Mohamed Omran, Chairperson of the Financial Regulatory Authority (FRA), has announced the controls regulating the central depository and registry of government debt instruments, as well as settlement of financial positions resulting from securities transactions, which were approved during an FRA board meeting held virtually.
Omarn said, in a Monday statement, that FRA consulted the Central Bank of Egypt (CBE) and the Ministry of Finance to start the operation of the new Central Depository and Registry of Government Securities Company.
In July 2020, Egypt’s President Abdel Fattah Al-Sisi ratified Law No 143 for 2020 that saw amendments to the Central Depository and Registration Law. The amendments allowed CBE to launch a company specialised in central clearing, depository, and registry of government securities, namely treasury bills (T-bills) and bonds, as well as settlement of financial positions resulting from securities transactions. This would also include managing future contracts activity.
Omran stated that the new controls classified the members of CBE’s new company into four categories, foremost among them are local banks and branches of foreign banks registered with CBE, companies working in the field of securities, companies and authorities that engage in the activity of central depository of securities, and other entities whose membership will be decided by the Board of Directors of the Central Depository and Registry Company in accordance with the terms and conditions determined by FRA.
Thus, any natural or legal person wishing to invest in government securities and financial instruments can do so through the members of the newly created company.
Omran stressed that the company’s members must have sufficient financial resources to fulfil their obligations and face the risks of clearing and settlement in government securities, in addition to providing the human resources, technical capabilities, systems, and procedures necessary to handle the central depository and registry activities.
The rules of central registry and depository have organized the new company’s operations, provided that they include all data and information related to the issuance of government securities, as well as the data of the registered owner and the beneficial owner of each security.
The rules also allowed the board of directors of the Central Depository and Registry Company to set executive procedures for registry and depository government securities, as well as implementation requirements, data, and documents required for listing a government debt instrument, steps to match the registration process with the depository system, working timings of the central filing and deposit system, the tools for communicating the depository and settlement members to the central depository system, and the obligations of the depository and settlement members resulting from them. These procedures shall not take effect until the company notifies the Authority and seven working days have passed without objection to them.
Omran said that the decision has developed a complete working guide for the rules and procedures of the clearing and settlement process for government instruments and securities, as it establishes the basic principles of the clearing and settlement system and the completion of clearing and financial settlement operations for the operations that take place on government securities and financial instruments within the specified dates, and then the company settles the legal positions of the securities and government financial instruments arising from trading operations.
He pointed out that the decision has organized the rules of clearing and settlement for trading operations that take place in the secondary market, so that the company’s board of directors will issue the executive procedures for implementing the settlement instructions, and these procedures shall not take effect until after the Authority is notified of them.
The clearing and settlement operations are carried out in both parts of the instantaneous financial settlement of the financial positions arising from the trading operations executed on government financial securities and instruments related to the transactions of clients belonging to each member of the deposit and settlement, and paper settlement to complete the procedures for transferring ownership of government instruments and securities in accordance with the settlement instructions agreed upon between the two parties. The process is as provided by the Egyptian Stock Exchange and the depository and settlement members, including the main dealers, as well as the authorities and companies authorized to practice the activity in accordance with the rules of the Authority.
Omran explained that the decision of the Authority’s Board of Directors has assigned the Depository and Registry Company a settlement mechanism of four operations, starting with the settlement of the dues for government securities and financial instruments through cash payment for the nominal value of the government financial instrument on the due date to the members’ accounts and then adding those values to the accounts of their clients.