Lack of regulation left investors vulnerable to outside-market rumors
CAIRO: Capital Market Authority (CMA) Chairman Hani Sarie El-Din announced yesterday efforts are underway to establish a separate stock market for small and medium companies now being traded on the sidelines of the CASE.
The new market, he says, will help regulate what is commonly referred to now as the outside market, which has traditionally suffered from numerous insider-trading scandals. Companies traded outside of the Cairo and Alexandria Stock Exchange (CASE) fail to meet the exchange s stringent listing requirements, including minimums of 100 shareholders and LE 500 million in paid capital and the submission of quarterly earnings reports.
Sarie El-Din did not specify a time frame for the establishment of the second market but said it would take place in the near future. He was not immediately available for comment.
Tarek Abdelbary, director of Misr for Clearing, Settlement and Central Depository (MCSC), says the new market will play an essential role in protecting investors. Since companies not traded on the CASE are not required to submit earnings reports, many investors fall victim to false rumors and insider trading schemes.
If I am an educated investor, I won t invest in this market, says Abdelbary. But some people choose to invest in this market, and they are often taken advantage of. MCSC is the lone executioner of all CASE transactions.
Abdelbary says he welcomes a second market which, according to statements made by Sarie El-Din, is expected to demand less of listed companies than the CASE. He says he expects companies will be required to submit annual earnings reports, at the least, which should give investors a clearer understanding of the companies they are investing in.
When established, the new market will include more than 200 companies, less than 10 of which enjoy active trading, says Abdelbary. Most shares in outside-market companies trade for less than LE 5, but as some have reached more than LE 1 million in daily volume in recent months, he says regulation is now a must.
The main idea is I am trying to provide security for the investor [by laying down] more rules for greater transparency, Abdelbary says. Why [do] investors choose these stocks? That s the nature of the Egyptian market and we can t change it.
On Tuesday, CMA reversed all transactions involving the National Company for Glass (NCG) from July 24 to Aug. 9 after an investigation revealed two shareholders traded approximately 5 percent of company shares on a daily basis to cause an artificial rise in the stock price. NCG share price sky-rocketed from LE 6.50 on July 17 to LE 11.35 on Aug. 9.