OBG talks to Mohamed Omran, Former Chairman, Egyptian Exchange (EGX)

Interview: Mohamed Omran

To what extent will the reintroduction of T+0 positively impact on short-term activity on the EGX?

MOHAMED OMRAN: We are expecting this to have an impact on value trading in the exchange. This change will allow traders to sell all or part of the issue on the same day of the purchase and vice versa. Before the introduction of T+0, we functioned under T+2 meaning a trade took two days to settle before it could be re-traded. The impact of T+0 is that it could contribute another 11% rise in trade activity, and if we combine both buy and sell transaction we would expect total daily value trading turnover to increase between 20% and 25%.

We are now seeing the market become more stable and are no longer expecting huge political movement. Indeed, it is time to return to the previous model. We listened to the requirements of investors and participants of the exchange who wanted a return to more trading flexibility and increased liquidity.

How can trading activity be further encouraged in the short to medium term?

OMRAN: The existing levels of trading activity are primarily driven by the economic and political situation, meaning that any attempt by the Egyptian Financial Supervision Authority to encourage increased trading would only be cosmetic in nature. To significantly change trading activity requires political consensus. And for the stock market to function well we need a stronger economy, for which we also need political consensus. Once this is achieved, both local and foreign investor confidence can be restored, and new trading will ultimately be stimulated. As an example, when it happened in January 2013, the objective of collaboration between EGX and the New York Stock Exchange Euronext was to bring new financial instruments to the EGX 30 in terms of options and futures. This was seen as having a potentially positive impact on larger companies and would allow the EGX to move to more sophisticated instruments in the future. However, given the situation at present in the country we do not think this will be possible for the immediate term. In addition, we are also interested in exploring what impact the introduction of sukuk (Islamic bonds) might have on trading and hope that the government will not restrict this just to state-owned banks, but rather open up the opportunity to the wider participants of the market in order to create an active secondary market.

What obstacles exist for small and medium-sized enterprises that want to list on the Nile Stock Exchange (NILEX) and how can they be overcome?

OMRAN: There are mixed feelings about NILEX because of the lack of benchmarking, which is a necessary indicator for assessing performance. Over the last few years we have attracted eight new listings to the junior exchange, but only two or three to the main board. In reality, however, we are satisfied in keeping the current numbers on NILEX actively traded, which stands at around 20 companies. Our focus has been to attract high performing small companies, so that when the economy expands these groups are fundamentally stronger and offer better opportunities to investors. However, if the wider macro- and microeconomic factors at play are unfavourable, then there is little incentive for companies to list on the exchange.

In what way can more intra-regional collaboration on the financial markets and regulations be realised?

OMRAN: Every country considers its exchange to be a source of national pride. As such, we do not currently see considerable potential in a single pan-African or pan-Arab exchange. Rather we are interested in focusing more on one-to-one collaboration.

Our existing cooperation with the Istanbul Stock Exchange will facilitate cross-border trading and put information technology tools in place to allow both Egyptian and Turkish investors to have better and greater access to markets. This will enable investors to reduce costs and to accelerate transaction times, thus investors will feel as if they are trading on their home markets.