Egypt Plans to Launch Short Selling Mechanism in November

The Egyptian Financial Regulatory Authority (FRA) intends to launch a short selling mechanism in November, said the chairman of the commission, Islam Azzam, in an interview with Asharq Bloomberg. According to him, the measure is aimed at increasing the liquidity of the stock market and expanding trading tools for investors.

How the mechanism works

Short selling will allow major shareholders and investment funds to earn additional income by lending their shares. Borrowers can profit from falling prices, whereas traditional trading and margin buying are based on growth. An investor borrows shares and sells them if expecting a decline, then buys back at a lower price and returns to the owner, earning on the difference minus the cost of the loan. If the price rises, buying back at a higher price will result in a loss.

New limits

In August, the FRA issued a new regulatory framework. The maximum volume of shares allowed to be lent has been increased to 40% of the total number of shares in free circulation of a company on the exchange, compared to 25% under the previous rules. The limit on what a client and related parties can borrow remains at 2% of the free float. Brokerage firms are required to obtain a cash deposit of at least 50% of the market value of the borrowed securities before executing the transaction. Azzam clarified that the start of the securities guarantee mechanism is linked to the approval by the Council of Ministers of an amendment to the relevant executive regulation.

System against fraud

Separately, the FRA is studying the creation of a central system for monitoring fraud and exchanging information between non-bank financing companies. According to Azzam, the system will allow companies to see the history of clients with other organizations, which will reduce the recurrence of fraudulent practices among creditors.

Non-bank financing portfolios in Egypt amounted to about 417 billion Egyptian pounds by the end of 2025, with a default rate of less than 3%. The total volume of financing by organizations under FRA supervision reached 1.4 trillion Egyptian pounds by the end of last year, accounting for about 54% of financing for the private sector, households, and individuals in the country.