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Overview The
Egyptian Stock Exchange (ESE) is the most technologically advanced
institution within the Egyptian Capital Market. Consequently it is the
engine behind the markets growth. The ESE is equipped with a highly
modernized Trading and Settlement system comprised of the following:- An
integrated computerized trading system, upgrading and linking the
operations of the Cairo and Alexandria stock exchange has been
installed, as well as a Price Discovery System (PDS) that is currently
in use in international markets. Brokers have on-line access to the
new system enabling them to trade directly from their own trading
floors. Clearing
and settlement is processed through a private company called Misr
Clearing, Settlement and Depository (MCSD). The systems installed
enhance the efficiency of securities transactions and immediate
transfer of securities ownership. A new custody law was passed by the
parliament, mandating that all listed securities must be
dematerialized and traded through the central depository. In 1999,
a new integrated solution provided by EFA software services of Canada
was built to both enhance the liquidity of the market, and improve the
system’s fairness and transparency. This system should come on line
towards the 4th quarter of 2000. Client
shares are held with bookkeepers, which are in turn online with MCSD.
This minimizes the amount of failed trades and insures transparency.
In early 2000, a settlement Guarantee Fund was established. This
ensures that all trades settle within a maximum of 9 working days. The
fund only intervenes if a trade fails to settle after 5 working days. An
advanced surveillance system was introduced to the ESE in April 1999,
having both online and offline capabilities, with a range of alerts
and the ability to freeze transactions. The system ensures complete
market transparency online, and validation of share ownership and
position monitoring. The ESE is establishing a data depository, to
allow both off-line surveillance and statistical analysis, and enhance
the administrative and supervisory tasks by providing access to
background material. In
addition the ESE has a stock price restriction to a 5 percent ceiling
and floor from its previous closing price.
This is removed by the exchange only when corporate action
takes place. The closing
price is determined by calculating a price-weighted average of the
traded shares for the session. Cumulative
transactions below 100 shares do not affect the closing price of the
underlying security. Settlement is on T+3 for listed dematerialized securities through MCSD and T+4 for physical stocks. Clearing
and Settlement 1.
Trade instructions are received and executed by brokers at time
(T). 2.
Matching is completed within the trading system in the stock
exchange at (T). 3.
Brokers advise bookkeepers of trades at T or maximum T+1. 4.
At T+2 both sides of the transaction must have money and shares
in their account at MCSD. Selling brokers get their accounts credited
with shares from bookkeepers. 5. At T+3 clearing and settlement are complete and the counter parties receive the shares and funds respectively. Shares can be traded again at T+3. In the
case of physical shares it is T+4 and the procedure is slightly
different: 4.
At T+2 money must be credited in the buying broker’s account
held at MCSD and selling broker must deliver shares to MCSD. 5. At T+3 selling broker delivers shares to MCSD 6.
At T+4 clearing and settlement takes place at MCSD. 7.
At T+4 buying broker receives shares, which can be traded again
the same day and selling broker receives funds. OTC.
– Over the Counter Trades The
OTC market is where unlisted shares are traded. The settlement
procedure is as follows: 1.
At T-1 or before, both buyers + sellers must sign a contract
provided by the exchange. 2.
At T execution takes place. 3.
At T+1 brokers send execution data to the Exchange and ask for
certificates of ownership (COO) 4.
At T+4 certificates of ownership are extracted from the
exchange and the selling party only receives funds directly from the
buying party after such COO’s are extracted Selling
brokers can deliver shares to buying brokers prior to extraction of
COO’s but the trade is regarded as settled and cleared only after
the COO’s are extracted. Failed
Trades. If at T+2 either party has not fulfilled its obligations. Penalties are incurred as per a rising scale reaching a 3% flat fee plus a 15% annual interest rate. If by
T+5 the trade is unsettled, it is cancelled and executed through the
Settlement Guarantee Fund. The defaulter is liable for all the costs
and the CMA is informed, as the issuer of the license and regulator
thereof. Securities
Lending Not
yet available but plans to introduce this service are under
discussion. Corporate
Actions For securities held with the MCSD,
shareholders collect dividends directly from banks, which have an MCSD
teller. Dividends are paid annually, though there are companies
thinking of quarterly payments. For
paper securities, payment is made against a coupon removable from the
actual share. It is usually at the company’s headquarters and
sometimes through a bank. Rights
issues are treated in the same way as cash but in the case of paper
securities, only the company delivers the shares. Rights are neither
transferable nor tradable. Contact.
Information 4 Talaat Harb Street Fax: +20 (2) 5788117 Email:
info@mcsd.com.eg
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