ABDALLA F. HASSAN | The New York Times | April 6, 2011
Mohamed Abdel Salam, executive chairman of the Egyptian Exchange, at his office
PHOTO BY ABDALLA F. HASSAN
CAIRO — The new chairman of the Egyptian Exchange has quietly brought the nation’s stock market back from the brink, shepherding a controlled return to brisk trading, a rising index and new confidence after an eight-week trading halt during the political revolution that swept Egypt’s old guard from power.
Mohamed Abdel Salam, executive chairman of the exchange, expected the worst when he reopened the market for business on March 23. The exchange had closed on Jan. 27, after a 16 percent, week-long fall.
“I was afraid the market faced a sharp plunge that would lead to further declines,” Mr. Abdel Salam said in an interview.
To prevent that, the exchange suspended intraday and pre-opening trading, forestalling the volatility that can be generated by large sell orders in a thin overnight market. It also tightened its trading limits during the regular market session. Trading in a stock that rises or falls 5 percent is now halted for half an hour and all stocks are limited to a maximum gain or loss of 10 percent in a single trading session.
Similarly, a circuit breaker has been put in place that halts trading for 30 minutes on the EGX 100 Index when it rises or falls 5 percent. The trigger previously was set at 10 percent. If the overall index climbs or sinks 10 percent during a session, the market chairman can end trading for the day.
On the first day after the market reopened, the benchmark EGX 30 fell 8.9 percent, and on March 24 it lost an additional 3.7 percent. But the next day it made an abrupt about-face into positive territory and the upswing has continued.
While the EGX 30 is still far off its highs of early January, it has climbed steadily over the last three weeks from a low of about 4,950 on March 24 to about 5,470 today. That compares with a high of about 7,200 at the beginning of January.
Mr. Abdel Salam was appointed to run the exchange by Prime Minster Essam Sharaf the day before the reopening, after the previous chairman, Khaled Serry Siam tendered his resignation on March 16. He said he did not hesitate to take the job. “I don’t think there is any Egyptian in the phase we are passing through who would turn down any mandate he is assigned,” he said.
He has agreed to head the exchange for six months, a critical period in Egypt’s economic and political transition. “What I see in front of me is that the investors have begun to work and have confidence in the market,” he said, pointing to his computer screens.
“Local investors account for 44.7 percent,” of daily trading, he noted, while “foreign investment represents 55.3 percent.”
“Retail investment,” he added, “and I see this as a good indicator, is about 29 percent” of daily turnover, with institutions accounting for about 71 percent.
If the previous chairman was seen by some as too close to the old regime of President Hosni Mubarak, Mr. Abdel Salam is no outsider. A retired general who served 26 years in the military before leaving in 1989, he is also tech-savvy, with an MBA in information systems technology, a field in which he worked for more than a decade in the army. After retiring from the military he became information technology manager at the Capital Market Authority, the stock market regulator, which was introducing a new trading system for the bourse.
Working with the authority, the Paris Stock Exchange and its clearing organization Sicovam — now Euroclear France — Mr. Abdel Salam started Misr for Central Clearing, Depository and Registry, or MCDR, in 1996. He remains chairman of the company, which provides clearing and settlement services for the Cairo and Alexandria exchanges.
At MCDR, he used his technical expertise to make cost savings that were key to the clearer’s success. Capital market laws and regulations were in flux at the time, and the clearing, settlement and depository system needed to be modified and upgraded: “All the electronics systems were done in-house, which saved a lot of money,” he said.
This is not Mr. Abdel Salam’s first stint as head of the Egyptian Exchange: In 2004 and 2005 he served as chairman for about a year, overseeing the electronic link-up of MCDR to the exchange.
At a time when consolidation between share markets is a global trend, Mr. Abdel Salam’s ambitions include fostering closer links among the Egyptian Exchange and other markets in the region to improve the flow of market data and encourage cross-border investment. “I want to see the increase of communication links between the bourse and other financial institutions to allow for the ease of information exchange,” he said. “We want to create a cloud between the regional markets.”
Although rules and regulations vary widely between markets, even modest improvements in electronic links could encourage Egyptian traders to invest abroad and foreign traders to bring their money into the Egyptian bourse, he said.
The chairman has begun establishing links between MCDR and clearing companies in Europe, South Africa and the Arab world. “It gives investors confidence in cross-border transactions,” he said. “We want there to be an electronic relationship in order to ease the movement of cross-border settlement.”
Among other innovations to strengthen market liquidity, an Investor Protection Fund managed by MCDR will shortly provide the start-up capital for a ground-breaking stock investment fund called “Egypt for the Future.” The fund, issuing shares priced at 10 Egyptian pounds, about $1.70, is intended to make the market accessible to even the smallest investor.
“Anyone with spare liquidity — even the very simple individual who has 10 or 20 Egyptian pounds — can invest them in the market,” Mr. Abdel Salam said.