Egypt has established its first regulatory framework for hedge funds, allowing traders to borrow and sell securities short for the first time in the country’s history.
The Financial Regulatory Authority (FRA) published the rules on August 19, under Board Resolution 155 of 2026. They took effect the following day, marking a shift in how investment strategies can operate on the Egyptian Exchange (EGX).
Rules balance risk and modernization
The regulations permit hedge funds to trade shares, bonds, and derivatives such as futures and options. Short selling is now allowed, where traders borrow shares to sell, anticipating a price drop before repurchasing them at a lower cost.
The FRA has set clear boundaries. Each fund’s prospectus requires approval, and investment limits remain in place. No more than 40% of a company’s free-float shares can be lent to hedge funds, while individual shareholders face a 2% cap. Funds must also hold cash collateral equal to at least half the market value of borrowed securities.
Transparency requirements include disclosing leverage limits, risk management protocols, and conditions that could trigger margin calls or forced liquidation. The FRA will determine which securities qualify for lending.
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Islam Azzam, the FRA’s executive chair, stated the move aims to modernize the economy while safeguarding investors. “Hedge funds will help revitalize the stock market, alongside derivatives and short selling,” he said. “They offer greater investment flexibility through diversified instruments and may draw new local and foreign capital.”
Stakeholders shaped the framework
The regulations followed discussions with the EGX and brokerage firms. Azzam, who previously led the exchange, has championed reforms this year, including updated listing and delisting rules in February and support for arbitration to attract investment in May.
This approach shows careful consideration of financial innovation. While hedge funds can now operate, their activities face strict oversight to limit risk. Collateral requirements aim to cushion market volatility, though some traders may view the 50% threshold as restrictive.
The new rules arrive as the country works to diversify its financial markets. Their success in revitalizing the EGX and drawing foreign investors will take time to assess. For traders, the regulations open opportunities that were previously unavailable.