Mohamed Farid, head of the Egyptian Exchange (EGX) and current president of the Union of Arab Stock Exchanges, said in an interview with Daily News Egypt that the business strategy during his presidency of the union period is focused on long- and short-term targets, and aims to activate the role of the union to increase cooperation and communication among its members in order to serve the development of Arab stock exchanges and increase their role in the economy.
He told DNE that the first strategic steps will be to try to unify the registration, trading and disclosure rules among the countries of the union as much as possible through the preparation of comparative studies between different markets. This is to identify similarities and differences between them and then determine the rules that can be consolidated in order to simplify the double-entry processes. He also said this is the most important step to overcome the obstacles of double-entry processes and thus encourage companies to go through that experience. It will also facilitate linking the investor with many financial markets and open windows of various investments.
Farid pointed out that the strategy also includes the development of incentives to face the phenomenon of decline in the number of companies wishing to register, noting that this crisis is not local or regional, but is a global phenomenon, thus it must be seriously considered to find solutions, starting from increasing the rates of communication and awareness about the benefits of listing on stock exchanges.
Furthermore, he added that the strategy of the union will also include the promotion of the use of financial technology in financial markets especially with the intensification of competition with new markets that some customers prefer now and is supported by sophisticated tools. He explained that these unorganised markets and unsupervised tools have become a strong competition to the organised capital markets, and even wins sometimes due to lacking control or disclosure nor supervision on the issuers of these tools.
Moreover, he noted that financial technology applications will help to spread financial services applications to the masses of dealers and will be used as tools to deliver information and data, adding that technological applications which introduce investors will facilitate the unification of the required paperwork to identify the customers and to support the number of dealers.
Egypt received the secretariat of the Arab Federation of Exchanges this year, under the chairmanship of Farid, for a period of four years.
Moving on to the EGX strategy in the coming period, Farid revealed an initiative initiated by the EGX to hold meetings with various parties in the market represented by the Egyptian Capital Market Association (ECMA), the Egyptian Investment Management Association (EIMA), the Egyptian Society of Technical Analysts (ESTA), and the Egyptian Private Equity Association (EPEA) to identify the reasons for the reluctance of the parties toward the market of using new mechanisms and financial instruments, such as short selling, money maker, and EGX30 capped.
He added that the EGX has already addressed the ECMA and held meetings with them, during which he reviewed the point of view of brokerage firms in the new tools and some amendments. The EGX will then address all the other three associations to meet with them and see how they responded to the new tools, their complaints, and suggestions. A committee will later be formed to discuss the opportunities and fears.
The EGX head said that these mechanisms and tools cannot be successful without the desire of brokerage companies, investment banks, and the different market players dealing with them, even though the volume of such transactions is small. It is usual when introducing new tools to suffer in the first period of application and then catch on. He highlighted the weak trading seen by T+0 when it was first applied in 2006 and subsequently then became an important tool.
The activation of new instruments and financial products will have an effective effect in enhancing the volume of liquidity in the future to diversify investment options for all categories of investors and attract more foreign investment to the markets, he stressed.
Over and above, Farid looked forward to seeing the activation of the short selling in 2019 with serious steps to develop a market for derivative contracts, whether futures contracts or option contracts.
As for the mechanism of the money maker, Farid said that it would be possible to deal with them on different securities with specific conditions of financial solvency in addition to controls on eligible brokerage companies.
The money maker is intended to contribute to activating the trading movement and creating greater liquidity on the securities whose market is made by a company licensed by the Egyptian Financial Supervisory Authority, Farid said, adding that the EGX has studied international practices in the developed and emerging markets in money maker and held meetings with a number of players and professional associations to explore their views and study their proposals.
Farid also revealed that the EGX will also focus on simplifying everything that can be simplified such as trading rules and procedures of coding and automated programmes associated with investors, such as investor definition programmes, along with an attempt to activate the electronic link on the initial public offering (IPO) of the entire process, while working to discuss ways of cooperation on improving sustainability practices and corporate governance of listed companies. Work is underway to improve the knowledge of companies with the best sustainability and governance practices.
The methodology of the work has been completely changed in the EGX through the establishment of a follow-up programme and targets that must be achieved in the process of registration of companies, where the EGX is working to enhance listing and trading through signing agreements with businessmen associations and small and medium enterprises associations, in addition to addressing specific companies to raise the awareness of the role of the EGX in financing companies and introducing the advantages of the offering that could fund expansions through low-cost capital financing, which is the lowest compared to the cost of funding through direct investment companies or funds or venture capital funds, Farid pointed out.
Additionally, he stated that despite the existence of strong disclosure requirements, the EGX is considered the best in terms of the cost of financing, in addition to the registration process which will enable companies to easily and transparently deal with the banking sector to provide additional funding.
Farid further added that the EGX is in contact with many parties to be registered and put forward and that the board of directors has two to three private sector companies that aim to list and trade on the EGX soon, including an EGP 14bn IPO.
He referred to the seriousness of the government in the implementation of government IPOs through the expansion of the ownership base of a number of companies which will also significantly contribute to deepen the EGX and promote trading and liquidity and diversification of goods available for circulation, which may attract new blood.
In addition, he explained that a large database for most companies that aim to enlist has been created and is being met to introduce the advantages and the procedures of the enlisting process, including start-ups. He said that this segment is important, and the companies need funding.
Meanwhile, he added that the Egyptian people must be advised on the importance of investment through capital markets and savings in order to establish a new generation of investors from all ages on the long-term.