Revolution at Egyptian Exchange – innovations to boost liquidity

The Egyptian Exchange (www.egyptse.com) is to introduce new products and trading innovations, including remote orders placed abroad, exchange-traded funds (ETFs), intraday trades and short selling. Mohamed Abdel Salam, chairman of the Exchange, told Reuters that transparency was up and political uncertainty was down in Egypt since the political uprising that overthrew former president Hosni Mubarak and this is bringing more investor confidence.
The trading changes had been delayed as the political mandate of the old government decreased. Some innovations could be introduced in July and talks on remote orders are to resume with the London Stock Exchange (www.londonstockexchange.com) on 20 June.
Mohamed Abdel Salam told Reuters in an interview on 13 June: “There are indicators that show the market is improving because of the revolution. First, it reduced political risk. In the past, things were vague. If the president were to die, would his son take over, or would the army? Many people have started trusting us now, and we are also trying to reduce transaction costs on foreign investors … so I think we will now introduce short-selling and intraday trade in the first days of July.”
He said that companies had been on time in publishing quarterly results, indicating the effects of the revolution on their earnings, and this improved the country’s credibility. In addition, since the changes institutional investors had become more prominent: “The market is becoming more stable, because institutional investors have begun to outnumber individual investors, who used to cause sharp market moves by their emotional trading.” Egypt is one of the African exchanges with very many active local individual shareholders.
He said the aim of the changes is to bring new energy into the exchange: “Egypt’s market is in need of new blood to be pumped in; it needs new products … It is unarguable that this is a main way to increase liquidity and volume.” Previously there had been moves to introduce short selling in 2008 but this had not been introduced in 2010 as scheduled.

Remote orders with FIX
The Egyptian Exchange aims to allow investors to place orders from abroad although trading would still have to be executed through a local broker. Investors could use the Financial Information eXchange (FIX) protocol (www.fixprotocol.org) to place orders and secure the details until the transaction was completed by the broker. The first link was due to be introduced via London in mid-2010, reports the agency, followed by links to centres in the Gulf. The Chairman said the delays had been caused by technical problems at the LSE and talks would resume this week on 20 June.
Another plan is for dual-listings with exchanges such as Qatar, Dubai, Abu Dhabi and Kuwait. Abdel Salam said: “There are Gulf companies that expressed a desire to enrol in the Egyptian stock exchange but I cannot disclose names now.” Several exchanges have been vying to form the centre of Arab trading.
Commodity trading in gold could be established through a fund and talks are on with Egypt’s Chamber of Metallurgical Industries. The Chairman said: “We want to introduce a new way to trade gold called ETC, standing for Exchange Traded Commodities; this should facilitate trading of raw gold, and Egypt is a strategic gold producer, so we should make use of it.”
The Egyptian Exchange was closed from 27 January to 23 March after the popular uprising and it faced turbulence and pent-up demand when it did open. The benchmark EGX 30 Index closed on 13 June at 5,550.22, down 17.5% since the revolution although the trend has been positive since a low of 4,850.41 on 8 May.

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