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Definitions:
Pledge Registration: Reserving the shares owned by the client, the mortgagor, in favor of the mortgagee creditor (Egyptian or foreign bank, company or individual) and listing the mortgage rights in the register of the issuing company in MCDR.
Pledge Cancellation: Making shares available in the client’s account based on a request from the pledgee creditor, due to the elapse of the purpose of the pledge by paying the debt, or according to any legally specified reason.
Pledge Foreclosure: Enabling the pledge creditor (Bank) to sell the pledged securities for his interest in case that the client fails to pay or for any legally specified reason or as agreed upon by the pledgor debtor (client) and pledgee creditor the (bank).
Transfer of a pledged portfolio: The process of transferring the client’s pledged balances from one custodian to another based on the client’s request and the approval of the pledgee creditor.
Modification of the pledge bank: Changing the pledgee creditor in accordance with the same terms of the existing pledge.
Sale with pledge: It is the process of transferring ownership from the seller to the buyer, with pledge, provided that the process is protected by the Egyptian Exchange.
Pledged deposits: Execution of the pledge after settling the pledged deposit and completing all documents related to the pledge from the pledgee creditor.
First: Procedures for implementing a pledge on listed shares in the central depository:
Based on the contract signed between the current debtor and the pledgee (bank - legal entity - natural person) to borrow money against the securities centrally deposited, and in order to guarantee the right of the pledgee creditor, securities are pledged through the following procedures:
- An approved, stamped letter from the pledgee, addressed to the pledge department in MCDR, requesting that the client’s balance be reserved for the pledgee (provided that the pledgee is has a code in the stock exchange).
- The letter must include the following:
- The client’s name matching the name on his account statement
- The type and quantity of shares to be pledged (written in numbers and letters)
- The name of the custodian managing the client’s (debtor’s) account
- A copy of the pledge contract signed between the debtor and the pledgee creditor stating the following: -
- The date of the contract and the due date of the debt
- The client’s name as written on his account statement.
- Name and quantity of securities to be pledged.
- The bank's right to sell in its favor in case the client fails to pay.
- The validity of the client's signature on the contract (external) on all pages of the contract and the creditor's stamp on all pages of the contract.
- Specifying the person to receive the proceeds of the shares.
- Specifying to whom the subscription right is assigned
- The commercial register to show the power of the signatory
- Fill out the securities pledge form received from MCDR’s Pledge Department
- A copy of the tax card stamped by the bank
- A recent account statement for the client.
- In case there is enough balance, the Pledge Department shall send a letter to the bank indicating the pledge of securities and that it should not be released except upon a request from the pledgor bank according to the legal procedures stipulated in this regard.
- According to Article No. (42) of Law No. 93 of 2000, The pledge shall be registered within three days at most.
- All submitted documents shall be certified with the seal of the pledgee creditor bank, guaranteeing their validity and its responsibility for them.
Second: Procedures for cancelling the pledge on securities registered in the central depository
- The pledgee sends a letter stamped with his seal addressing the pledge department requesting the cancellation of the pledge on the shares owned by the debtor.
The letter shall include the following: -
- The client's code.
- The client's name as written in his account statement.
- Name and quantity of securities whose pledge is requested to be cancelled (written in numbers and letters).
- Name of the custodian who manages the client's account.
- External signature validation for companies in the case the pledgee creditor is a company
- A pledge cancellation form issued to banks by the pledge department.
- A recent account statement for the client.
- Tax card for the pledgee and the pledgor.
All submitted documents shall be approved with the seal of the mortgagee and he is a guarantor of their validity and under his responsibility
Upon receipt of the letter, the pledge department investigates the client's pledged balance in favor of the pledgee and shares are available in the client's account.
The pledge department notifies the pledgee.
Third: Procedures for selling securities pledged in the central depository system
In the event that the debtor fails to repay the loan granted to him by the pledgee creditor, the pledgee creditor shall follow the legal procedures stipulated in Article 107 of The Banks Law No. 194 of 2020 (banks under the supervision of the Central Bank) or Article 51 bis 3 of Law No. 143 of 2020 (for entities not subject to the supervision of the Central Bank), submitting the required papers to implement the foreclosure in favor of the pledgee creditor, which are as follows: -
1- In the case of banks under the supervision of the Central Bank: -
- A certified copy of the payment warning addressed to the debtor after 10 days, stating the type and quantity of securities to be blocked for sale in favor of the bank.
- In the case of companies:
- A proof that the debtor has been demanded to pay and that 5 days have passed since the date of the demand by a registered letter with an acknowledgment of receipt.
- A letter from the pledgee addressed to the pledge department requesting the foreclosure of the pledged securities in his favor due to the debtor's inability to pay.
The letter shall include the following: -
- The name of the client (debtor) as written in the account statement.
- The client's (debtor) code.
- The name of the security.
- The amount of shares to be foreclosed (in numbers and letters).
- The name of the client's custodian.
- Receiving a copy of the original pledge contract signed between the pledgor and the creditor
5- A copy of the client's ID or the commercial register for companies.
- The client's account statement.
The pledge department sends a letter to the pledgee creditor stating the foreclosure of the client's balance, indicating the code of the pledgee debtor/creditor that is available for sale.
Fourth: Required steps for transferring a pledged portfolio from one custodian to another
1- The client submits a transfer request of pledged shares to the new custodian, with a valid signature from the bank.
2- The pledgee's approval to transfer the pledged shares and sending a sealed letter from the creditor requesting the transfer of pledged shares from the original custodian to the new custodian.
This request shall include the following:-
- The client's name as written in the account statement.
- The client's code.
- The name of the security to be transferred.
- The amount of shares to be transferred (shown in numbers and letters).
- The name of the original custodian and the name of the custodian to whom the shares are to be transferred.
4- Approval of both custodians on the transfer process (provided that the approval includes the data mentioned in section 2).
5 - The client's account statement.
- The pledge department executes the transfer process.
Fifth: Steps for amending the pledging bank
Procedures for amending the pledging bank in case of merger, acquisition or transfer of rights
- A letter from the pledgee creditor addressed to the pledge department requesting amendment of the bank name including both the old and new pledgee creditor codes in addition to the amendment documents
- Commercial register
- Amendment decision
Procedures for amending the pledging bank in case of a transfer of rights
- A transfer of rights contract between the old and new pledgee creditor shall be submitted, stamped with their seals together with signature validation for companies.
The contract shall clarify the following:-
- The date of the contract and the due date of the debt
- The pledgor's name matching the name in the account statement
- Specifying the name and quantity of the security (in numbers and letters)
- A copy of the announcement of the transfer of right to the debtor
3- A letter from the new pledgee creditor stating the following:-
- The pledgor's name matching the name in the account statement
- Specifying the name and quantity of the security (in numbers and letters)
- The custodian
- Name of the referring creditor and his code
- Name of the creditor to whom the transfer is made and his code
4- Account statement for the client.
Sixth: Steps for selling pledged shares
- A letter from the pledgee creditor on the subject of the transaction including a statement of the mortgaged sale transaction signed and stamped by the mortgagee creditor prepared by the mortgage department stating the following:-
- Buyer and seller names
- Buyer and seller codes
- Name of the required share
- The quantity of pledged shares (in numbers and letters)
- Custodian's name
- A share pledge form for the new client (buyer)
- A copy of the pledge contract signed between the pledgee creditor / the pledgor-buyer including all conditions for registering the pledge
- A letter from the Egyptian Exchange approving the execution of the pledged sale, provided that the transaction is protected.
- The seller's account statement
- A letter from the buyer's custodian not to freeze the balance after settling the transaction to make the shares available for registering the pledge.
Seventh: Procedures for depositing mortgaged securities
There are pledged shares that have not yet been registered in the central depository system. After registering them in the system, the pledgee must deposit these shares to obtain an account statement through which he can deal with the debtor client. The deposit process is carried out as follows:
The pledgee delivers the pledged physical shares certificates to any custodian to enter them as a pledged deposit, and delivers the pledge documents to the pledge department in MCDR.
After accepting the deposit by the central depository department, the pledge department settles the deposit and notifies the pledgee of the completion of the process on the deposited shares.
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