The market requires amendments to the role of the capital market, said Mohsen Adel board member of the Egyptian Exchange (EGX).
During the second session of the Capital Markets & Financing Growth conference entitled Stock Exchange and New Roles to Finance Growth.
He explained that the market needs a self-regulatory organisation to take over the regulation of financial inter-mediation, public bodies, and the union for employees in the stock market, where the EGX has been the leader of all the stock exchanges for a long period.
Adel added that it requires the creation of a union for the stock markets, where 70% of the daily trades of the stock exchange are carried out by individuals.
Hisham Tawfik former board member of EGX and moderator of the second session of the conference said the pension accounts management project has been postponed. He asked Aliaa Gomaa, Beltone’s head of investment, about index funds and support of capital market.
Gomaa answered that part of the problem is the need to include a large segment in the Egyptian capital market by diversifying financial instruments within the market. She noted that Beltone began the index funds project nine years ago, which included a number of mechanisms, such as the first automated release and redemption securities fund, and the first market maker in Egypt to provide liquidity indicator certificates.
Gomaa said index funds provided the market with a number of mechanisms that can help develop even more; index funds grow faster than any other funds, and their global volume records about $3tr.
Tawfik then asked about mechanisms of supporting the market and the importance of raising awareness. Gomaa explained that Beltone Financial is the only institution licensed to operate an index fund, noting that the size of the fund amounted to about EGP 30m. She added that stimulating more financial instruments requires greater awareness. She added that many new instruments in the market can be based on index funds certificates.
Tawfik posed a question as to whether the Egyptian market is ready for derivatives. Islam Azzam, associate professor and head of finance at the department of management at the American University in Cairo, answered that derivatives mechanisms are not seen as high risk by some. He explained that regular risks cannot be mitigated, such as high yield on treasury bills and bonds as competitor investments. He added that the Egyptian market must include derivatives, futures, short-selling, and other trading mechanisms.
He added that derivatives on commodities, cotton, sugar, and wheat render farmers to sell the crop at harvest and avoid variables of the global markets. He suggested establishing stores in all production areas, such as the commodity exchange.
Azzam said he believes that the problem in Egypt is in the absence of a dividend curve. Moreover, he said that the bond market is not active despite its extreme importance in monetary policy. He called for creating immediate markets to establish derivatives markets.
Kareem Abdel-Aziz, executive director of shares funds at Al-Ahly Fund and Portfolio Management, questioned the reasons behind the decline of indexing documents’ price to record a higher price than the market drop.
Gomaa said the trace rate is 99% of the market and the document is entitled to deviate from the market price by 95%, while the trace rate of the index is 98%. She added that the market maker bears the daily difference between the document price and the index.
Gomaa noted that index funds require more time to spread awareness among dealers, hoping that index funds and market makers will increase in EGX, to stimulate trading.
Hisham Tawfik asked Mohamed Meit, assistant minister of finance for treasury affairs and the government’s representative in the summit, to revive the idea of supplementary pension like in the European and American markets.