Egypt’s stock exchange is collapsing. Can a blackout solve it?

The shares of the Egyptian stock exchange have recently witnessed a sharp decline, despite the government’s announcement of a package of incentives to support the capital market. But instead of searching for and addressing the real reasons that push the stock exchange to achieve negative performance, the Financial Supervisory Authority proposed a bill that includes “signing two prison sentences,” as well as a fine for anyone who publishes news, data, recommendations or information about companies listed on the stock exchange “without obtaining a licence” from them, in a precedent that is the first of its kind in the world, according to experts.

Specialists attributed this move by the Financial Supervisory Authority to the increasing criticism directed at the Authority’s Chairman, Dr. Muhammad Omran, and the demand for his dismissal, against the background of his decisions that led to the loss of many investors of their money. This bill cannot be separated from the general orientation of the regime of President Abdel Fattah Al-Sisi, which seeks to silence all opposition or critical voices. All state institutions, even financial ones, have become saturated with the regime’s fascism and do not accept another voice of criticism or blame.

The legislative proposal, prepared by the Financial Supervisory Authority and intended to be sent to the competent authorities, stipulates the imposition of imprisonment and a fine, or one of these two penalties, for anyone who publishes in any way publicly in the media, social networking sites or news websites, statements or recommendations or information about companies whose securities or financial instruments are listed on the Egyptian Stock Exchange, or regarding those securities or instruments without having a licence to do so from the Financial Supervisory Authority.

The penalties of imprisonment and a fine escalate to anyone who achieves a benefit for himself or others, or prevents a loss for himself or others, bringing the penalty to imprisonment for a term of not less than three years and not exceeding 10 years for anyone who commits this crime with the intention of causing damage to the capital market or the national economy, or the public interest.

The head of the Financial Supervisory Authority, Mohamed Omran, said this legislative proposal came after noticing the existence of social networking sites dealing with the Egyptian Stock Exchange, with the intention of directing investment decisions for individuals to achieve personal benefit and harm small investors, which affects the trends of stocks listed on the stock exchange, and the decisions of many investors.

However, many specialists believe that this decision aims to intimidate voices that criticise Omran and demand his dismissal against the background of his failure to manage the stock exchange, and his decisions that led to the loss of many investors of their money and the reluctance of others to invest in the Egyptian Stock Exchange.

Youssef Zaki, one of the investors in the stock exchange, says that the past days have witnessed the closure of several groups on Facebook, where investors discuss the problems of the stock exchange and express their objection to the decisions of the Chairman of the Financial Supervisory Authority after communication from representatives of the authority with the page managers.

Dr. Medhat Nafeh, the former director of the supervision of trading in the stock exchange, confirms that the application of this law – if approved – will be extremely difficult because it requires a lot of evidence and clues that are difficult to prove, which is what caused Youssef Zaki to say that the FRA aims only at spreading a state of panic and the punishment stipulated in the legislative proposal, which will be difficult to implement on the ground, as accounts on social media platforms are often anonymous, and some people have more than one account.

The Egyptian financial market has witnessed a sharp deterioration during the past years, as it is sufficient to mention that after it was one of the tributaries of the economy, where the market value reached 98 per cent of the national product in 2008, its value now does not exceed six per cent of the national product. Financial and economic experts assert that the Egyptian stock market crisis is complex. It is partly due to the poor liquidity rates represented in the daily trading values, which are less than EGP one billion, which is a very low value if it is evaluated in dollars and compared to the surrounding markets.

Another aspect of the crisis is the low demand of companies to list in the stock exchange due to lack of confidence in it. The government contributed to reducing this confidence after it retreated more than once from the programme that it announced in April 2018, which aimed to offer shares of 23 public companies in the stock exchange for 30 months, but only two stakes have been floated so far. Another level of the crisis is related to the management of the stock exchange itself, which has lost the confidence of investors, especially individual investors, who represent 80 per cent of transactions in the stock exchange due to the instability of the criteria for including and excluding securities from the lists of specialised activities, and its failure to play its role in protecting the stock exchange from time manipulation.

A striking example of this inaction is the occurrence of record increases in the market value of 18 companies in the EGX70 index by about 1,000 times, during the period from March 2020 to August 2021, specifically from the level of EGP 2.8 billion to EGP 31.1 billion. And when the financial control woke up after a year and a half, it discovered that those shares had been manipulated, so it cancelled many of the operations and stopped some manipulative investors. Experts confirm that the Egyptian Stock Exchange needs a comprehensive strategy, in which all parties, whether the government, the Financial Supervisory Authority, the stock exchange management, associations and companies operating in the market, join hands to solve the financial market crisis and return it to the correct track, which has not happened so far.