The Egyptian Gazette - Issue No. 145 on June 29, 2005

Decisions

Ministry of Investment

Decision No. 192 of 2005

Implementing Certain Provisions of the Executive Regulation of the Capital Market Law No. 95 of 1992, Issued by Decision of the Minister of Economy and Foreign Trade No. 135 of 1993

Minister of Investment

Having reviewed the Capital Market Law issued by Law No. 95 of 1992; the Central Deposit and Registration of Securities Law issued by Law No. 93 of 2000; the Executive Regulation of the Capital Market Law issued by Decision of the Minister of Economy and Foreign Trade No. 135 of 1993; the Executive Regulation of the Central Deposit and Registration of Securities Law issued by Decision of the Minister of Foreign Trade No. 906 of 2001; and upon the proposal of the Chairman of the Capital Market Authority:

Decided:

(Article 1)

Amending Chapter Nine of the Executive Regulation of the Capital Market Law attached (Chapter Nine - Regulation of Margin Securities Purchase and Securities Borrowing for Short Selling Activities).

(Article 2)

This Decision shall be published in The Egyptian Gazette and shall take effect from the day following its publication date.

Issued on 10/6/2005

Minister of Investment
Dr. Mahmoud Mohieldin

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The Egyptian Gazette - Issue No. 145 on June 29, 2005

Chapter Nine

Regulation of the Activities of

Margin Securities Purchase

and Securities Borrowing for Short Selling

(Chapter One)

General Provisions

(Article 289)

Margin purchase refers to operations conducted pursuant to a tripartite agreement between a custodian, one or more brokerage firms, and a client, aimed at providing the necessary financing to pay for a portion of the price of securities purchased on behalf of said client.

Securities borrowing for short selling refers to an agreement between a client (borrower) and a custodian, whereby the custodian, on behalf of the client, borrows securities owned by another client (lender) for the purpose of selling them and returning them at a later date under agreed terms.

A custodian may also borrow securities for another custodian.

(Article 290)

Margin securities purchase and securities borrowing for short selling operations may only be conducted through a custodian, in accordance with the conditions, procedures, and provisions stipulated in this Chapter, without prejudice to the provisions stipulated in the Executive Regulation of the Central Deposit and Registration of Securities Law issued by Decision of the Minister of Foreign Trade No. 906 of 2001.

The custodian's request for approval to conduct either of the aforementioned activities shall be submitted to the Authority, accompanied by:

(a) A statement of the applicant's net capital and total liabilities as of the last working day of the month preceding the request date, on a form prepared by the Exchange and approved by the Authority, signed by the applicant's legal representative or managing director as applicable, accompanied by an auditor's report.

(b) A statement regarding the information processing technical system, confirming the existence of an electronic link between the applicant, the Authority, the Exchange, and the Central Deposit and Registration Company to ensure monitoring and supervision, as well as a telephone recording system as stipulated in Article (263) of this Regulation.

(c) Document retention system.

(d) Internal control and financial audit systems, and certificates from the custodian's auditor confirming that the applied accounting system ensures compliance with the requirements of the requested activity.

(e) A statement of the names and qualifications of the managers and employees of the custodian responsible for managing the requested activity and any related operations.

(f) The standard contract template to be executed by the parties to the activity mentioned in the preceding article.

The Authority shall issue its decision on the request within two weeks from the date of submission or from the date of completing the requested documents. The Authority may waive all or some of the aforementioned attachments if the applicant is a bank or a foreign bank branch registered with the Central Bank, or if it has previously obtained the Authority's approval to conduct either of the aforementioned activities.

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The Egyptian Gazette - Issue No. 145 on June 29, 2005

(Article 291)

A custodian conducting either of the aforementioned activities must at all times maintain a net capital of no less than (15%) of its total liabilities, with a minimum of 75,000 pounds, according to the standards outlined in Annex No. (5) attached to this Regulation.

It must notify the Authority and the Exchange daily via an electronic link of its total liabilities on a daily basis, at the end of each month, and whenever requested by the Authority and the Exchange, as well as whenever its net capital falls below the stipulated limits, including the reasons and how it will be addressed, with such notification submitted within two days via a letter signed by the legal representative or managing director as applicable.

It must also maintain a separate capital account and allow authorized personnel from the Authority and the Exchange to inspect the relevant records and documents.

If its net capital falls below the stipulated limits, it must cease accepting new margin purchase requests and must increase its net capital to the required level within thirty days at most. Failure to comply will result in the matter being referred to the Authority's Board of Directors to consider revoking the approval to conduct the activity and taking necessary measures.

The Authority may exempt all or some of the provisions of this Article if the applicant is a bank or a foreign bank branch registered with the Central Bank.

Borrowing to support the net capital account is not permitted for entities wishing to conduct either of the aforementioned activities unless they meet the following conditions:

(a) The agreed maturity date of the loan must not be less than twelve calendar months.

(b) The loan must be paid in full in cash.

(c) The loan must not be secured by the custodian or have priority except over other supporting loans.

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The Egyptian Gazette - Issue No. 145 on June 29, 2005

(d) Relying on the loan must not cause the net capital to fall below the limits stipulated in this Article.

The custodian must provide the Authority with a certificate from the auditor confirming that the aforementioned conditions are met for the supporting loan.

(Article 292)

A custodian conducting either of the aforementioned activities must comply with the following:

(a) Exercise due diligence to verify the ability of its clients to meet their obligations arising from margin purchases or securities borrowing operations, based on their financial status, investment objectives, and other available information at the time of contracting. It must verify the available financing sources for clients conducting such operations, re-evaluate the client's status whenever necessary and at least once every ten months, and maintain records and documents evidencing this.

(b) Notify the Exchange daily with a separate report on all trading operations conducted under these activities, including the data stipulated in Items (1 and 2) of Paragraph (a) of Article (298) and Items (a, b, c) of Article (299) of this Regulation.

(c) Notify the Central Deposit and Registration Company via the electronic link of any margin purchase or sale of borrowed securities on the same day of execution.

(d) Allow the Authority and the Exchange to access and obtain all data and documents related to margin purchase orders or trading of borrowed securities, and upon request from either, provide such data via the electronic link.

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The Egyptian Gazette - Issue No. 145 on June 29, 2005

(e) Provide the client upon agreement with a detailed statement explaining the concept of margin purchase or securities borrowing for short selling, as applicable, along with procedures, benefits, risks, and fundamental provisions. This statement must be sent to each client at least annually and immediately upon any modification to the fundamental provisions contained therein.

(f) Maintain separate books and accounts for the securities traded under these activities.

(Article 293)

Trading under the margin purchase and securities borrowing for short selling systems may only be conducted on securities that meet the standards set by the Exchange and approved by the Authority.

The Exchange must issue a monthly report detailing the number of borrowed securities traded for each issuing company and their percentage of total securities traded during the month. The Authority may request the aforementioned statement at any time.

(Chapter Two)

Margin Securities Purchase

(Article 294)

The total amounts owed to the custodian for margin purchase operations, or the collateral held for a single security, must not exceed (15%) of the funds available for margin purchase operations.

The provisions of the preceding paragraph do not apply to Treasury bills provided as collateral.

In all cases, the debt of a client or a related group of clients to the custodian must not exceed (10%) of the funds available for margin purchase operations.

A related group refers to any group of clients subject to the actual control of the same natural or legal persons, or united by an agreement to coordinate.

When voting in general assembly meetings of companies or their boards of directors.

The custodian must notify the Authority, the Exchange, and the Central Deposit and Registration Company of all data regarding any related group it will deal with via margin purchase.

The Authority may modify the aforementioned percentages based on market conditions.

(Article 295)

A client wishing to make a margin purchase must pay in cash no less than (50%) of the price of the purchased securities on its behalf, and no less than (70%) for government bonds. The custodian must allow, in writing, the management of its accounts to sell and buy those securities in case of client default, according to the contract agreement.

The Authority may modify the aforementioned percentage based on market conditions.

The custodian or the concerned company must notify the Central Deposit and Registration Company of any margin purchase on the same day of order execution to provide the necessary notice to comply with the effects of the provisions in the preceding paragraph before completing the settlement of operations on those securities.

(Article 296)

The custodian must re-evaluate the securities subject to margin purchase at the end of each working day according to their market value. If the market value decline results in the client's debt exceeding (60%) of their market value based on a weighted average closing price, it must notify the client to reduce this ratio either by cash payment or by providing collateral. This measure must be taken if the ratio reaches (85%) for government bonds.

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The Egyptian Gazette - Issue No. 145 on June 29, 2005

In normal cases, the custodian may take measures to sell securities and liquidate client-provided collateral to bring the debt ratio down to (50%) for securities and (80%) for government bonds or lower:

(a) If the client fails to reduce its debt ratio below the aforementioned ratio within one working day of notification and does not provide additional collateral.

(b) If the client's debt ratio reaches (70%) of the market value of securities or (85%) of the market value of government bonds.

The Exchange management shall take necessary measures in case a security loses one of the partners or the millions set by the Exchange for trading under the margin purchase system.

The Exchange, with the Authority's approval and in cases it deems necessary, may restrict the margin reduction messages either by cash payment or by providing incoming and valuable collateral according to the following ratios:

(a) «10%» of the value of unconditional bank guarantees issued by banks and foreign bank branches supervised by the Central Bank.

(b) «10%» of the present value of Treasury bills.

(c) «9%» of bank deposits.

(d) «70%» of the market value of other securities accepted by the custodian, subject to the condition that the standards set by the Exchange are applied according to Article (293) of this Regulation.

The provisions of this Article apply when the market value of client-provided collateral declines.

The Authority may modify the aforementioned percentages according to market conditions.