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Trading & Settlement



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 fro m 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. < o:p>

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

70 Al-Gomhoreya St.
Cairo, Egypt
Tel:   +20 (2) 5971581            

Fax: +20 (2) 5971523