Post on 21-Dec-2015
Mohamed Abdel SalamChairman of MCDR CompanyAMEDA 1st Leadership Forum
April 27- 29, 2009 in Alexandria
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Introduction to Short Selling
Short Selling
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• A New Leveraged Vehicle for Securities Trading being Introduced in Egypt.
• Definition of the system: The “Securities Lending System” is a fund holding balances of securities listed on the Stock Exchange and owned by an investor (lender) desiring to lend them , and an investor (borrower) desiring to borrow for sell.
Why Introduce Short Selling?
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Creates a “better” marketplace More liquidity and smaller spreads
Good for Customers Opportunity to profit when prices decline Increased trading activity
Leverage Flexibility Interest income for Lenders
Good for Custodians and BrokersMore activity = more commissions and feesTraditionally, interest income –
Customer cash deposits (for brokers)Customer lending – (for custodians)
Important definitions
Borrowing Customer: is the Seller Customer in the operation subject-matter of lending against a securities borrowing contract.
Borrower’s broker: the brokerage company authorized to practice the custodian activity which has executed, in its capacity as proxy of the Seller Customer in the transaction, the operation of selling borrowed securities.
The Company: Misr for Central Clearing, Depository and Registry CompanyLender: The investor owner of the securities registered under the loaning system.
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Advantages of Short Selling
• Doubling the selling volume. ( Borrowed securities )
• Increase the revenues (selling the borrowed securities )
• Interest income for Lenders• All the rights and dividends
reserved for the lenders• Flexibility in redemption
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Calculation of the amount of cash collateral shall be on the basis that the total cash collateral equals 125% of the market value of the borrowed securities as per the closing quotation on the settlement day
Cash Collateral
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Recording & SendingLending order
Contracting & Creating the lending pool
The lending file
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Waiting list
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Short Selling
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MCDRCompany
lending
order
Creating the pool INVESTOR
Custodian
Broker
Sign agreement
Sign
ag
reem
ent
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Creating the waiting list of the lenders
Custodian
Broker
1
3
Lending systemMCDR
Reaching theMax quantity of
Lending sec.
Adding to the Main lending
list
Adding to the waiting
list
Yes
No
Recording & SendingLending order
lending
order
Sign agreement
Sign
ag
reem
ent
INVESTOR2
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Shot Sell Pool
Use the Pro-rata systemto let lenders participate
in every borrowtransaction
First in - First serveWaiting List
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The Borrowing stage
Broker
L & B system
Lending list
Borrowerlist
BlockingOrder of the
Borrowing quant.
Quantity approved a sell order sent
MCDR
StockExchange
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3
4
Balance is not enough& Blocking
was cancelled
Borrowing order
+ Collateral
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Book Keeper
Redemption of Borrowed Shares
MCDR
2
3
Broker bank
Cash collateral
1
redemptionorder
TransferQuantity
BorrowedBroker
L & B system
Lending list
Borrowerlist
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Selected Securities
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Same securities for Intra day trading and short selling
Liquid securities
Securities selected from EGX active list.
Approved by CMA
-10% of the issued shares can be put in the pool from each company. - 5% the maximum the lender can put in the pool.
- 2% the maximum the borrower can borrow from the pool.
- 5% the maximum the broker can borrow to his clients from the pool.
The percentages used in the short sell system
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Who will compensate the Lenders with the rights given by the Issued companies ?
New BuyersIssuers Company
The names of the new buyers will appear in the issuer books to give
them the rights
LendersBorrower
The borrowers are the one who will compensate the lenders by the equivalent
value of the rights
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How MCDR will generate revenues to the lenders ?
Borrower
Bank
Lenders
Collect collateral versus the
borrowed shares for 125%
Invest the collateral
A revenues are generated30%
70% Divide therevenues
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