borrowing securities on behalf of its client, must deposit the value of the collateral with the Central Depository Company in cash or by deduction from its settlement accounts at the clearing bank. The borrowed securities are valued at the market value at the closing price announced by the Exchange at the end of each working day. In case of an increase in the market value of the borrowed securities, the company is obliged to complete the cash collateral ratio upon notification by the Central Depository Company. The Central Depository Company shall invest the cash collateral in fixed-yield investment instruments (bank deposits, treasury bills, Central Bank certificates) to achieve a return distributed between the Central Depository and the custodian as the representative of the lending client, according to the rules of this system. The securities lender retains all rights and returns associated with the ownership of the securities throughout the lending period. These rights are collected as a deduction from the borrower's cash collateral account. The lender may also request the return of the lent securities at any time according to the rules of the aforementioned lending system.

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The settlement of the securities loan occurs when the borrower purchases or deposits the securities in their account with the relevant custodian and notifies the Central Depository Company thereof. The custodian and the lending client are obliged to conclude a contract for the lending of securities according to the model submitted by the custodian to the Authority. The contract must stipulate the client's desire and acceptance to lend their securities through the securities lending system at the Central Depository Company and their acceptance to participate in the return from the investment of the cash collateral for the lent securities according to the rules of this system. Custodians wishing to lend their clients' securities must also follow the rules and procedures of the securities lending system approved by the Authority.

(Article 299) The trading of borrowed securities shall be subject to the following conditions: (a) The securities to be traded must be available for lending to the company before selling them. (b) The selling price of the borrowed securities must be either:

1. Higher than the last trading price. Or
2. Equal to the last trading price, provided that the last change in the trading price was an increase.

The Central Depository Company shall provide the Authority and the Exchange with a monthly report containing the total balance of borrowed securities at the end of each month for each issuing company and its ratio to the total circulating securities of this company. The Exchange shall publish this report on the designated screens. The Authority may request the aforementioned statement at any time.

Article (299 bis) The company and the client must conclude a contract for dealing in securities borrowing for the purpose of sale, and the contract must be in writing, subject to the following:

1. Dealing is limited to securities that meet the standards set by the Exchange and approved by the Authority.

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2. An independent account must be opened for the client with the company for all operations of selling borrowed securities.
3. The contract must determine the cash margin percentage deposited by the client with the company, which shall not be less than 50% of the market value of the securities before borrowing and selling, and this margin percentage shall not be less than 20% of the market value of government bonds. The proceeds from the sale of the borrowed securities shall be retained until these securities are returned to the lending system.
4. Financial rights and other benefits generated by the security shall be deducted from the borrower's cash collateral account with the company in favor of the lender.

The contract must include the following: (a) The conditions and circumstances under which the company has the right to demand additional guarantees from the client. (b) The conditions and circumstances under which the return of the borrowed securities is requested to settle the loan. (c) The measures the company may take in case the client fails to provide guarantees or return the borrowed securities upon request. (d) The determination of commissions and expenses charged by the company for executing these operations. (e) Cases of closing the account for borrowed securities for the purpose of sale.

(Article 299 bis 1) The company conducting the activity of borrowing securities for the purpose of sale is obliged to record all its borrowing and selling operations in special registers containing the following data: (a) Client names. (b) Trading orders and names of securities traded. (c) Volume of operations executed. (d) All commissions and expenses.

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And the company is obliged to notify both the Authority and the Exchange on the first working day of each week and upon request by the Authority or Exchange of the following:

1. Total cash collateral with the company for clients selling borrowed securities.
2. Total market value of borrowed securities on behalf of clients.
3. Ratio of cash collateral to the total market value of borrowed securities on behalf of clients.
4. Number and value of client notifications to increase cash collateral that clients have not fulfilled.
5. Cases of purchasing securities to settle accounts of borrowing clients.

(Article 299 bis 2) The company must re-evaluate the borrowed securities at the end of each working day according to their market value at the Exchange closing price and compare the market value of these securities deposited with the cash collateral provided by the client. The value of the cash collateral includes the margin deposited by the client according to Item (3) of Article (299 bis) of this Regulation and the proceeds from the sale of the borrowed securities. If it becomes apparent to the company due to an increase in the market value of these securities that the cash collateral ratio has decreased to (140%) of their market value or (115%) for government bonds, the company must notify the client to increase the cash collateral value to (150%) for securities or (120%) for government bonds.

In all cases, the company may take measures to purchase the borrowed securities in the following cases: (a) If the client fails to increase the cash collateral value to the ratio mentioned in the previous paragraph after two working days have passed since notification. (b) If the cash collateral ratio decreases to (130%) of their market value for securities or (110%) for government bonds.

The Authority may modify the mentioned ratios according to market conditions and upon the proposal of the Exchange.

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