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Egypt has introduced its first regulatory framework for hedge funds alongside new short-selling rules, as the country seeks to deepen its capital markets and attract more sophisticated domestic and international investors.
The Financial Regulatory Authority (FRA) has opened the market to hedge fund strategies investing across equities, debt instruments and derivatives, while permitting the use of leverage and borrowed securities. Funds will be required to set out their investment strategies, leverage and borrowing limits, risk controls and use of derivatives and short selling in prospectuses approved by the regulator.
The move is part of a broader effort to develop the infrastructure needed to support more sophisticated investment strategies in Egypt, including derivatives and securities lending.
Short selling framework introduced
The FRA followed the hedge fund reforms with detailed new rules governing short selling, which took effect on 20 August under Resolution 155 of 2026. The framework complements the new hedge fund regime and paves the way for short selling to become operational on the Egyptian Exchange.
The framework establishes a central securities-lending system administered by Misr for Central Clearing, Depository and Registry. Lending in an individual company’s shares will be capped at 40% of its free float, while individual investors and related parties will face a 2% limit. Borrowers must also provide initial cash collateral equivalent to at least 50% of the market value of borrowed securities.
FRA executive chairman Islam Azzam said the reforms are intended to increase market liquidity and introduce investment tools capable of attracting a broader range of investors.
The changes represent a significant development for Egypt’s nascent alternative investment market. Rather than simply recognising hedge funds as a fund category, regulators are establishing the trading infrastructure – including short selling, derivatives, leverage and securities lending – required for managers to employ strategies more commonly associated with established global hedge fund centres. Short selling itself is expected to become operational once the necessary market infrastructure is completed.