Tighter regulation for Egyptian markets

The recently formed Egyptian Financial Supervisory Authority (www.efsa.gov.eg) is tightening regulation for listed companies and other financial market intermediaries. It is working with the Egyptian Stock Exchange (www.egyptse.com) to combat insider trading and improve disclosure, including urging better investor relations skills. Good regulation is critical to attracting local and foreign investment.
Penalties in recent months include “hefty fines” on companies and individuals for violations, according to an interview with EFSA Chairman Ziad Bahaa El-Din with newsagency Bloomberg. “Most of those cases get settled by people paying very hefty fines and that’s quite a severe punishment. In the longer term what I would like to do is to improve the structure of the market and of regulation.”
Bloomberg adds that the Egyptian SE suspended trading in 26 stocks last month to understand why shares rose as much as three times without any apparent justification. It says Egypt’s EGX70 Index (small- and medium-sized companies) climbed 59% this year and then fell after the suspensions. The benchmark EGX30 Index has soared 46% in 2009..
The EFSA started operations on 1 July 2009 and replaces the Egyptian Insurance Supervisory Authority, the Capital Market Authority, and the Mortgage Finance Authority. According to its website, it is “responsible for the supervision of non-bank financial markets and instruments, including the Capital Market, the Exchange, all activities related to Insurance Services, Mortgage Finance, Financial Leasing, Factoring and Securitization. The objective is to ensure market stability as well as to regulate the concerned activities, and maximize their competitiveness to attract more local and foreign investments”.
According to Bloomberg, the EFSA suspended Cairo-based Beltone Arabia, part of investment bank Beltone Financial, for 30 days in August for unspecified violations. Beltone Securities had to deposit 10 million Egyptian pounds ($1.8 million) in the EFSA’s Investor Protection Fund for a year. The regulator also suspended Cairo brokerage firm Al-Amal for 30 days in August but did not disclose details. The ESE asked the suspended companies to report future plans and trading later started again in some 17 counters.
Bahaa El-Din was reported as saying the action “seems to have improved the level of disclosure. It’s also sending a message to those that have been concerned from time to time about insider trading and manipulation that the exchange and the regulatory body are taking it seriously.”
He added that some disclosure problems may not be criminal in intent, but occur because of “bad reporting” on behalf of the companies. Companies should give their investor relations officers more training.
Penalties for insider trading include fines and prison. EFSA recently changed the definition of insiders to define more accurately who are insiders, i.e. not just relying on family relationships but pointing to people who may have insider information because of their jobs. Insiders may not trade the stock 15 days before and three days after material news is announced.

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