Egypt: Overview on the Capital Market Law Amendments

user Youssry Saleh & Partners calender 10 Feb 2020 views 3092 Views

President Abdel Fattah El-Sisi approved Law No. 17 of the year 2018, which included wide-ranging amendments to the Capital Market Law, which included 45 new articles and amending 17 others. 

The New Amendments allowed modern financial tools, as well as the regulation of the issuance and trading of Sukuk and the organization of the future exchange, with the establishment of a consortium of securities companies to strengthen the role of the financial market as a platform for financing economic entities and achieving strong economic growth in a sustainable manner as part of the economic development plan since that was adopted since 2017.

The Following are the Main Points that the Amendments of Law Have Focused on:

  • The Capital Market Law Amendments determined the commission and brokerage system for services paid for transactions in stock exchanges. Also, fees and charges for the listing of securities and financial tools have been reduced in order to encourage, not exceeding two percent per thousand per year of the value of shares and related financial tools, required to be registered with a maximum of 500,000 EGP and a maximum of 50,000 EGP for bonds and debt tools.
  • Bearer Shares are cancelled and replaced by nominal shares as Bearer security was a negative point in the international evaluation of the Egyptian market in terms of Anti-Money Laundering.
  • Facilitation of issuing short-term debt securities or Sukuk of maturity date, which do not exceed 2 years, could be through a BOD resolution instead of issuing it by ordinary general assembly. However, ordinary general assembly delegation and approval is required to issue short-term debt securities.
  • The Amendments allowed companies operating in non-banking financial activities to start the activity of investment funds by themselves without requiring the establishment of a company for this purpose after obtaining the required approval from the Central Bank of Egypt.
  • The legislator has narrowed and defined the scope of liability of managers of companies subject to Law No. 95 of the year 1992 “Capital Market Law”, in the previous legislation the liability were absolute. However, now the liability will be determined on the actual directors responsible for actual management (CEOs and executives) only to the extent that they had actual knowledge of the breach and the breach was a result of their failure to perform their duties.
  • Dual listing is now allowed according to the Second Paragraph of Article 15 of the Law No. 17 of the year 2018, which enables dual listing in several stock exchange after the approval of the financial Regulatory authorities.
  • The New Amendments introduced new Chapter called “Egyptian Federation of Securities”; this federation includes companies operating in the field of securities subject to the provisions of this law or the provisions of the Central Depository Law and Registration of Securities issued by virtue of Law No. 93 of 2000. The Federation is specialized in providing recommendations on the development of capital market activity, raising awareness of it, adopting initiatives that support the activity, making recommendations regarding legislation regulating the work of its affiliated bodies, developing skills of securities workers and coordinating among members. All companies licensed to practice one of the activities of securities companies are obliged to join the Federation and to observe its Articles of Association.
  • The Amendments targeted the protection of the rights of the minority shareholders in cases of tender offers or acquisitions towards small shareholders, especially in the cases of acquisition and mandatory purchasing.
  • Amendments also included a reorganization of the issuance and trading of Sukuk (bonds that generate returns in a way that complies with Islamic Sharia) as a financial tool in the capital market, effectively canceling the old Sukuk Law No. 10 of the year 2013. Moreover, VAT and all taxes and fees of any kind shall be exempted from all transactions on assets between the beneficiary and the Sukuk Company, provided that such assets are not disposed of to others or the ownership structure of the Sukuk company is changed and such exemption shall include the following (A) Real estate transactions, and the registration of real estate necessary for the transfer of ownership of real estate assets between the Issuer and the Sukuk Company, either when the Sukuk is issued or when they are returned to the Issuer at the end of the Issuance Period.; (B) the registration of assets, assets and benefits between the Beneficiary and the Sukuk Company, either when the Sukuk is issued or when they are returned to the Beneficiary at the end of the Issuance Period. However, the dividends assessed for the Sukuk holders and the outcome of the transaction shall be subject to the tax treatment prescribed for corporate bonds
  • In addition to sukuk, now Future Exchange company can be established as a Joint Stock company, as restricted by the law due to the natural requirements for Capital Market companies to trade in one or more securities such as trading in future contracts after obtaining FRA’s approval, while the old law and the current ER requires the approval of the relevant Minister
  • The amendments added various new definitions, harsh fines and sanctions for violations related to financial malpractice including any action against traders or clients or anything related to trading fairness.

Finally, the Law amendments are targeted at facilitating Egypt’s economy reach global competitiveness, achieving financial improvements, activating the role on the non-banking financial sector to boost economic growth, investor confidence in the Egyptian market,  insuring fair competition practices and attract new investments by adding new financial tools.