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 January 27 amid a popular uprising that forced
President Hosni Mubarak out of 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 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 percent 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 percent. Brokers
can also now sell a client’s shares when debt reaches 80 percent of
their value, instead of 70 percent. “If we open it a little bit to 80
percent, this will relieve the brokers and make them think not to sell
before they reach the 80 percent,” 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
percent 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.
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 index, the bourse has said it will suspend trade for
half-an-hour if it declines by 3 percent and for the remainder of the
session if it falls by 6 percent.
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.
