Financial derivatives - legal and practical aspects

The Financial Derivatives Program – Legal and Practical Aspects is a comprehensive introduction to understanding financial derivatives, especially contracts derived from securities. It covers the legal and regulatory aspects, trading and settlement mechanisms, and the associated risks. The program aims to equip participants with the theoretical and practical knowledge necessary to efficiently handle derivative instruments in the Egyptian market.

Objectives of the Financial Derivatives Program – Legal and Practical Aspects

The Financial Derivatives Program “Legal and Practical Aspects” aims to familiarize participants with the legal and regulatory framework for trading financial derivatives in the Egyptian market, understand the essential characteristics of futures contracts and their mechanisms, comprehend the fundamentals of pricing and various trading strategies such as hedging and speculation, as well as develop risk management skills and apply loss-limiting tools, and learn about the role of the clearing and settlement company. Additionally, it includes studying real cases to extract regulatory and supervisory lessons.

Target groups of the program

• Supervision and control officials in regulatory authorities.
• Employes of the stock exchange and the clearing and settlement company.
• Employes of securities brokerage firms.
• Employes of asset management companies.
• Employes of portfolio management and investment fund companies.
• Employes of financial consulting firms.
• Those interested in developing their expertise in the field of financial derivatives and futures contracts.

Agenda of the Financial Derivatives Program

Day One – The Legal Framework and Basic Risk Management

The regulatory framework for financial derivatives

• The legal basis for trading financial derivatives
• The authorities of the commission, the stock exchange, the clearing and settlement company
• The legal nature of the future contract (obligation – guaranty – open position)

The essential characteristics of futures contracts

• Standardization – Leverage – Margining
• The difference between the spot market and the derivatives market • The relationship between EGX30 Spot and Futures

A comprehensive approach to risk management

• Market Risk – Liquidity Risk – Counterparty Risk
• Maximum loss versus potential loss

Margin as a regulatory, not a financial, tool

• Initial margin and maintenance margin
• Margin Call and its legal and executive implications
• Realistic numerical examples on EGX30 Futures

Day Two – Pricing, Strategies, and Execution

Pricing of futures contracts on indices

• Cost of Carry Model (in a simplified practical form)
• The impact of interest rates and dividends
• Contango and Backwardation situations

Dealing strategies (not just speculation)

• Hedging using EGX30 Futures
• Speculation with risk controls
• Spread & Roll-over Strategies

Trading decision-making guidelines

• Position Sizing
• Stop Loss as a commitment, not an option
• Acceptable Risk Limits

Practical training on the trading system

• Entering orders and their types
• Managing open positions
• Scenarios of sharp market fluctuations

Day Three – Clearing and Settlement and Failure Scenarios

The role of the central clearing company

• Novation
• Daily Mark-to-Market
• Settlement Guaranty Fund

Daily and final settlement

• Cash Settlement in index contracts
• The financial impact of the daily price change

Cases of default and systemic risks

• One party failed to meet the margin.
• Clearing and intervention procedures
• Responsibilities of the brokerage firm and the trader

Case Studies

• Accumulated losses due to poor margin management
• Potential violations and their regulatory consequences
• Extracting regulatory and investment lessons

Program duration

18 hours – 3 days