Egypt Lowers Brokerage Solvency Requirement to 5% to Contain Stock Market Drop
The Financial Regulatory Authority lowered the minimum net liquid capital requirement for brokerage firms to 5% of total liabilities from 10%, to contain forced selling.
Egypt's Financial Regulatory Authority reduced the minimum required net liquid capital for securities firms to 5% of total liabilities, down from 10%, according to Youm7.
The Authority applied the lower percentage to the trading sessions of October 25 and 26, then extended its validity through Thursday. It stated that the move aims to curb forced selling during the sharp drop experienced by the Egyptian Exchange.
This metric measures a brokerage firm's ability to meet its short-term obligations using liquid assets; thus, lowering the ratio gives companies a wider margin before being forced to liquidate positions to cover requirements.
The announcement did not include details on the extent of the index decline or the companies that benefited from the extension. The measure expires on Thursday, unless the Authority issues a new decision to extend it.
What do these terms mean?
Net liquid capital: The difference between a company's liquid assets and short-term liabilities, used to measure its ability to make timely payments.
Forced selling: Selling securities quickly and at low prices to cover financial requirements or avoid larger losses, putting further pressure on prices.
Brokerage firms: Companies acting as intermediaries between investors and the stock exchange to execute buy and sell orders for a commission.
Egyptian Exchange: The official market for trading stocks and bonds in Egypt.
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