Capital Markets Comparative Guide

1 Legal and regulatory framework

1.1 Which laws and regulations govern the capital markets in your jurisdiction?

Capital markets in Egypt are regulated and governed by the Capital Market Law (95/1992), its executive regulations and their amendments. Capital markets are also regulated by all decrees issued by the Financial Regulatory Authority (FRA) and the Egyptian Exchange (EGX) Listing and Delisting Rules 11/2014, including their amendments.

1.2 Is your jurisdiction part of a supranational, transnational or multinational framework with relevance to capital markets? If yes, how does this work?

Egypt is part of supernational, transnational and multinational frameworks. Some transactions involve multinational frameworks through the participation of foreign entities and firms, including instances of dual listing and global depository receipts.

Without prejudice to the information set out in question 4.1, the shares of foreign companies may be listed if the following conditions are met:

• A company's shares may be listed on a foreign stock exchange subject to supervision of the relevant authority, exercising the same functions and powers as the FRA. The shares may be in Egyptian pounds or any foreign currency convertible to Egyptian pounds.
• Where the company's shares are not listed on a foreign stock exchange, they may be listed if more than 50% of the ownership rights, assets and revenues are from their Egyptian subsidiaries, provided that the company submits consolidated financial statements for the two financial years preceding the application for listing. The financial statements must be prepared in accordance with Egyptian accounting standards.
• The company must submit an auditor's report and its financial statements to the EGX. These documents must be prepared and reviewed in accordance with Egyptian, international or US standards. The reports of the board of directors must also be submitted, together with a translated copy in Arabic of these documents for publication on the EGX's official website.
• The capital of the foreign company must not be less than the equivalent of $100 million:
• • for medium and small companies; or
  • if the company is not listed on a foreign stock exchange and 50% or more of its ownership rights, assets and income are from Egyptian companies affiliated to it.
• The minimum issued and paid-up capital for the company is the same as that required to list the shares of Egyptian companies.
• The same conditions and requirements apply to the listing and offering of Egyptian depository receipts with regard to:
• • the number of shareholders;
  • the percentage of freely traded shares (free float); and
  • the minimum number of shares required to be listed, as prescribed in the EGX Listing Rules.
• The company should have a legal representative in Egypt.

1.3 Which bodies are responsible for regulating the capital markets in your jurisdiction? What powers do they have?

The FRA and the EGX are the entities responsible for regulating the capital markets in Egypt.

The powers of the FRA are as follows:

• to issue regulations and decrees regulating non-banking financial activities and listed companies;
• to approve the listing and delisting of companies, and to review all necessary documents required for listing or delisting;
• to impose sanctions and penalties on all listed companies;
• to monitor the activities and dealings of all listed companies;
• to issue licences to conduct non-banking financial activities;
• to inspect entities licensed to conduct non-banking financial activities and operate in the markets;
• to supervise the provision and publication of information relating to the non-banking financial markets;
• to ensure competition and transparency in the provision of non-banking financial services by monitoring the markets;
• to protect the rights of dealers in the non-banking financial markets and take all necessary measures to limit manipulation and fraud in those markets, considering the potential commercial risks that might be identified;
• to contact and cooperate with non-banking financial supervisory bodies abroad and the associations and organisations that collect or organise their work; and
• to contribute to promoting a sound financial culture and financial investment awareness.

The powers of the EGX are as follows:

• to regulate the procedures and disclosures of all listed companies;
• to list or delist companies from the stock exchange, with the FRA's approval;
• to finalise the sale and purchase of shares;
• to implement the rules and decrees set by the FRA;
• to implement any sanctions imposed by the FRA on a listed company; and
• to issue guidelines on the listing and delisting rules, pursuant to FRA decrees.

1.4 How does enforcement work and what kinds of sanctions may be applied?

Enforcement by the FRA: The FRA is entitled to act as follows to ensure the enforcement of any laws and regulations:

• to send notice to a violating company informing it of the violation;
• to prevent a company from engaging in some or all of the activities it was previously licensed to engage in
• to demand the chairman of the violating company's board of directors to invite the board to a meeting to investigate the violations and take the necessary measures to remedy them. In this case, one or more representatives from the FRA will attend the meeting of the board of directors;
• to appoint an observer to the company's board of directors for a period specified by the FRA's board of directors. This member will have the right to participate in discussions of the board and record his or her opinion on those decisions;
• to dissolve the board of directors and appoint a delegate to temporarily manage the company until a new board of directors has been appointed in the manner prescribed by law; and
• to require the violating company to increase the value of its deposited insurance.

Sanctions imposed by the FRA: As stipulated in the law, the FRA may sanction any offender that violates its regulations, without prejudice to a more severe penalty stipulated in any other law. The FRA's sanctions may include, but are not limited to:

• imprisonment of the company's legal representative for up to five years; and
• a fine of not less than EGP 50,000 or the aggregate benefit that the violator received for the violation, whichever is greater. This amount may not exceed EGP 20 million or double the aggregate benefit that the violator received for the violation, whichever is greater.

These sanctions are applicable to the following types of misconduct:

• conducting one of the activities subject to the provisions of the Capital Market Law without the FRA's approval and licence;
• offering securities or financial instruments through public subscriptions or public or private offerings, or benefiting from them in any way, in violation of the Capital Market Law or the decisions issued for its implementation;
• deliberately stating incorrect information or information in violation of the provisions of the relevant laws, or altering this information after its approval by the FRA, in the subscription prospectus, the incorporation documents, licensing papers or other reports, documents or announcements of the company;
• intentionally issuing incorrect data on the securities for which subscriptions are received by an authorised party;
• falsifying company records or deliberately issuing false statements that would have an adverse effect on the securities issued;
• establishing an unreal price entry or a fictitious operation, or fraudulently attempting to influence market prices;
• listing securities or financial instruments in violation of the provisions of the relevant law and its executive regulations;
• deliberately not fulfilling its commitments regarding the rights of small shareholders or holders of financial instruments;
• deliberately violating the financial evaluation criteria issued by the FRA;
• issuing financial instruments or offering them for trade in violation of the provisions stipulated in the Capital Market Law;
• violating the provisions on the payment of financial instruments; or
• fraudulently evaluating assets or their benefits.

2 Capital markets infrastructure

2.1 What is the capital markets infrastructure in your jurisdiction (eg, trading venues, central counterparties, central securities depositaries (CSDs)?

The capital markets infrastructure consists of several government entities, including:

• the Financial Regulatory Authority (FRA);
• the Egyptian Exchange (EGX);
• the Misr for Central Clearing, Depository and Registry (MCDR); and
• the General Authority for Investments.

Trading venues are managed by the EGX, which implements trades at the EGX. The MCDR handles all central depositories and reflects the transactions issued by the EGX.

2.2 What are the main exchanges and other trading venues in your jurisdiction? What are the key differences between those various trading venues?

There are two exchanges in the Egyptian market: the EGX and the Nile Stock Exchange. The Nile Stock Exchange is for small and medium-sized companies.

2.3 What kinds of securities does your jurisdiction provide for (eg, electronic securities)?

The different kinds of securities in the jurisdiction are ordinary financial securities as follows:

• shares (common shares and preferred shares);
• bonds (government bonds and corporate bonds);
• closed investment funds;
• global depository receipts; and
• mutual fund documents.

2.4 Is it mandatory to deposit securities with a (local) CSD (eg, for listing)?

Yes, a company must be registered with the Central Depository System at the MCDR prior to listing.

2.5 Are there rules in place governing crypto-assets and crypto-infrastructure (eg, crypto-exchanges, local crypto-money)?

Rules on crypto-assets and crypto-infrastructure have not yet been issued in Egypt.

2.6 Are special rules in place for crowdfunding products?

The Capital Market Law regulates non-banking financial activities. These activities include the ability to:

• participate in the establishment of companies that issue securities or increase their capital; and
• conduct the activities of venture capital and special purpose acquisition companies.

These activities require a licence from the FRA.

Although these activities are mainly conducted by capital markets companies, they can also be conducted by any financial institution, provided that these accord with the FRA's decrees and without prejudicing other required conditions. Capital market companies must have an officer or controller of the "Anti-Money Laundering and financing terrorism, and such officer or controller must be registered with the FRA, upon fulfilling all requirements in this regard.

2.7 What kinds of databases are available on instruments issued and traded in your jurisdiction, and how can they be accessed?

Databases on issued and traded instruments can be found on the EGX website. Furthermore, all companies that issue securities, whether as listed shares or in another form, must include the database on their website before trading these securities.

3 Trading and post-trading infrastructure

3.1 What kind of market infrastructure does your jurisdiction provide for?

The Egyptian Exchange (EGX) is the main market infrastructure in Egypt.

3.2 What are the rules governing liquidity flows across execution venues (eg, use of systematic internalisers, trading obligations)?

Liquidity flows across execution venues are governed by the EGX Listing and Delisting Rules issued in Financial Regulatory Authority (FRA) Decree 11/2014, as amended.

3.3 Are there rules on light and dark markets and how do these apply?

There is only one market for trading regulated by the EGX, which follows the rules and regulations issued by the FRA.

3.4 Are market participants subject to best execution requirements?

Yes, market participants are subject to best execution requirements, as indicated in the EGX Listing and Delisting Rules and decrees issued by the FRA.

3.5 Does your jurisdiction apply a target market concept?

Shares can be listed through either public or private, primary or secondary offerings. In private offerings, the target market concept may be applied to allow qualified investors (eg, financial institutions) to purchase shares in an entity. The general rule is that:

• any customer can purchase securities in a listed company that offers its shares through a public offering; and
• that company would not be targeting a certain demographic when listing its stocks, unless this concerns a private offering targeting qualified investors.

3.6 How does securities settlement work in your jurisdiction?

The sale and purchase of shares must be conducted through an authorised broker licensed to operate by the FRA. The broker receives instructions from the customer to either buy or sell shares. The broker then finalises the transaction through the EGX and reflects this change with the Misr for Central Clearing, Depository and Registry.

4 Listing and delisting of shares and bonds

4.1 What key requirements must be met to obtain a primary listing in your jurisdiction? What restrictions apply in this regard? Do any exemptions apply?

Listing is generally reserved for major corporations, with a capital of over EGP 100 million, which are willing to issue their shares for public or private subscription. Such corporations must meet certain conditions in accordance with Articles 6 and 7 of the Egyptian Exchange (EGX) Listing and Delisting Rules. If the following requirements are not met prior to listing, the company's shares cannot be listed on the EGX:

• The company's shares must be registered with the Misr for Central Clearing, Depository and Registry (MCDR).
• The company's articles of association must not include any restrictions on the free tradability of shares.
• The offered shares must be no less than either:
• • 25% of the issued shares of the company; or
  • shares equivalent to 1% of the market free capital on the stock exchange;
• The company must have at least 300 shareholders post offering.
• The company's free-floating shares must be no less than either:
• • 10% of the company's shares; or
  • 1/8000 of the company's shares representing at least 5% of the shares of the company.
• The minimum listing is:
• • 5 million shares; or
  • shares equivalent to ½/100 of the company's freely traded market capital on the EGX.
• The company's issued share capital must be paid in full and must not be less than EGP 100 million or an equivalent amount in foreign currency.
• The company's net profit before tax deductions in the previous two years must not have been less than 5% of the company's paid-up capital. Such profit must be achieved through the company's activities, as stipulated under its articles of association.
• Upon listing the company's shares, the principal shareholders (ie, any shareholder owning more than 10% or more of the company's share capital either directly or indirectly through related parties) must undertake to hold at least 51% of their shares in the company's share capital for at least two financial years as of the offering date.
• Women must be represented on the listing company's board of directors in a percentage of no less than 25% or at least two female members.
• The company must provide financial statements for the two financial years prior to listing, prepared and audited in accordance with Egyptian accounting standards and approved by the company's general assembly, as ratified by the administrative authority.

Some of the above conditions may not apply to small and medium-sized enterprises (SMEs), such as:

• the capital requirements;
• the requirements on the number of shareholders; and
• the requirements on the number of issued shares.

The following requirements for SMEs apply with regard to their capital and shares; all other requirements set out above will apply to SMEs:

• The company's issued share capital must:
• • be paid up in full; and
  • not be less than EGP 1 million or more than EGP 100 million, or an equivalent amount in foreign currency.
• There must be at least 100 shareholders.
• The company must issue at least 100,000 shares.
• The company can list by issuing a financial statement for one year rather than two, while providing a business plan for the next three years, indicating its expansion plan and any increase in capital.

If these conditions are not met, the company cannot list its shares on the EGX exchange.

An exception to the above requirements applies where a company temporarily lists its shares on the EGX for a period up to six months, if it is as yet unable to meet the following requirements:

• The offered shares must be no less than either:
• • 25% of the issued shares of the company; or
  • shares equivalent to 1% of the market free capital on the stock exchange.
• The company must have at least 300 shareholders post offering.
• The company's free-floating shares must be no less than either:
• • 10% of the company's shares; or
  • 1/8000 of the company's shares representing at least 5% of the shares of the company.

During this six-month period, the company must fulfil any of the missing requirements in order to complete the final listing of its shares. The shares of the company may not be traded during the temporary listing period. If the conditions are not fulfilled in their entirety within this six-month period, the listing will be cancelled and the temporary listing will be deemed never to have occurred.

For any exception to the listing rules to apply, the approval of the Financial Regulatory Authority (FRA) must be obtained in advance. The FRA has the sole discretion to approve or deny this exception. For instance, a company may be exempt from the requirement that its net profit before tax deductions in the previous two years must not have been less than 5% of its paid-up capital. One way in which a company can benefit from this exemption is by providing financial statements for the past three years (rather than two) which confirm that the aggregate net profit before tax deductions in the previous three financial years preceding the listing request was not less than 5% of its paid-up capital. During these three financial years, the company must not have suffered any losses.

4.2 What key requirements must be met to obtain a secondary listing in your jurisdiction? What restrictions apply in this regard? Do any exemptions apply?

Without prejudice to the requirements set forth in question 4.1, an Egyptian company whose securities are already listed on the EGX may undergo a secondary listing, having obtained the FRA's approval.

4.3 What are the most common listing structures? What are the advantages and disadvantages of these different types of structures? What other factors should companies consider when deciding on a listing structure?

The most common listing structures are:

• public offering;
• private offering;
• primary listing;
• secondary listing;
• dual listing; and
• global depository receipts.

4.4 How does the listing of bonds differ from the listing of shares?

There is little difference between the listing of bonds and the listing of shares. The only key difference is that in order to list a bond, a certificate referring to the degree of credit rating granted to the issued bonds must be provided.

4.5 What advisers are typically involved in the listing process? What claims (if any) can be brought against advisers with regard to their role in the listing process? Is there any way to mitigate such liability?

The following parties and advisers are involved in listing and offering securities to companies or entities:

• the issuer;
• the offering manager;
• the brokerage company;
• legal advisers;
• auditors and independent financial advisers;
• the bank handling the offering;
• the MCDR; and
• the EGX.

The liability of advisers is determined based on their actions during the listing and the offering proceedings. The Capital Market Law identifies several potential violations that may be committed by advisers, together with the applicable penalties.

The following actions of advisers constitute violations of the law:

• engaging in activities that are subject to the Capital Market Law without being licensed to do so;
• offering securities or financial instruments through public subscriptions or public/private placements, or benefiting from such in any way, in violation of the Capital Market Law or decisions issued for its implementation;
• deliberately including incorrect data or information in violation of the Capital Market Law in subscription prospectuses, incorporation documents, licensing documents or other reports, documents or announcements related to the company, or altering this data after its approval by the FRA;
• deliberately issuing incorrect data about the securities for which subscriptions are received by an authorised recipient;
• establishing an unreal price entry or a fictitious transaction or fraudulently attempting to influence market prices;
• listing on the stock exchange securities or instruments in violation of the Capital Market Law and its executive regulations;
• deliberately violating the financial evaluation criteria issued by the FRA; or
• violating auditing and accounting standards.

Without prejudice to any more severe penalty stipulated in any other law, the above offences may incur a penalty of:

• imprisonment for up to five years; and
• a fine of at least EGP 50,000 or the illicit gains made or losses prevented by the offender, and not exceeding EGP 20 million or double the illicit gains made or losses prevented, whichever is greater.

It is also an offence for anyone to:

• disclose a secret that he or she has learned by virtue of his or her work in application of the provisions of the Capital Market Law;
• benefit from such a secret – whether for himself or herself, or for a spouse or children;
• include incorrect facts in his or her reports, or omit from his or her reports facts that will affect his or her results; or
• deal in financial securities or instruments in violation of the following provision:
• • Persons who have information about the financial positions designated to listed companies in the stock exchange or the results of their activities and other information that might affect the conditions of these companies, are prohibited from dealing with these listed companies for their own interest, thus before announcing or disclosing to the public.
  • Such persons are also prohibited from disclosing such information to others, whether directly or indirectly.

In addition to the penalties prescribed above, a ruling may be passed banning the adviser from practising his or her profession or conducting the activity to which the crime relates for up to three years. This ruling is obligatory in case of recurrence.

For the abovementioned crimes and those prescribed in the Capital Market Law, a criminal case may be instituted only on request by the chairman of the FRA.

The FRA's chairman may reconcile these crimes at any stage in return for payment of an amount of at least twice the minimum fine.

4.6 What other factors should companies consider when deciding on a listing strategy?

Governance and the reasoning for listing will be considered. This might include listing:

• to raise funds; or
• as an exit strategy for investors.

4.7 What are the typical reasons for voluntary delisting? What are the grounds for compulsory delisting? What is the process for delisting?

Compulsory delisting: Compulsory delisting is permitted in any of the following cases:

• The company was listed based on incorrect data affecting the integrity of the listing.
• The company has not fulfilled its disclosure obligations in accordance with the EGX Listing and Delisting Rules after one month has lapsed since the EGX's notification.
• In the event of dual listing, a foreign listing has been delisted for any reason – in which case the local listing will also be cancelled.
• Six consecutive months have passed without conducting trading operations. Transactions between related parties are not considered trading in the application of the EGX rules.
• The company has not paid the prescribed listing fees.
• The company has continuously violated one of the EGX Listing and Delisting Rules without redressing the situation within the period specified by the EGX.
• The company has committed more than two violations of the EGX Listing and Delisting Rules within 12 months and such violations cannot be reversed.
• The company has failed the minimum profit condition for two consecutive financial years after listing.
• The company no longer meets one of the listing conditions or one of the conditions for continuation.

In the event of the compulsory delisting of its shares, the company must:

• purchase free-traded (free-float) shares whose owners wish to sell; or
• guarantee that third parties will purchase these shares.

The purchase must be executed within three months of notification of the EGX committee's decision to proceed with delisting.

The securities must be delisted by reasoned decision of the EGX Listing Committee. The delisting will take effect from the date specified in the committee's decision.

The EGX discloses, on trading screens and its website, all communications and decisions regarding delisting applications.

It is permissible to consider delisting issued shares of companies under liquidation at any stage of the liquidation, without being bound by the provisions on the purchase of freely traded shares.

Voluntary delisting: Listed securities may be delisted upon the request of the issuing entity or company and with a decision from the EGX Listing Committee, after ensuring that the following conditions are met:

• The company's extraordinary general assembly resolution, issued by a majority of 75%, has approved the delisting of the securities from the EGX.
• No shareholder has objected to the decision on delisting within one month of its issue. If one or more shareholders object, they will have the right to sell their shares to the company at the highest closing price of the company's shares in the month preceding the date of the board of directors' decision to invite the extraordinary general assembly to consider delisting. Alternatively, the shareholders may also sell their shares at the average closing prices of the company's shares in the three months preceding the date of the aforementioned decision, if there is a transaction on the shares during that period. If there is no transaction on the shares, the delisting company must purchase the objectors' shares in accordance with the fair value determined by an independent financial adviser (IFA) from those registered at the authority. A report from the company's auditor will be attached to the IFA's report.
• There must be no objection by any other party to which the company's shares are pledged as security for a debt owed by the company, or one of its shareholders, within one month of the date of the decision. If such an objection is made, the objecting party will have the right to sell the pledged shares to the company in accordance with the conditions outlined above.
• For companies resulting from a restructuring by demerger that do not fulfil the conditions for continuation of the listing after the demerger, the decision of the extraordinary general assembly to demerge must include the company's commitment to purchase the shares of the shareholders affected by the demerger, in accordance with the fair value determined by an IFA, whether before or after the demerger.

The trading of securities will continue after the extraordinary general assembly has issued its decision on voluntary delisting for a period not exceeding three months.

If the company does not implement the delisting process during this period, its status will be presented to the EGX Listing Committee for a decision on the compulsory delisting of its securities, which would require it to purchase the shares of those affected by the delisting.

In case of a conflict of interest, the FRA may limit the vote on the voluntary delisting decision at the company's extraordinary general assembly to minority shareholders (free-traded/free-float shares), without the vote of the main shareholder(s) and their related parties. In the event of substantial events or transactions prior to the decision of the company's board of directors affecting the value of the company, the FRA may also request that the purchase of the shares of objectors to the delisting decision be at the fair value of the company's securities, as determined by an IFA registered with the FRA.

As an exception, a decision by the company's board of directors may suffice to proceed with delisting in case of a mandatory tender offer whose implementation results in the offeror owning, alone or with related parties, a percentage of 75% or more of the capital shares. Such an offer must disclose the offeror's intention to delist the security. The company must purchase the shares of any shareholders that object to the delisting decision and that did not respond to the mandatory tender offer if those shareholders are willing to sell in the six months following implementation of the offer.

Request to reconsider a delisting decision: The company or the owners of 5% of its securities may submit a request to reconsider the EGX Listing Committee's delisting decision to the EGX board of directors. The request must be issued within 15 days of the date on which the delisting decision is announced on the EGX screens; and the board must consider this request and issue its decision at its first meeting following the date of submission of this request.

If the EGX board of directors endorses the decision of the Listing Committee, the company may submit a petition to the FRA within 15 days of notification of the decision of the EGX board of directors. The FRA must decide on the petition within 15 days of submission of this request.

Relisting request: Companies whose shares have been compulsorily delisted may submit a new listing request if they fulfil the requirements and conditions for listing, if the delisting was due to the submission of financial statements for the two previous fiscal years that violated the disclosure requirements.

A company facing compulsory delisting of its securities for the violation of any other listing conditions, or whose shares have been voluntarily delisted, may submit a new listing request. This request must fulfil the requirements and conditions for listing and financial statements must be submitted for one fiscal year following the delisting date.

4.8 What tax considerations should be borne in mind from the issuer's perspective?

Capital gains from dealing with securities listed on the EGX, sourced in Egypt, are subject to capital gains tax of 10% of the net capital gains, without deducting any costs.

5 Prospectus rules and marketing

5.1 What kinds of instruments are subject to prospectus requirements?

All instruments are subject either to a prospectus requirement or to a disclosure report requirement. The information in the prospectus and disclosure report is quite similar in nature.

5.2 What are the key exemptions from the prospectus requirements and what kinds of selling restrictions might apply?

Without prejudice to the information in question 5.1, upon listing on the Egyptian Exchange (EGX), securities are offered through either a prospectus or a disclosure report.

Selling restriction: Once the company's shares are listed, principal shareholders (ie, any shareholder owning more than 10% or more of the company's share capital either directly or indirectly through related parties) should undertake to hold at least 51% of their shares for at least two financial years as of the offering date.

With the approval of the Financial Regulatory Authority (FRA) and the ordinary general assembly of the company, it is permissible to transfer these shares, either in part or in whole, if the buyer is:

• a bank;
• an insurance company;
• a direct investment fund;
• an entity that specialises in investment; or
• a legal person with experience in the company's field of activity.

The buyer must retain the shares until the end of the prescribed two-year period.

5.3 What key information must be included in a prospectus? What other requirements and restrictions apply with regard to the content of the prospectus?

All of the company's information and data – whether at the time of listing, during offering or after completion – should be disclosed to the public. This includes but is not limited to:

• lawsuits filed by or against the company;
• transactions of the main shareholders, board of directors and related parties, to the extent that any of them owns at least 5% or multiples thereof;
• all licences and approvals;
• all financial information loans, credit facilities, financial statements (annual, quarterly, outstanding, consolidated) and financial dues to other creditors;
• all decisions of the board of directors and general assembly;
• tender offers; and
• any substantial information and any further information or documents that might be requested by the FRA and/or the EGX.

5.4 What is the process for preparation, approval, filing and publication of the prospectus? How long does each step take?

Preparation: In order to prepare the prospectus, full due diligence on the company should be conducted, including financial and legal due diligence. This enables the advisers of the company to prepare the prospectus while covering all aspects indicated under question 5.3. If a company's activities are governed by the rules of the FRA (eg, non-banking financial activities or insurance), the due diligence request must be reviewed and approved by the FRA.

Filing: Once the prospectus has been drafted, the prospectus and related documents (eg, undertakings, relevant forms, corporate resolutions and independent financial adviser reports) must be submitted to the FRA for its review and approval.

Approval: Once the prospectus has been filed by the advisers of the company, the FRA will either issue its approval of the prospectus or provide any comments or requests for further information or amendments to the report.

Publication: Once the FRA has approved the prospectus and all other related documents and requirements, the entire prospectus will be published on a website designated by the FRA for this purpose, as well as on the trading screens of the EGX and on the company's website. Publication will take place from the day following issue of the FRA's approval until at least the date on which the securities start trading.

A summary of the prospectus must be published in one of the most widely circulated Egyptian daily newspapers in the Arabic language, all according to the form prepared by the FRA for this purpose.

Timeframe: There is no definitive timeframe for the above steps and the process may be relatively quick, depending on whether:

• the company has fulfilled all necessary requirements; and
• the FRA has any comments or further requirements.

5.5 What are the rules governing prospectus summaries/key information documents (KIDs) in your jurisdiction?

Prospectus summaries and KIDs are governed by:

• the EGX Listing and Delisting Rules;
• FRA decrees; and
• the Capital Market Law.

5.6 Who is liable for the content of a prospectus/KID in your jurisdiction? On what grounds can such claims be brought? Is there any way to mitigate such liability?

The issuing company, its advisers and listing/offering parties are liable for the content of the prospectus. For further information on the scope of liability, please see question 1.4.

6 Financial services (marketing and distribution)

6.1 What kinds of services in financial instruments are subject to authorisation requirements? Is proprietary trading allowed per se?

Investment funds, bonds, securitisations and all non-banking financial activities are subject to the Financial Regulatory Authority's (FRA) authorisation and licensing.

6.2 Do special authorisation requirements apply to members of trading venues and/or issuers?

Trading in shares of listed companies: Each shareholder must submit a disclosure to the Egyptian Exchange (EGX) when its holdings and/or those of related parties exceed or decrease by 5% or multiples thereof. This applies to either the capital of the listed company or the voting rights, including shares that have been subscribed for by purchasing its subscription rights. Among other things, the shareholder must specify:

• the shares and foreign depositary receipts held both by itself and by directly related parties; and
• any indirect holdings as a result of acquiring a stake of 25% or more in a company or entity that itself owns a percentage of the listed company's capital.

If the percentage purchased by the shareholder or its related parties amounts to 25% of the listed company's capital or voting rights, it must also disclose its future investment plan and its directions regarding the company's management.

The disclosure must be made after implementation of the transaction and before the beginning of the first next trading session, on the form drafted by the EGX and approved by the FRA for this purpose. In all cases, the EGX must publish this information both on trading screens and on its website as soon as it is notified thereof.

These disclosure requirements apply to members of a listed company's board of directors, its employees and related parties upon completion of the sale or purchase by one of them of up to 3%, or multiples thereof, of the company's securities (including subscription rights). With respect to members of the board of directors, the disclosure must specify:

• the shares and foreign depositary receipts held both by themselves and by directly related parties; and
• any indirect holdings as a result of acquiring a stake of 25% or more in a company or entity that itself owns a percentage of the listed company's capital.

Percentages within the limit of 1% of the listed company's capital shares and the securities percentages mentioned above will not be considered violations when they are dealt with through related parties. Related parties may not necessarily be familiar with the transactions of other trading parties or with the outcome of operations that relate to the portfolios of securities and investment funds owned by legal entities that are managed by independent investment managers.

In all cases, the persons addressed by these provisions should periodically disclose, on 1 January and 1 July each year, what they and their directly or indirectly related parties own in accordance with the conditions referred to above.

Companies conducting non-banking financial activities: Any natural or legal person that owns 5% of the capital or voting rights of a company which conducts non-banking financial activities must notify the FRA within two weeks of acquiring ownership of this percentage.

Unless the FRA has given its approval, it is prohibited for any natural person, other than by way of inheritance or will, or for any legal person:

• to own 10% of the issued capital or voting rights in such a company; or
• to increase its ownership in the company by 5% or multiples thereof.

The shares of such companies cannot be transferred from the date of incorporation until a licence has been obtained, except with the prior approval of the FRA. The new shareholder must comply with all requirements related to incorporation and licensing, in accordance with the provisions of the relevant law.

A shareholder that owns 25% or more of the capital or voting rights in such a company must submit supplementary documents and data required by the FRA.

In all cases, the approval of the FRA's board of directors must be obtained for ownership requests by a person and its related parties if:

• the company has a market share of at least 10% or more in any related activity; or
• certain acquisition ratios are met.

Insider transactions: A company whose securities are listed on the EGX must notify the EGX of the internal procedures it follows. This requirement is aimed at preventing insider trading, including by:

• members of the board of directors and company officials;
• people who have access to information that is unavailable to third parties, regardless of their percentage; and
• main shareholders owning 20% or more of the company's capital, whether alone or through related parties.

The restrictions apply for the five working days prior to and the working day following the publication of any material information.

The transaction may take place once the EGX has been notified accordingly, using the form the EGX has prepared for this purpose. The execution date cannot exceed one month from the date of submission of the notification form to the EGX.

These notification requirements do not apply to:

• transactions upon forced sale;
• sales operations aimed at redeeming the indebtedness related to pledged securities; or
• operations that relate to the portfolios of securities and investment funds owned by legal entities that are managed by independent investment managers.

The EGX will publish the dealing data after the session during which the execution was carried out and before the beginning of the next session. This will take place even if the execution was partially implemented; and the information will be published on trading screens and on the EGX's website.

6.3 How are financial instruments typically marketed in your jurisdiction? Are there special rules for initial public offerings?

Financial instruments are mainly marketed through:

• the EGX's website;
• the FRA's designated website;
• the website of the issuer; and
• daily newspapers in Egypt.

Furthermore, the issuer, together with its advisers/parties, can conduct a roadshow to advertise the issuance of securities.

6.4 Is book building commonly used in your jurisdiction? If so, what does this process typically involve and do the regulatory requirements apply to book building? What are the advantages and disadvantages of book building?

Book building is one of the methods to determine the offering price. It is an internationally recognised system applied in Egypt by the FRA and the EGX.

Book building is used by the issuer and the offering manager to explore the offer price through investors' requests at different price levels after the closing period for applications.

Subscription requests and purchase offers are received through the FRA's automated systems, and are visible only to the FRA and the offering manager/s.

6.5 What requirements and restrictions apply with regard to price stabilisation in your jurisdiction?

Price stabilisation mechanism: Companies that conduct a public offering may use a mechanism to stabilise the share price in the market after the offering.

This mechanism aims to support the stability of the share price in the market for the benefit of the shareholders by dealing, through the offering manager, in the shares of the issuer where the share price is unstable. It is implemented through a purchase order for the shares, using the open stability account system on the EGX for those willing to sell.

The stabilisation account should be operated and regulated in accordance with the regulations set by the FRA.

7 Derivatives

7.1 What trading and clearing obligations apply to derivatives?

The Financial Regulatory Authority (FRA) is working to expand the trading rules on derivatives. Decree 49/2019 regulates the terms and requirements for licensing intermediary activity in instruments derived from financial securities and other instruments which are listed on a stock exchange. The most important terms and requirements include the following:

• The issued and paid-up capital of the company must not be less than EGP 10 million or its equivalent in foreign currency.
• The founders should be legal persons with a percentage of not less than 50% of the company's capital; and not less than 25% of the capital may be held by financial institutions.
• Governance rules should be considered in relation to:
• • the board of directors;
  • the conditions for their appointment; and
  • their term of appointment, which should be a renewable period of at least three years.

7.2 Do mandatory risk mitigation techniques (eg, provision of collateral) apply?

Yes, companies dealing in derivatives must appoint officers and obtain a licence from the FRA for the following positions:

• chief executive officer/managing director;
• operation officer;
• trading officer;
• internal inspector for money laundering;
• risk manager;
• account manager;
• financial manager;
• internal auditor; and
• contracts operations executor.

Companies must also pay the FRA an insurance of 1/2 *1000 of the issued capital, with a minimum amount of EGP 25,000, to be paid in cash. This amount may be reduced or increased by the FRA to reflect the company's obligations or any violations committed by the company.

7.3 Is a mandatory reporting system for derivatives transactions in place?

The company must provide the FRA with a statement of its customers, operations executors, and contract forms, as well as the intermediary that will endure responsibility for any violations or abuses that may occur towards any of its customers.

It must also send all details of trading operations relating to executed contracts to:

• the clearing and settlement company in the field of derivatives using forward contracts; and
• the custodians through trading operations management systems.

It must also receive guarantees, whether in cash or shares (if any), and deposit them in a special independent account for the benefit of the customer.

7.4 What are the commonly used framework agreements in your jurisdictions for non-cleared and cleared derivatives?

Forward contracts for derivatives are commonly used in Egypt. The FRA plans to reconcile the trading of derivatives through forward contracts through Decree 371/2019, which regulates the model articles of association of the stock exchange company for forward contracts applied to derivatives that are listed on a stock exchange.

8 Corporate governance/continuing obligations

8.1 What corporate governance requirements apply to listed companies?

Governance rules are set out in:

• the Egyptian Exchange (EGX) Listing and Delisting Rules;
• decrees issued by the Financial Regulatory Authority (FRA);
• the Capital Markets Law and its executive regulation; and
• the Companies Law.

They include governance rules for:

• the issuer;
• its board of directors;
• audit committees; and
• investment relation managers.

8.2 Is there a mandatory or voluntary corporate governance index? If so, what does it contain?

Under Egyptian law, a company must follow strict governance rules and procedures. These are indicated in:

• the EGX Listing and Delisting Rules;
• the Capital Market Law; and
• the Companies Law.

Listed companies must present a quarterly disclosure report to the FRA and the EGX. This report must include information such as the following:

• the shareholders of the company;
• the number of shareholders and the number of directors;
• any treasury shares held by the company; and
• any alterations to the aforementioned during the quarter.

Listed companies must also disclose to all shareholders and the public any major events to which they might be exposed. Any breach or violation of laws and/or decrees may subject the issuer to:

• sanctions and fines imposed by the EGX Listing Committee; or
• delisting from the EGX.

8.3 What reporting obligations apply to listed companies? Do these vary if the issuer is a foreign company or between trading venues/segments?

In addition to the disclosures mentioned in question 8.2, each listed company which experiences an event that results in material information must immediately disclose it by notifying the EGX. This material information will then be published on trading screens and on the EGX website.

The disclosure must be made at a time that allows the EGX to publish details of the event immediately or before the first trading session following the event.

The issuer is required by all provisions of the EGX Listing and Delisting Rules to serve and protect shareholders' and subscribers' rights – and particularly those of minority shareholders – by disclosing all practices, acts, decisions, financial statements and other related matters of the company, and thus acting in their interests.

8.4 What other continuing obligations apply to listed companies?

All listing conditions and requirements set out in question 4 are required for listing and for the continuation of listing of the issuer at the EGX, in addition to any decree or instructions that may be issued by the EGX and/or the FRA.

8.5 What are the consequences of breach of any of these obligations?

Any breach or violation of these obligations may subject the issuer to:

• sanctions and fines imposed by the EGX Listing Committee; or
• delisting from the EGX.

8.6 Do mandatory auditing rules apply and is there a special review/enforcement process?

A financial evaluation criterion applicable to independent financial advisers and audit standards will apply to listed companies and companies that conduct non-banking financial activities. Furthermore, financial advisers and auditors must be registered with the FRA.

9 Inside information and market manipulation

9.1 What qualifies as inside information?

‘Inside information' is any material information that has not been announced to the public of dealers related to the business of an issuer or any parties or entities associated with it – in particular, substantial information relevant to, among other things:

• the issuing company;
• its holdings, affiliates, sister companies or their related parties;
• its officers or board members;
• the trading of shares; or
• mergers and acquisitions.

9.2 What prohibitions apply to inside information? Is there a legitimate behaviour exemption?

The same prohibitions set forth in question 1.4 apply to inside information.

9.3 What are the rules on mandatory disclosure of inside information?

The Egyptian Exchange (EGX) Listing and Delisting Rules govern all disclosures, as well as definitions and restrictions on inside information.

9.4 Are there special provisions on the operation of insider lists and Chinese walls?

Yes, the provisions of the EGX Listing and Delisting Rules.

9.5 Do special rules apply to personal transactions?

Special rules apply to personal transactions. Without prejudice to the conditions set forth in question 6.2, each shareholder must submit a disclosure to the Egyptian Exchange (EGX) when its holdings and/or those of related parties exceed or decrease by 5% or multiples thereof. This applies to either the capital of the listed company or the voting rights, including shares that have been subscribed for by purchasing its subscription rights. Among other things, the shareholder must specify:

• the shares and foreign depositary receipts held both by itself and by directly related parties; and
• any indirect holdings as a result of acquiring a stake of 25% or more in a company or entity that itself owns a percentage of the listed company's capital.

If the percentage purchased by the shareholder or its related parties amounts to 25% of the listed company's capital or voting rights, it must also disclose its future investment plan and its directions regarding the company's management.

9.6 What kinds of activities may amount to market manipulation?

‘Market manipulation' refers to any act or omission aimed at affecting the trading price of securities, causing damage to all or some dealers or customers in the stock market. For instance, the use of inside information would be considered an act of market manipulation.

Price manipulation is subject to the penalties set forth in question 1.4.

9.7 What are the consequences of breach of these requirements and restrictions, both for issuers and for their directors and officers?

Besides the conditions and sanctions set forth in question 1.4, and upon a decision of the chairman of the EGX, trading offers and requests aimed at price manipulation may be suspended.

The chairman of the EGX may cancel:

• operations that violate relevant laws, regulations or decisions; and
• operations at a price that is deemed unjustified.

The EGX's chairman may suspend dealings in a security if the continuation of dealing would cause damage to the market or to dealers.

The chairman of the Financial Regulatory Authority (FRA) may suspend a dealer from purchasing securities on the Egyptian securities exchanges – whether in his or her name and for his or her own account or for the account or benefit of another beneficiary – if the dealer commits a violation manipulating the price of securities or any other violation of the Capital Market Law, based on investigations conducted by the FRA. The suspension will be issued by a reasoned decision for a period not exceeding six months.

The chairman of the Egyptian Exchange may follow the same procedures mentioned above, in accordance with the instructions of the FRA board of directors.

10 Short selling

10.1 What kinds of restrictions apply to short selling?

Short selling is a relatively recent practice in Egypt and is not yet fully regulated. Both the Egyptian Exchange (EGX) and the Financial Regulatory Authority (FRA) are seeking to promote short selling. However, it is not permissible to deal subscription rights through margin or short selling.

10.2 Is a mandatory disclosure requirement in place regarding short selling?

The market maker may borrow the shares assigned to the index and the fund in accordance with the clearing and settlement of stock documents from the Central Depository and Registry Company approved by the FRA. However, it must not intentionally affect the price of securities in the market. The EGX may automatically and temporarily stop this mechanism for securities where the price falls below 10% during the trading session.

In all cases, the market maker is prohibited from short selling.

10.3 Is it permitted to write research reports while holding short positions?

Short selling is not yet fully regulated in Egypt.

11 Sustainability

11.1 Is the term ‘sustainability' defined in your jurisdiction and, if so, how? Does it cover environmental as well as social objectives? How is compliance with sustainability assessed (eg, quantitatively or qualitatively)? Are there certain minimum requirements?

‘Sustainability' is defined and applied in Egypt through the decrees and regulations of the Financial Regulatory Authority. It was introduced with regard to the disclosure of companies operating in the field of non-banking financial activities of environmental, social and governance (ESG) practices related to sustainability and the financial effects of climate change.

As per the last amendment of the Executive Regulation of Law 95/1992, upon the Ministerial Decree 2456/2022, the following bonds have been regulated:

• Sustainability bonds;
• Bonds related to the development of sustainability;
• Social bonds;
• Bonds related to women empowerment;
• Climate bonds; and
• Environmental bonds.

11.2 Are there special rules in place in your jurisdiction on the identification, management and disclosure of sustainability issues?

Companies operating in the field of non-banking financial activities whose issued capital or net equity rights are not less than EGP 100 million must make all necessary disclosures related to ESG practices and sustainability. These must be presented in the annual report prepared by the board of directors and attached to the annual financial statements.

Moreover, companies operating in the field of non-banking financial activities whose issued capital or net ownership rights are not less than EGP 500 million must make all necessary disclosures related to the financial effects of climate change. Again, these must be presented in the annual report prepared by the board of directors and attached to the annual financial statements.

11.3 Do applicable sustainability rules distinguish between sustainability risks (ie, financial risks resulting from sustainability issues) and the actual impact of corporate actions on, for example, the environment?

If companies operating in the field of non-banking financial activities do not consider or comply with the sustainability rules, this may be reflected in their corporate actions by the Financial Regulatory Authority (FRA). These companies must disclose all sustainability matters, which should be compatible with the key performance indicators covered in the company's financial statements. Furthermore, such companies must submit a statement on quarterly basis to the FRA, indicating the sustainability actions that they have adopted or intend to adopt. Failure to implement these procedures will have a negative impact on the company and the environment.

11.4 Does your jurisdiction provide for a special green bond regime?

Green bonds are financial instruments with a fixed income, which are issued to raise funds for environmental and climate-related projects. They reflect the interest of investors in preserving the environment and its resources, which is a fundamental right for future generations.

Many projects can be financed with the help of green bonds. In the main, these projects involve:

• renewable energy;
• clean transportation;
• sustainable management of water resources; and
• other projects aimed at preserving environmental resources and mitigating the effects of climate change.

Egypt recently launched its first sovereign green bonds in November 2020, with a value of $750 million for five years at a rate of 5.25%.

The FRA has also announced its approval of the first issuance of green bonds for companies in Egypt, with a value of $100 million, for the Commercial International Bank in Egypt, in cooperation with the International Finance Institution.

11.5 Are there restrictions on the sale or distribution of instruments not considered sustainable?

Listed companies whose issued capital or net ownership rights are not less than EGP 500 million must fulfil the disclosure requirements on the financial effects of climate change in their annual report, which must be prepared by the board of directors and attached to the annual financial statements. Failure to comply with this requirement may affect the company's performance on the capital market. All transactions carried out by defaulting companies will be monitored by the FRA.

11.6 Is it necessary to comply with certain minimum standards (eg, on human rights) to qualify as a ‘green' issuer?

The FRA has established a register of local experts and consulting institutions that may conduct evaluations and testing of green and sustainable projects (Registry of Independent Environmental Monitors – Sustainability Monitors). This register has been established to evaluate and supervise sustainability and green projects.

11.7 How will sustainability rules affect the capital markets in your jurisdiction?

The more companies that adopt sustainability principles and rules, the greater the investment opportunities will be. This will also lead to an increase in investors and a broader capital market and stock exchange.

12 Product bans

12.1 What products are currently banned from sale or marketing to (certain kinds of) investors in your jurisdiction?

Crypto and bitcoin trading is currently banned from sale or marketing in Egypt.

12.2 What is the process for imposing product bans and which regulators are in charge of this?

Product bans are imposed through the issuance of decrees and laws by the relevant authority. The regulator for these bans is currently the Financial Regulatory Authority, and in some cases the Central Bank of Egypt.

13 Trends and predictions

13.1 How would you describe the current capital markets landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Thanks to the positive decisions of the Egyptian government, the performance of the Egyptian Exchange (EGX) and the capital markets has improved markedly in recent years. This is also supported by the optimism of investors, driven by administrative changes at the Financial Regulatory Authority (FRA) and the EGX.

The FRA and the government have periodically and regularly issued laws and regulatory decisions, including amendments to decrees, in order to keep pace with financial technologies and developments in the capital markets, to better serve all customers and dealers.

The expanded use of reverse execution mechanisms to correct trading violations, listings and writing off securities on the stock exchange, alongside rules regulating margin purchases, the role of risk managers and financial technology, would all positively affect the capital markets.

14 Tips and traps

14.1 What are your top tips for the smooth conclusion of offerings in your jurisdiction and what potential sticking points would you highlight?

In order to ensure a smooth and successful listing and offering in Egypt, the following tips should be followed:

• Conduct and complete the financial and legal due diligence of the issuing/offering company very precisely.
• Identify the best price for the offering using the most appropriate mechanism.
• Choose the best time for the offering in order to meet market needs.
• For private placements, ensure that all requirements set out by the Financial Regulatory Authority (FRA) and the Egyptian Exchange (EGX) are met by qualified investors and ultimate beneficiaries.
• Make all major and periodic disclosures.
• Appoint qualified offering advisers and parties with adequate experience.
• Comply with all provisions of any law, executive regulations, decrees and circulars issued by any competent governmental authority, including the EGX, the FRA, the General Authority for Investments and the Misr for Central Clearing, Depository and Registry.

If these tips and requirements are met, the listing and offering should be successful and traps should be avoided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.