FRA Grants the Egyptian Exchange Its First License to Operate Financial Derivatives Futures Exchange

The Financial Regulatory Authority (FRA), chaired by Dr. Mohamed Farid, announced the granting of the Egyptian Exchange (EGX) its first license to operate futures exchanges for derivatives based on securities listed in the Egyptian market.

This historic step reflects the Authority’s commitment to developing the legislative and technical infrastructure of the capital market, diversifying investment instruments, and enhancing risk management efficiency in line with international best standards and practices.

Financial Derivatives

Financial derivatives are financial instruments or contracts whose value is derived from an underlying asset, such as stocks, price indices, or other assets specified by the Authority. These may take the form of futures contracts, options contracts, swap contracts, or other standardized contracts.

Dr. Mohamed Farid, Chairman of the Financial Regulatory Authority, affirmed that the launch of the derivatives market is one of the key pillars of the Authority’s strategy to build more advanced and sustainable financial markets.

Activating Financial Derivatives

He added that the FRA has exerted significant efforts over many months to reach an appropriate framework for launching and activating financial derivatives in Egypt, given their global importance as essential tools for risk management and market stability, in addition to their role in attracting a broader base of investors.

The Chairman noted that the license was granted after completing the necessary regulatory and legislative framework and achieving full coordination with the Egyptian Exchange and Misr for Clearing, Settlement, and Central Depository (MCDR).

This coordination ensures the application of the highest standards of governance and discipline, the protection of market participants’ rights, and the preservation of market integrity and stability.

Derivatives Market

Dr. Farid disclosed that the launch of the derivatives market in Egypt will take place through four phases. The first phase will involve the issuance of futures contracts on the EGX30 index, with trading targeted to begin in March. The second phase will include futures contracts on the EGX70 index.

He added that the third phase will witness the launch of futures contracts on individual stocks, followed by the fourth phase, which will include the issuance of options contracts on stocks and indices. This phased plan aims to build an organized, stable market capable of sustainable growth.

Futures Contracts

Futures contracts are standardized, binding contracts to buy or sell securities, price indices, or other financial instruments according to specifications prepared by the Exchange and approved by the Authority. They are executed at a future date based on a strike price agreed upon at the time of contract execution.

Dr. Farid stressed the implementation of an integrated risk management system for the derivatives market, contributing to reducing systemic risks and ensuring the market’s ability to withstand various fluctuations.

Brokerage Activity

The Chairman of the Authority revealed that seven brokerage firms have already applied for licenses to operate as intermediaries in futures contracts, reflecting strong interest in participating in the new market and the growing attention of local investors toward developing their investment tools.

Futures contracts gain importance as they represent a qualitative shift toward deepening the market, increasing liquidity levels, and providing advanced financial instruments that enable investors to hedge against price volatility, improve pricing efficiency, and enhance market depth.

Hedging Against Risks

The advantages of trading futures contracts in Egypt include their use as hedging tools against risks, the potential to generate profits from price movements, and the ability to use leverage. They also offer better management of investors’ portfolios.

Support from the Financial Regulatory Authority

For his part, Dr. Islam Azzam, Chairman of the Egyptian Exchange, expressed his deep appreciation to Dr. Mohamed Farid for his significant and tireless efforts in completing the procedures for launching the derivatives market, emphasizing that the FRA’s support was pivotal to the success of this historic step.

He explained that the Authority and the Exchange held regular weekly meetings to coordinate all details related to the launch of derivatives, including the development of a dedicated internal trading system to accelerate the process and ensure market readiness to receive futures and options contracts.

He also noted that the connectivity between brokerage firms and the clearing and settlement company will be completed within a month to ensure full technical and operational integration of the market.

Trading Opportunities

Dr. Azzam also pointed out that this step has attracted the interest of several foreign investment funds, which have requested meetings with the Exchange to discuss trading opportunities in the Egyptian derivatives market.

This is a clear indication of international investors’ confidence in the development of the local market and Egypt’s readiness to offer advanced financial instruments that align with global best practices.

He added that close cooperation between the FRA and the Exchange will enable the application of best-in-class risk management systems, ensure market stability, and protect market participants’ rights, placing Egypt on a path of sustainable growth for financial markets and enhancing their depth and liquidity.

Risk Management Procedures

Several risk management measures are applied by the clearing and settlement company, including membership requirements, initial margin, variation margin, settlement members’ contributions to the central counterparty (CCP) guarantee fund, the clearing and settlement company’s contribution to the CCP guarantee fund, and allocations from the Investor Protection Fund to the CCP account.

Resources of the CCP guarantee account are utilized in accordance with the defaulting settlement member’s contribution, the clearing and settlement company’s contribution, the base contribution of other settlement members, allocations from the Investor Protection Fund, supplementary contributions from settlement members, and the clearing and settlement company’s reserves.

Real Estate (Illustrative Example)

This is an illustrative example of the concept of futures contracts applied to real estate. Suppose you expect real estate prices to rise significantly in the coming period, and you use futures contracts to purchase an apartment one year later at a predetermined price (EGP 2 million) instead of buying it now.

You would pay a down payment (initial margin) of approximately EGP 200,000 to guarantee execution, with the remaining amount paid at the contract’s settlement date. If prices rise, you would have made a profit before executing the contract; however, if prices decline, you would still be obligated to purchase the apartment and would incur a loss.

Source: Press Release