Egypt considers help for small margin investors

Reuters, Tuesday 15 Mar 2011

Loans fund proposed ahead of stock market reopening

Egypt's government is reviewing a proposal to increase the size of a fund set up to help small investors who bought shares on margin or credit before political turmoil led to the bourse closing, a market official said.

The stock exchange has been shut since 27 January amid the popular uprising that forced President Hosni Mubarak from power after 30 years. The exchange said it would reopen before the end of the week but has not specified the date.

Analysts say the government has been reluctant to reopen the bourse out of concerns about the economic repercussions of shares tumbling and capital flight abroad.

Rules have already been put in place limiting how much a share can fall each session and many, particularly small investors, have petitioned officials for support.

A fund worth 250 million Egyptian pounds ($42m) has already been set up to offer loans to small investors who were involved in margin trading or who used credit.

"We are now in the process of discussing with the Ministry of Finance options to increase this amount but until now, we have not succeeded," said Mohamed Abdel Salam, chairman of the stock exchange's Clearing Settlement and Central Depositary.

Prime Minister Essam Sharaf on Sunday approved changing rules to the country's Capital Markets Law to ease margin calls by brokerages, to limit volatility when the bourse opens.

When the client's debt reaches 70 per cent of the shares' value at the end of trading each day, brokerages will require investors to pay margins or present more collateral, the Egyptian Financial Supervisory Authority (EFSA) said on its website.

Brokers had previously been required to make margin calls at 60 per cent. Brokers can also now sell a client's shares when debt reaches 80 per cent of their value, instead of 70 per cent.

"If we open it a little bit to 80 per cent, this will relieve the brokers and make them think not to sell before they reach the 80 per cent," Abdel Salam said.

Under exchange rules, market investors could borrow money on margin through brokers by using shares they held as collateral.

The loans were limited to 50 per cent of the market value of the shares on the day the loans were signed and could be used only to buy the 30 stocks in the benchmark index EGX30. 

The heads of EFSA and the bourse met Finance Minister Samir Radwan on Monday to call for him to expand the fund, Abdel Salam said, adding he expected a big fall when the market opened.

"Nothing will be enough to prohibit the numbers of selling orders at the beginning of the market. It is my opinion ... that of course the market will lose in the first two days," he said.

For shares in the benchmark .EGX30 index, the bourse has said it will suspend trade for half-an-hour if it declines by three per cent and for the remainder of the session if it falls by six per cent.

Egypt's economy nearly ground to a halt during weeks of protests. Some of its main sources of foreign exchange, including tourism and foreign investment, have collapsed. Many factories continue to operate below capacity.

MSCI said in February Egypt would risk being excluded from its emerging markets index if the market did not reopen before MSCI reviewed its status in four weeks.

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