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FRA allows Brokerage Companies to be engaged in derivatives trading - Tuesday 16/4/2019

• Dr. Omran: 10 million EGP is the minimum limit of issued capital for Brokerage Company trading in futures contracts
• Dr. Omran: Brokerage companies trading in futures shall apply governance rules
• Dr. Omran: Candidates shall pass tests held by the Authority is a condition for filling the main positions in Futures brokerage companies 
• Dr. Omran: FRA’s BOD decision no. 49 of 2019 defines licensing requirements and conditions to engage in derivatives 

Within the framework of launching derivatives in Egypt, Dr. Mohammed Omran-FRA’s Chairman confirmed the approval of FRA’s BOD to grant license for brokerage companies to be engaged in futures after meeting the minimum limit set for issued capital and paid-up capital for both activities (securities brokerage and futures brokerage). In addition to other conditions, including amending the company’s  statute  and submitting a statement that the company opens an account at MCDR  for transactions in futures contracts , besides submitting the most recent annual accredited financial statements or subsequent periodic financial statements accompanied by the auditor's report.

FRA’s Chairman said that in order to activate trading in derivatives, which is the cornerstone for the establishment of futures exchanges, FRA’s BOD decision no. 49 of 2019 stipulated the conditions for obtaining a license to engage in futures brokerage. These conditions stated that the company's issued and paid-up capital shall not be less than ten million pounds or the equivalent of foreign currencies. It shall include among its founders legal persons not less than (50%) of the company's capital, whereas financial institutions shall not be less than (25%) of the capital.

Dr. Omran added that the company shall provide headquarters that suits the activity, technical requirements, necessary systems for the company and its branches as well as applications and licensed software. Moreover, the company shall provide the minimum needed for an automated link infrastructure with the exchange and MCDR in accordance with the technical specifications set by the Stock Exchange and MCDR. Also, the company shall provide systems, applications and licensed software necessary for the operation of various services.

FRA’s Chairman emphasized that the Board's decision took into consideration corporate governance rules set for brokerage companies upon the formation of the Board of Directors of futures brokerage companies. The majority of Board members shall be non-executive and half of the non-executive members are independent. In addition, the rules stated that the Board shall be appointed for a period of three years, renewable. Also, the rules stipulated that the Chief Executive Officer (CEO) is assigned to the actual management of the Company. In addition, company’s founders, its board of directors and executive directors shall have good reputation, none of them has been sentenced during the five years preceding licensing  to penalty of felony or misdemeanor or in one of the offenses set forth in the laws governing non-banking financial activities unless he has been rehabilitated or executed  the sentence and a period of three years are passed.

Dr. Omran noted that decision no. (49) of 2019 sets number of conditions to be fulfilled by those applying for the main jobs in the company. The main condition includes the practical experience of not less than five years in a job or work related to the field of capital markets and stock exchanges, it may be deducted to four years if the applicant has specialized studies in the field. On the other hand, the period of practical experience required is increased to seven years for the positions of chief executive and operations manager. The final accreditation of the main posts shall be granted after the candidate has passed FRA’s tests.

Dr. Omran stressed that companies that are required to obtain a license to engage in futures brokerage shall keep records, documents, accounts and financial statements that show their financial position, clients’ financial position , transactions and account opening agreements for a period of five years that is  for paper copies or until a final judgment in any lawsuits related to these documents ,whichever is more.  Also, the Authority shall review and examine these documents provided that an electronic copy of all the said documents shall be kept for a period of not less than fifteen years. The company shall pay insurance fees in cash by half of the value of the issued capital.

 FRA’s Chairman also confirmed that futures brokerage company shall prepare automated systems necessary to follow up and evaluate collaterals / cash guarantee and the rules of addition to and deduction from it. The company shall re-evaluate the securities by the end of each working day based on the last closing price by comparing the market value with the last quoted closing price on the stock exchange by the end of each working day. It shall also deposit on behalf of its client the collateral value at MCDR in cash or deducting the amount from its settlement accounts with the clearing bank. In case of a decrease in securities’ market value, the company shall complete the percentage of cash guarantee as specified in the contract between it and the client, upon notification thereof from MCDR.

The Company shall enter into a written contract with the client in accordance with the guiding form prepared by the Authority in this regard. The contract shall include at least the conditions and cases under which the Company is entitled to ask its client to provide additional guarantees. That is besides procedures that the company may take if the client does not provide guarantees or settle transactions as stipulated in the contract. Also, the contract shall determine the commissions and expenses incurred by the company for implementing these transactions.
 
Upon signing the contract, the company shall submit a statement that include a definition of futures trading, procedures, benefits, risks and basic provisions. It shall send this statement to each client once a year and immediately after any amendments to the terms of the contract between them.