Introduction to Short Selling

Mohamed Abdel Salam

Chairman of MCDR Company
AMEDA 1st Leadership Forum
April 27- 29, 2009 in Alexandria

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 Short Selling
• 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.

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 Why Introduce Short Selling?
 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 Brokers

More activity = more commissions and fees
Traditionally, interest income –
Customer cash deposits (for brokers)
Customer lending – (for custodians)

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 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 Company
Lender: The investor owner of the securities registered
.under the loaning system
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 Advantages of Short Selling

• Doubling the selling • Interest income for Lenders

volume. ( Borrowed • All the rights and dividends
securities ) reserved for the lenders
• Increase the revenues • Flexibility in redemption
(selling the borrowed
securities )

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 Cash Collateral

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

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 Contracting & Creating the lending pool

lending
Custodian
MCDR order Sign

Company agreement

Recording & Sending

t
n
en
Creating the pool Lending order

ag Sig
INVESTOR

em
re
Short Selling
Waiting list The lending file Broker

xx xx xx xx xx xx xx xx xx xx
xx xx xx xx xx xx xx xx xx xx
xx xx xx xx xx xx xx xx xx xx
xx xx xx xx xx xx xx xx xx xx
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 Creating the waiting list of the lenders

Lending system lending Sign

Custodian agreement
MCDR order 1
Adding to
the waiting 3
list

t
n
en
ag Sig
Recording & Sending

em
Yes Reaching the Lending order

re
INVESTOR
Max quantity of 2
Lending sec.

Adding to the
Main lending Broker
list No

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Shot Sell Pool
Use the Pro-rata system
to let lenders participate
in every borrow
transaction

Waiting List
First in - First serve

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 The Borrowing stage
MCDR Blocking
Order of the
L & B system .Borrowing quant
2
Borrower Lending Broker Borrowing 1
list list order
3
Collateral +
Balance is not
4
enough& Blocking
Quantity was cancelled
approved
a sell
order
sent

Stock
Exchange

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 Redemption of Borrowed Shares

MCDR

L & B system
Transfer Book redemption Borrowed
Lending
Quantity 2 Keeper order 1 Broker
Borrower
list list

3
Cash collateral

Broker bank
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 Selected Securities
 Same securities for Intra day trading and short selling

 Liquid securities

 Securities selected from EGX active list.

 Approved by CMA

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 The percentages used in the short sell system

-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.

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Who will compensate the Lenders with the
rights given by the Issued companies ?

The borrowers are the one who will

compensate the lenders by the equivalent
value of the rights
Lenders
Borrower

The names of the new buyers will

appear in the issuer books to give
them the rights

Issuers Company 14
New Buyers
 How MCDR will generate revenues to the lenders ?

Collect collateral
versus the Invest the collateral
borrowed shares
for 125% Bank

Borrower
30% A revenues are generated

70% Divide the

revenues

Lenders

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 Thank You

Website : www.mcdr.com.eg

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