The Egyptian FRA has approved new guidelines for the Settlement Guarantee Fund to enhance alignment with international standards and improve capital market stability. The new measures include a resource increase for risk management and expanded member capabilities for settlements, all aimed at reducing counterparty risks in trading. A governance structure for the Fund’s management has also been established to ensure operational integrity.
The Financial Regulatory Authority (FRA) of Egypt has sanctioned new guidelines for the Settlement Guarantee Fund, designed to enhance alignment with global standards and solidify capital market stability. These guidelines were crafted by the Board of Directors of Misr for Central Clearing, Depository and Registry (MCDR) with input from the Fund’s Management Committee, following FRA Resolution No. 68 of 2024. This initiative aims to refine the Fund’s operations to mitigate risks related to counterparty settlements.
The FRA seeks to optimize MCDR’s operations, ensuring they are compatible with international central securities clearing and settlement entities, also known as Central Counterparties (CCPs). To support this, the FRA has elevated the Fund’s resources by 650% relative to members’ subscriptions, employing a structured “Waterfall” method for risk management. This strategy clarifies resource usage during financial distress, involving contributions from the Central Securities Depository and the Investor Protection Fund from Non-Commercial Risks.
The FRA has empowered Fund members to claim settlement rights and obligations resulting from transactions involving securities traded on the Egyptian Stock Exchange, allowing settlements up to six times their subscription amount. This amendment applies to transactions with a shorter settlement timeframe than the typical T+2 cycle. The Fund is crucial in upholding obligations stemming from trades while reducing counterparty risk within the market.
Membership in the Fund consists of all entities engaging in settlements directly with MCDR or clearing banks. These entities must adhere to a system established by MCDR to provide necessary securities for fulfilling obligations. Governance protocols are defined in the new resolution, which sets up a Management Committee of seven members, including representatives from member organizations, MCDR, the Egyptian Exchange, and the Investor Protection Fund.
The Management Committee’s members will serve a three-year term, commencing from FRA approval of their formation. The committee is chaired by the Managing Director of MCDR, with a structure that allows for invitation-only participants during meetings, without voting privileges. The FRA emphasizes that such initiatives form part of its persistent efforts to maintain stability in non-banking financial markets and protect stakeholder rights.
The FRA’s approval of new guidelines for the Settlement Guarantee Fund represents a significant advancement toward aligning with international best practices and enhancing financial stability in Egypt’s capital markets. These measures, including increased resource allocation and expanded settlement capabilities, aim to mitigate counterparty risks effectively. The establishment of a structured governance framework further solidifies the Fund’s operational integrity and commitment to stakeholder protection.
Original Source: www.zawya.com
