September 2018
5
So we’re trying to address these needs by immediately educating people in the middle income bracket so they can try to invest directly in capital markets via an incremental saving approach mechanism.
And how is this education taking place?
It’s basically pitching to 200-300 employees per company, which is quite unorthodox, but the response and feedback is always positive. People have noted that it is the first time they have seen efforts being made to educate them on what the different products listed in the stock market are and how they can invest in them.
We first targeted relatively high paying companies – multinationals and the like – because their employees can afford to accrue incremental savings on a gradual basis. None of the participants are satisfied with only one round – they all want a second. We’ve done our homework also, so we can show them, for instance, if you had invested in EGX 30 in a diversified portfolio in 1998, on a gradual basis, compared to putting your money in FX, or putting your money in gold, this is what your returns would have been. We show them that the differences are significant and can have an impact on their income level in the long run.
We understand that part of EGX’s plan for growth is to add new financial instruments to the Stock Exchange. Can you expand this more?
Both trading mechanisms and financial instruments are very important in the effective functioning and growth of the Stock Exchange. As well as adding new financial instruments, we are trying to simplify the trading mechanisms as much as possible. So for example we have conducted an extensive study on circuit breakers - a mechanism by which, if the price of a certain stock changes plus or minus 5%, you get to cease other markets – both advanced and emerging – we concluded that 30 minutes was too long a period to cease trading. So we took the decision in my first board meeting September 2017, to reduce the circuit breaker timing from 30 minutes to 15 – which is still quite long. The halt time was again reduced to 10 minutes in October 2018. Then we proposed amendments to something called intraday trading – a trading mechanism whereby there are certain limits on the amount of stocks that you are allowed to trade per day, for certain companies. After taking the opinion of market participants and comparing our situation to that of other markets, we proposed to the regulator that these limits be expanded. So that was another step to facilitate the process of trading in the market.
The impact of dividends on the price of stocks is another important area we have looked at. It is well known that if there is a cash dividend being paid the stock price goes down immediately, with the amount of dividends – because basically this is cash being stripped out of the company. So if you have, for example, a stock of 100 pounds with dividends of 7 pounds, its value automatically decreases by over 5% in spite of not having been traded. It then opens by being suspended, due to the circuit breaker, and this is problematic.
So we have amended how we deal with circuit breakers for stocks that have sizeable dividends in the market.
ETFs – Exchange Traded Funds – are also very important and under-utilized. They are investment funds, however their certificates are being traded in the market. What is the benefit of this? Well, by buying one certificate, you’re effectively buying 30 companies, which is EGX 30, so it’s a very easy means of diversification. We found that this mechanism was not very active and one of the reasons for this is that there was no margin or credit available, due to the regulations. So basically if you buy an ETF, you would do so without being able to both borrow money and buy the ETF. So we have proposed that the ETFs should be traded using a margin, to stimulate activity in this area.