Egypt's securities markets are in different stages of development. While the stock market is active, albeit with a high market concentration in the top stocks, the secondary market for government bonds and other debt instruments remains underdeveloped. However, many reforms have been implemented over recent years. The market is regulated by the Capital Markets Authority (CMA). The Cairo and Alexandria Stock Exchange (CASE) is a quasi-governmental body under the supervision of CMA. CASE is responsible for monitoring compliance with listing rules and may impose penalties on companies that do not meet disclosure requirements. Regarding Egypt's compliance with the Principles of Effective Securities Regulation developed by the International Organization of Securities Commissions (IOSCO), publicly available information indicates that Egypt is advancing in adopting international best practices, however, none of the sources provides more specific information.

General Overview

In the results paper on a 2004 Conference on the Reform of the Egyptian Financial Sector organized by the American Chamber of Commerce (ACC) in Egypt, the Egyptian legislative process regarding capital markets was described as having at least 20 pieces of legislation currently governing the financial system. When compared to the principles of the International Organization of Securities Commission (IOSCO), the ACC paper stated that Egypt fairs well. In general, the ACC report stated that securities regulation in Egypt aspires to achieve three objectives, investor protection, ensuring that markets are fair, efficient and transparent and the reduction of systemic risk.

Giving a similar positive, albeit general, evaluation of Egyptian capital markets, the 2006 Article IV consultations with the International Monetary Fund (IMF) asserted that "capital market regulation is well advanced in adopting best practices" (p. 18). Further, according to the U.S. Department of Commerce's (U.S. DoC) 2005 Country Commercial guide for Egypt, the Egyptian government continues to introduce measures to bring Egypt's capital market closer to international standards. A recent example for this claim is that companies listed on the CASE are required to apply international accounting and disclosure standards. Another example is the regulation requiring stocks to be de-listed from the exchange if not traded for six months. In the area of settlement of transactions, dematerialized issues now take three days, materialized issues four days. The 2005 U.S. DoC report further notes that the "the USAID/Cairo Capital Market Development project, which ended in August 2003, provided substantial technical assistance to the CMA and CASE in the areas of legal and regulatory reform, automation, institutional development, and debt market development"(p. 79).

Capital Market Law No. 95 of 1992 regulates the capital market and provides the framework and supervision of the stock exchange and market intermediaries. The Capital Market Authority (CMA) can draft new secondary regulations, which are then issued as decrees of the Minister of Foreign Trade. The World Bank's 2004 Report on the Observance of Standards and Codes (ROSC) reports that, since 2002, executive regulations and rules have been issued to address a such issues as disclosure, stock exchange listing, tender offers, minority shareholder rights, and securitization. Central Depository Law No. 93 of 2000 regulates shareholder record keeping, clearing, and settlement. In 2003, the National Democratic Party endorsed reforms to the company and accounting/auditing laws.

The main securities regulator is the CMA, which reports to the Minister of Foreign Trade and Industry (MFTI). As of 2004, at the time of the World Bank ROSC, it employed 250 people, whose salaries were in line with comparable private sector positions. The ROSC further noted that the "CMA has wide administrative sanction powers, including warnings, de-listings, suspending and revoking licenses, imposing monetary penalties, canceling transactions (even after settlement if there has been an illegal act), conducting inspections, and suspending shareholder decisions" (p. 2). The Cairo and Alexandria Stock Exchange (CASE) is a quasi-governmental body under the supervision of CMA, which can veto CASE board decisions. CASE is responsible for monitoring compliance with listing rules and may impose penalties on companies that do not meet disclosure requirements, including monetary payments, trading suspension, and de-listing. The Ministry for Clearing, Settlement & Central Depository (MCSD) is the central clearing, registry, and depository organization.

According to the 2006 Global Survey by the Institute of International Bankers (IIB), the Egyptian stock exchange reinforced cooperation with foreign stock exchanges and joined the International Bourse Union. It also signed an agreement to establish the Unified Arab Bourse and a Memorandum of Understanding with many Arab and international bourses. The 2005 IIB Global Survey reported that in 2004, an Investor Protection Fund (IPF) was established by prime-ministerial decree which is meant to shelter investors from operational risk arising from dealing in the market via intermediaries.

Regarding capital markets, the bond market generally is less developed than the stock market, which applies especially true for the secondary market. The IMF 2006 Article IV consultations cautioned that secondary markets for government securities remain underdeveloped, which is partly due to the tax-free treatment of interest on government securities, which hampers the creation of broader capital markets. Nonetheless, the 2006 Global Survey by the Institute of International Bankers (IIB) noted that, in 2005 and 2006, Egyptian capital markets continued to develop more sophisticated financial instruments, such as margin trading, short selling, and same-day trading. Furthermore, a new index, called the "Dow Jones Case Egypt Titans 20 Index" was launched on the Egyptian stock exchange. These observations are consistent with the U.S. Department of Commerce's 2005 Country Commercial guide for Egypt, which asserts that "at the start of the 1990's, Egypt's financial sector consisted almost exclusively of banks and insurance companies (both overwhelmingly dominated by state-owned institutions) and there were virtually no avenues for financing of investment except for commercial bank credit, family resources, or retained earnings. The picture has changed significantly since that time with the development of modern stock-market institutions, the beginning of domestic and international bond issuance, and the erosion of state dominance in the banking and insurance fields through the entry of competitive local and foreign institutions" (p. 77).

The IMF's 2006 Article IV consultations with Egypt noted that Egypt's stock market was one of the top performers in 2005. "The bull market, which started in late 2003, was driven by increased confidence in economic policies, but was also fueled by ample domestic and regional liquidity related to the oil boom. The market experienced a sharp correction in early 2006, falling by 33 percent between the January peak and late May" (p. 17). The report added that Egypt's market capitalization remains low ant trading focuses on a handful of stocks, which limited the impact of the correction on the economy as a whole. The 2006 IMF report attributed the correction primarily to the recent entrance to the markets of retail investors.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

The main securities regulator is the CMA, which reports to the Minister of Foreign Trade and Industry (MFTI). As of 2004, at the time of the World Bank's ROSC, it employed 250 people, whose salaries were in line with comparable private sector positions. The ROSC further noted that the "CMA has wide administrative sanction powers, including warnings, de-listings, suspending and revoking licenses, imposing monetary penalties, canceling transactions (even after settlement if there has been an illegal act), conducting inspections, and suspending shareholder decisions" (p. 2). CASE is a quasi-governmental body under the supervision of CMA, which can veto CASE board decisions. CASE is responsible for monitoring compliance with listing rules and may impose penalties on companies that do not meet disclosure requirements, including monetary payments, trading suspension, and delisting. The MCSD is the central clearing, registry and depository organization. However, the assessment does not explicitly address Egypt's compliance with this principle.

Capital Market Law No. 95 of 1992 regulates the capital market, and provides the framework and supervision of the stock exchange and market intermediaries. The Capital Market Authority (CMA) can draft new secondary regulations, which are then issued as decrees of the Minister of Foreign Trade. The World Bank's 2004 ROSC reports that, since 2002, executive regulations and rules have been issued to address a number of issues, including disclosure, stock exchange listing, tender offers, minority shareholder rights, and securitization. Central Depository Law No. 93 of 2000 (CDL) regulates shareholder record keeping, clearingm and settlement. In 2003, the National Democratic Party endorsed reforms to the company and accounting/auditing laws.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The 2004 World Bank ROSC reports that CMA's budget is derived from fee income. It employs 250 people, whose salaries are in line with comparable private sector positions. CMA can request the prosecutor general to initiate proceedings. Allegations that brokers did not properly follow client instructions constitute the majority of complaints. However, the assessment does not explicitly address Egypt's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The World Bank's 2004 ROSC reports that "the CMA has wide administrative sanction powers, including warnings, delistings, suspending and revoking licenses, imposing monetary penalties, canceling transactions (even after settlement if there has been an illegal act), conducting inspections, and suspending shareholder decisions" (Annex D, p. 1). It can refer cases to the prosecutor general to initiate proceedings. The Companies Department at General Authority for Investment and Free Zones (GAFI) also supervises the enforcement and implementation of company law. However, the assessment does not explicitly address Egypt's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

There is no publicly available information as to Egypt's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is no publicly available information as to Egypt's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

CASE is a quasi-governmental body under the supervision of CMA, which can veto CASE board decisions. CASE is responsible for monitoring compliance with listing rules and may impose penalties on companies that do not meet disclosure requirements, including monetary payments, trading suspension, and delisting. MCSD is the central clearing, registry and depository organization. The World Bank's 2004 ROSC notes that "CASE is responsible for supervising commitment to registration rules, but has no authority for investigation and inquiries" (Annex D, p. 6). However, the assessment does not explicitly address Egypt's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

The World Bank's 2004 ROSC notes that CASE is managed by an elected board of directors under the supervision of the CMA. The board comprises eleven members: the chairman is appointed by the Council of Ministers, six members represent stock exchange brokers, two members represent banks, one member is appointed by the Central Bank of Egypt, and one member is from the CMA. However, the assessment does not explicitly address Egypt's compliance with this principle.

Moreover, according to the 2004 ROSC, the CMA approved the establishment of MCSD as a self-regulatory entity subject to CMA's supervision. MCSD is responsible for enforcing Central Depository Law No. 93. Members of MCSD include banks and financial institutions that carry out brokerage or custodial activities, and issuers of securities. The MCSD has a total staff of 420. MCSD's ownership structure includes CASE (35 percent), banks (50 percent) and brokers (15 percent).

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

There is no publicly available information as to Egypt's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

The CMA is responsible for the enforcement of the Capital Market Law, the supervision of capital market development, and the regulation and monitoring of market activities. The 2004 World Bank assessment notes that "the CMA is perceived by market participants to be an active enforcer of rules and regulations; the following statistics are intended to provide some indications of enforcement emphases and activities: 21 issuers and holding companies were referred by the CMA to the Public Attorney at the Financial and Commercial Prosecution Department" (Annex D, p. 1). However, the assessment does not explicitly address Egypt's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

According to the 2004 World Bank report, "CMA has wide administrative sanction powers, including warnings, delistings, suspending and revoking licenses, imposing monetary penalties, canceling transactions (even after settlement if there has been an illegal act), conducting inspections, and suspending shareholder decisions" (p. 2). In July 2002 new listing rules went into effect that increased disclosure and corporate governance requirements for listed firms, and CASE has renewed its commitment to enforce the listing rules. As a result, a net of 99 companies had been de-listed for failing to observe the new listing rules by end-September 2003, and 300 mostly small and closely held companies could be de-listed over the next few months. However, the report does not explicitly address Egypt's compliance with this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

In 2006, according to the 2006 Global Survey by the IIB, the Egyptian stock exchange reinforced cooperation with foreign stock exchanges and joined the International Bourse Union. It also signed an agreement to establish the Unified Arab Bourse and a Memorandum of Understanding with many Arab and international bourses.. However, no further information on Egypt's compliance with this principle is publicly available.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

As of July 2007, the CMA had signed 15 Memoranda of Understanding with foreign regulatory agencies. However, there is no further publicly available information as to Egypt's compliance with this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

As of July 2007, the CMA had signed 15 Memoranda of Understanding with foreign regulatory agencies. The CMA is not a signatory to IOSCO's Multilateral Memorandum of Understanding. There is no further publicly available information as to Egypt's compliance with this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

The 2004 World Bank ROSC noted that in July 2002 new listing rules went into effect that increased disclosure and corporate governance requirements for listed firms, and CASE has renewed its commitment to enforce the listing rules. Furthermore, CASE has also established a wholly-owned information dissemination subsidiary (Egypt For Information Dissemination, or EGID). EGID was established in June 1999, and began exclusively transmitting CASE data to both locally and international clients at the beginning of 2002. At the time of the World Bank assessment, EGID was working to make all information on CASE listed companies available to all users using all available delivery channels and methods to suit the needs of the different interested parties. As of October 2003, a variety of information was available on the EGID website (http://www.egidegypt.com ). However, the assessment does not explicitly address Egypt's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

EN

The sub-principles of "Principle III - The Equitable Treatment of Shareholders" of the Organizations of Economic Cooperation and Development's Principles of Corporate Governance, concerning the equal treatment of all shareholders and that board and management need to disclose their interest are rated as "largely observed" by the 2004 World Bank ROSC. The ROSC rated the sub-principle dealing with the prohibition of insider trading "partially observed" (Annex A, p. 1).

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

ID

In 2002, the World Bank conducted an assessment of accounting and auditing practices in Egypt which formed a part of the Word Bank and IMF's initiative on Reports on the Observance of Standards and Codes. This 2002 ROSC evaluated the weaknesses and strengths of the Egyptian accounting and auditing requirements, and reviewed the reporting requirements against actual practices. International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISAs) were used as the benchmarks for assessing national standards. It was concluded that significant progress has been made in eliminating differences between Egyptian Accounting Standards (EASs) and IFRSs (at the time of the assessment designated as International Accounting standards - IASs, later renamed as IFRSs). As of 2002, the EASs in general were developed in accordance with IFRSs except for accounting for leases. Since then the International Accounting Standards Board (IASB) has substantially changed the body of IFRSs and there is no indication that the changes have been incorporated into Egyptian accounting requirements.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

There is no publicly available information as to Egypt's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

There is no publicly available information as to Egypt's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

There is no publicly available information as to Egypt's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

There is no publicly available information as to Egypt's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

There is no publicly available information as to Egypt's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

There is no publicly available information as to Egypt's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

There is no publicly available information as to Egypt's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

The 2004 World Bank ROSC noted that a Settlement Guarantee Fund (SGF) was established in January 2000 with capital provided by member brokers, proportional to the volume of their trading on CASE. The ROSC stated that "the Fund is run as a self-regulatory organization under the supervision of the Capital Market Authority (CMA). The Fund's main function is to protect the investor against non-commercial risks and to guarantee the settlement in case either of a failure to deliver cash or securities. Since the inception of the SGF, the number of unsettled transactions has been greatly reduced. The main role of the Fund is to buy shares on behalf of the defaulting party (in case the selling broker does not deliver the shares) or pay cash (in case the buying broker defaults in payment). The size of the fund is currently LE 30 million and is adjusted every three months according to a specific formula related to the brokers' turnover" (Annex D, p. 7). However, the report does not explicitly address Egypt's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

There is no publicly available information as to Egypt's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

There is no publicly available information as to Egypt's compliance with this principle.

27. Regulation should promote transparency of trading.

II

According to the 2004 World Bank ROSC, "insider trading is not specifically addressed in the law, although general provisions of the Capital Market Law 95 can be used to pursue cases"(Annex E, pp. 2). The report further notes that "insider trading is considered a priority by the CMA and CASE, although most cases are resolved informally (often by reversing suspicious trades) rather than civil or criminal cases. The new listing rules contain a number of enhancements designed to reduce insider self-dealing and increase transparency of insider deals. Board members, executives, and others with access to internal information must inform CASE and CMA 24 hours before making any trades" (Annex E, pp. 2-3). Again, however, the report does not explicitly address Egypt's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

There is no publicly available information as to Egypt's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is no publicly available information as to Egypt's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

MCSD is Egypt's central depository and is responsible for the clearing and settlement of CASE-executed transactions. MCSD was originally established according to the provisions of the Capital Market Law No. 95 for the year 1992. In 1994, Capital Market Authority (CMA) approved the establishment of MCSD as a self-regulatory entity subject to CMA's supervision. MCSD is responsible for enforcing Central Depository Law No. 93 for the year 2000. Members of MCSD include banks and financial institutions that carry out brokerage or custodial activities, and issuers of securities. As of 2004, the time of the World Bank ROSC assessment, the MCSD had a total staff of 420.

The World Bank's 2004 ROSC notes that "clearing and settlement is carried out on the basis of delivery versus payment. When securities are on deposit at MCSD, securities are delivered to the buyer in book-entry form, and cash is added to the settlement account of the selling broker. Trade settlement for the 17 securities (as of October 2003) with no price restrictions are made on the second day after trading (T+2). Trade settlement for securities in the central depository are made on T+3, and settlement for other securities (not on deposit) using physical share certificates is made on T+4 " (Annex D, p. 7). However, the report does not explicitly address Egypt's compliance with this principle.