Mohamed Farid Saleh, Executive Chairman, Egyptian Exchange (EGX): Interview

Interview: Mohamed Farid Saleh

What measures are being taken to increase market activity and the level of liquidity?

MOHAMED FARID SALEH: The EGX implemented several measures between August 2017 and December 2018 to improve trading activity and market efficiency, reducing circuit breaker time from 30 minutes to 15 in September 2017, and then to 10 minutes in October 2018. This increased the time available for trading on listed securities and had a positive impact on the daily value of trading, which has increased consistently. Decisions to increase the number of stocks traded on an intraday basis from 104 stocks to 160 listed stocks were also implemented. Additionally, an amendment was introduced to the trading rules and systems tick size, from two decimal points to three for securities with a market price below LE2 ($0.11). Lastly, criteria permitting initial public offering (IPO) shares to be traded on margin and intra-day trading – if they meet the inclusion criteria – were issued. The basis of any capital market is liquidity. Therefore, we aim to encourage product diversification, and increase the volume of trading and the openness of the market to improve the ease of entrance and exit.

How can Egypt further develop its capital markets?

SALEH: Competition exists within all stock exchanges, whether domestic or regional. Hence, the EGX is looking at capital markets from a value chain perspective. We have listed and newly listed companies and their disclosures representing the supply side; trading mechanisms and tools for the intermediation process; and lastly, institutional and individual investors representing the demand side. The reform plan spans across the entire value chain. On the supply side, we have conducted a paradigm shift in our modus operandi from being demand driven when it comes to listing new companies, promoting the listings through several partnerships with business federations to educate their members of the benefits of listing and trading on the EGX. A special unit that revises all disclosures of companies to ensure the sufficiency of this disclosed information to the public and to further improve it has also been established. From a different angle, the IPOs for state-owned companies present an opportunity for investors to participate in Egypt’s capital markets and benefit from the economic reform programme and its positive impact on the private sector. On the intermediation side, in addition to activating the newly introduced market making and short selling activities, introducing financial derivatives and spot commodities trading puts the country on a par with regional and international markets, allowing producers and aggregators to hedge the risk of price movements of the commodities. On the demand side Egypt is working on educating investors about the benefits and approaches to the stock market to create a new breed of investors who recognises the dynamics, potential and risks associated with investing in the listed securities.

What role does education play in the development of the capital markets sector?

SALEH: Education can support capital markets by boosting supply and facilitating the penetration of these services in society. The EGX is cooperating with a private sector educational institution with the aim of improving financial literacy among school students. It is also important to raise awareness among private sector companies on the benefits of listing to increase broader market participation. Listing is straightforward if the correct regulations are in place and the requirements on documentation and disclosure are met. Since the beginning of the economic reforms in November 2016 – with the flotation of the pound – 10 IPOs have been valued at LE9bn ($505.8m) and several private sector firms are expected to issue IPOs in 2019. This indicates that these recent reforms are creating an environment where companies are looking to raise capital to finance the country’s economic growth.