Title: CMA Circular No. (19) of 2025 Regarding the Use of Netting as Means of Financing

“Circular to all persons licensed to practice the activity of a Qualified Securities Broker Registered with an Exchange”

With reference to the subject above, the CMA emphasizes the compliance to Law No. 7 of 2010, its Executive Bylaws and their amendments. Recently, it has been detected that some financial brokerage companies are misinterpreting the netting feature to clients, by offering unlicensed financing facilities.

In this regard, CMA refers to the provisions of Article No. (8-12-1) of Module Eleven (Dealing in Securities) of the Executive Bylaws, which stipulates the following:

“The Licensed  Persons may not offer finance to trade on Securities  unless  it  is 

through the Margin Trading service.”

CMA warns financing clients to trade on securities shall be through Margin Trading Service, the use of other means - such as netting as indirect financing – is outside the scope of the approved regulatory framework.

In this context, the CMA stresses the importance of distinguishing between each of:

• Margin Trading Service: a regulated investment service subject to regulations stipulated in Module Eleven of the Executive Bylaws of CMA’s Law, with a clear agreement between the broker and client.
• Netting Feature: This is an accounting/technical feature that allows the calculation of net liabilities for settlement purposes only. It may not be used under any circumstances to enable a client to execute trades without the client having a cash balance or financial solvency. This feature is a regulatory measure to enhance settlement efficiency and may not be treated or offered as a financing tool or an alternative service to margin trading.

Accordingly, the CMA stresses the following:

- It is strictly prohibited to exploit the netting feature as an implicit financing tool or as an alternative to margin trading service controls.

- It is not permitted to execute transactions for a client that exceed their ability to meet their obligations on the settlement day.

- It is strictly prohibited to carry out any purchases on behalf of the client without ensuring the availability of financial solvency to settle the transaction. And pursuant to the provisions of Article (6-2-1) of Module Seven (Clients’ Funds and Clients’ Assets) of the Executive Bylaws of the Law stipulating the following:

“In  executing  a  Client’s  transactions,  a  Licensed  Person  shall  abide  by  the 

mechanisms  stipulated  in  the  contract  between  the  two  parties  and  in  addition 

shall comply with the following:

1.  Secure  the  Client’s  interest  when  transmitting  the  Client’s  orders  to  another 

entity for execution.

2. Not to combine orders received from one Client with those of any other Client.

3.  To  execute  the  Client’s  orders  for  Securities  sales  or  purchases  without 

interfering directly or indirectly in the Client’s decision concerning the same.

4.  To  abide  by  the  tools  and  mechanisms  approved  by  the  Exchange  and  the  Clearing Agency when executing relevant transactions.

5.  Not  to  execute  a  Client’s  order  until  verifying  that  the  Client  can  fulfil  its

obligations within the specified time for settlement.

6.  he  shall  commit  to  execute  the  client’s  settlement  of  the  transactions  in  accordance with the regulations set out by the Authority.

7. Licensed Person shall not use the funds and assets of a client for the benefit of

another. “

It is important to note that a client's purchase order may not be executed without sufficient financial solvency to ensure the availability of a sufficient cash balance. The broker remains responsible for ensuring the settlement of its clients' obligations. Any failure will subject the broker's license and membership to review by the CMA and the Clearing Agency.

In this framework, the Capital Markets Authority confirms its supervision role in protecting the capital market system and ensuring that licensed persons compliance with the provisions of Law No. (7) of 2010 and its Executive Bylaws. The CMA will take the necessary regulatory and legal measures against any entity that fails to comply with these provisions or violates the approved regulatory and technical frameworks.

Emad Ahmed Tifouni
Issued on: 24/07/2025.

Copy of the Official Document