Capital Market

1. What is the role of the Capital Market Authority?

· Regulating and developing the Egyptian capital market. Ensuing the market's efficient performance and commitment to existing laws and regulations.

· Setting the necessary rules to protect dealers.

· Supervising the provision and publishing of accurate and clear information and data on the capital market.

· Controlling the capital market so that all securities being traded are intact.

· Taking necessary procedures to implement the provisions of capital market law and regulations.

2. What is the stock exchange and what is its role?

The stock exchange is the place where commodities or securities are being traded. There is a stock exchange for cotton or seeds. Another one exists for securities like shares and bonds. It is a market for trading securities through a bilateral bidding of sales offers for purchase orders. The trading process is electronically conducted. The Cairo and Alexandria Stock Exchanges (CASE) are considered one entity representing the Egyptian stock exchange. The CASE is responsible for trading securities. The companies registered in the exchange and whose shares are publicly traded are committed by the capital market law to periodically publish their information in press. All these companies have to submit to the stock exchange quarterly financial lists, prepared in accordance with the Egyptian accountancy criteria. Within three months after the end of the fiscal year, the companies should publish their checked financial reports and lists in two widely-spread newspapers. All events that may affect performance and profits should be disclosed.

The Egyptian capital market includes stock exchange activity and bonds treasury.

The stock exchange is responsible for

· Providing the necessary liquidity for securities as the place for selling and buying securities.

· Promoting saving for investment.

· Setting the security price.

3. What is the role of the CMA in controlling and supervising capital market?

The CMA is mainly responsible for regulating and controlling companies working in the field of securities to ensure the availability of effective investment services for investors and preventing any kind of swindling or defrauding. It is also responsible for taking necessary procedures and punishments to prevent such practices in the capital market.

Main types of control by the CMA:

Supervising trading: the CMA seeks to improve its supervisory performance on trading by analyzing relevant data to determine processes violating the laws and regulating governing trading in the capital market.
Monitoring the companies' commitment to openness and transparency, especially in cases of rumors related to major events affecting the trading of these companies' shares.
Regular and sudden inspection of the securitization companies to ensure their commitment to law 95/1992 and its regulations.

4. What is the difference between primary market and secondary market?

The primary market is the issuing market for the security. It is more like the birth certificate for the securities after the company has been established and offered initially for the public, after the company has offered a new set of bonds for public subscription or when the increase in a company's capital is offered for public subscription. Securities enter the primary market at the issuing prince and when registered and traded in the stock exchange, this price changes according to the supply and demand. When there is a great demand on a certain share or bond, the price will increase to be more than the issuing price. Therefore the first buyer of the security will be able to make profit after trading the security in the secondary market.

5. What are the types of securities being traded in the Egyptian market?

Securities are documents representing the legal and financial rights of the stakeholders towards the issuing institution. The holder is entitled to have a portion of the changing or the fixed return.

Main securities in the Egyptian market:

· Ordinary shares

· Excellent shares

· Private sector bonds

· Public sector bonds

· Financing deeds

· Closed end mutual funds

· Open end mutual funds

6. What is the difference between debt deeds and title deeds?

Debt deeds are documents establishing that their holder is debited to a certain institution. These deeds, with fixed interest, are issued by government bodies or non-government bodies.

Title deeds are the shares constituting the capital of a certain company, whether issued at the company's establishment or at the capital increase.

7. What is the difference between the nominal share and the share for its holder?

Nominal share is the share which has the name of its holder on the title deed. When the ownership of this share moved to another one, the name of the new owner is recorded in a table on the back if the share. The share for its holder is the share which does not have the name of its owner on the title deed.

8. What is the margin trading? What is its importance in enhancing the capital market?

Margin trading is done when the customer borrows an amount of money from the broker company to be able to buy shares. Investors usually resort to margin trading in order to increase their purchasing power to buy a larger number of shares without paying the whole value of these shares.

9. What is securitization? What is its importance in the capital market?

Securitization is one of the newly-developed activities through which a bank or non-bank institutions can transfer financial rights to a specialized institution.

Benefits and advantages of securitization

· Changing non-tradable financial rights into new tradable securities to increase liquidity in the stumbling companies or institutions.

· Helping financially deficit companied in improving their financing structure by changing short term commitments into medium and long term commitments.

· Reducing the risks of interest rates facing the financer.

· Increasing the efficiency of internal finance by using the holders' rights in financing other assets.

· Increasing the volume of securities being traded in the capital market.

· A new way for privatizing publish business companies using financial restructuring before public sale.

10. What is meant by "selling internal information"?

Internationally, the capital markets prevent the people informed with the internal secrets of the companies from using such information in selling or buying securities as this may negatively affect the security price and leads to a non-transparent market.

11. What is meant by investment funds?

· Investment funds are companies established to aggregate and manage money from a large number of investors according to a strategy developed by the find manager. The aim of this is to realize profits to be distributed over investors in the fund's documents. Theoretically, this money can be invested in many forms like shares, bonds, cash market tools or precious stones.

· The Egyptian law stipulates that these funds should depend on an investment manager who has the experience and efficiency to manage the investment according to the set strategy.

· In general, investment funds suit small investors or investors who have the experience and time to follow-up his investments.

There are two types of investment funds:

· Open-end mutual funds are the most common ones. They are characterized by easy selling of documents on the basis of the net (market) value. Find documents are traded directly with the fund.

· Closed end mutual funds are relatively stable in the capital structure. This means that the number of shares of closed funds is fixed. The investor can buy or sell shares of the fund. The marker price for these shares in determined according to the supply and demand in the stock exchange with no regard to the net value of the fund assets.

There are many types of investment funds:

Growth funds: focus on investment in shares.
Income funds: invest most of their money in fixed-interest bonds.
Balanced funds: divide their investments over fixed-interest bonds and ordinary bonds.
Index funds: invest in securities included by one of the common indices like standard and poors 500 or the financial times index.
Money market funds: invest their money in the financial tools used in the cash market tools. These funds are characterized by low risk and subsequently low return. However, they have a high degree of liquidity and safety.

12. Are there any limitations on foreign investments in the Egyptian market?

The government encourages local, Arab and foreign capital for direct and indirect investments in the Egyptian markets. Equal rights are commitments are provided for the local and foreign investors. Foreign capital has the complete freedom to enter the market by buying securities and leave the market by selling.

13 What is meant by transparency and openness of securities?

Transparency means informing the public and the financial community about the information of securities especially selling and buying orders. This is meant to provide the necessary interaction between the supply and demand to set the security price. Openness means disclosing all financial and non-financial information on the registering companies to help investors make sound decisions of buying or selling certain securities.

14.What is means by rating the bonds?

Credit rating reflects the opinion of a specialized rating body towards the potential commitment of the issuing company to pay the interests and repay the original value by the date of maturity. Rating is by no means a guarantee but a mere guideline used by investors to determine the relative risk of bonds. Like other financial tools, the more the risk, the more the profit expected.

Company bonds in Egypt are rated by local agencies authorized by the CMA. International agencies approved by the CMA are entitled to practice the rating. There are two types of rating, local and international, which are incomparable. Internationally sold bonds are rated and compared internationally, while locally rated bonds are compared with other local bonds within the countries.

15. What is meant by the principle of varied investments?

Variation means reducing the risks by distributing the invested capital on a large number of assets which differ in terms of return rates like bonds, cash balances or other assets. To put it simply, the aim of this is to avoid concentrating investment in a single security or sector as it may lead to huge losses on the part of the investor in case of low performance by this security or sector. Variation is said to be the optimal approach for risk management. Investors should distribute their investment portfolios on a set of shares and securities with fixed return.

16. Who are the market makers?

Many markets have a network of market makers who support the trading outside the stock exchange. Those are persons or companies, authorized to work as market markers, who formally commit to create a permanent market for trading one or more of securities. This means risking their capital or their companies' capital. The market maker should, on every trading day, put prices for buying and selling a certain securities. Though trading screens, brokers can follow the declared prices by all the marker makers. These prices are for transactions on a limited number of shares. For larger transactions, the declared price in negotiable. All transactions are conducted through the phone with news released.

In the recent years, the more developed markets have had systems allowing small transactions to be conducted electronically while prices for large transactions are negotiated through the phone and confirmed electronically. As mentioned, the capital of the marker maker is in risk and he is not allowed to have commissions for buying and selling. However, he can achieve profits through the difference between selling and buying prices for shares. In markets depending on continuous auctions, some brokers undertake a role similar to the role of the market makers. They trade on one or more securities for their own benefit in order to have the difference between the supply and demand on the security.

17. What is meant by the beneficiary owner and the registered owner?

In many markets, the ownership of securities is registered in the name of the broking companies but not the investor (beneficiary). The issuing company does not know the beneficiary owner and in this case the broking office or the registered owner keeps the ownership records of sectaries for his customers. When the owner is a broking company, the securities are said to be owned by the market. The registered owner is responsible for collecting profits in favor of the beneficiary owner as well as sending the invitations for attending the general assemblies for the stakeholders and other financial reports to the customers.

18. What is meant by Self Regulating Organizations (SRO)?

Self regulation means organizing the daily activities of the companied working in the field of securities. This is a complementary activity for the tasks of the government regulating bodies, which have more general and wider tasks related to general policies and serious law violations. Self regulation is based on the assumption that the industry members have reached a degree of professional maturity which enables them to set criteria for facilitating work. The concept of self regulation implies ensuing commitment to ethical criteria and law. The laws and criteria governing these organizations are usually developed by professionalists who are aware of the principles of trading securities. They are presumably experts in this regard. As the stock exchange is concerned with facilitating dealing among its members and since it is a controller who does not deal with investors directly, it has the ideal position as self regulating organization.

19. Who are custodians?

In most of the capital markets, investors do not deal directly with the central keeping organizations. However, they deal through brokers and custodians. In this regard, many questions may arise about how an investor is able to recognize his wealth of a certain security and who is the responsible for keeping ownership records of each investor?

In Egypt, the ownership documents of investors are kept in Egypt Clearing House and are accessed through custodians, who are usually affiliated to a bank. According to law of central registration, custodians gradually replaced the record management companies in the Egyptian market. Investors may require information on their titles from the custodians of Egypt Clearing House.