A recent decree banning Egyptian brokerage firms from trading on foreign stock exchanges has spurred mixed reactions in Egyptian financial circles.
Egypt's prime minister, Dr. Kamal al-Ganzouri, signed decree number 572 in early July. The decree bans brokerage firms licensed to operate in the Egyptian market from trading in stocks on behalf of themselves or their clients on foreign stock exchanges, according to the official Middle East News Agency.
Broker Mustafa Fakher, chairman of the board of directors of the Giza Financial Brokerage Company, said the decree will increase the financial burden on brokerage firms, which have already incurred huge losses since the January 25 revolution.
"Trading stocks in foreign markets kept this company afloat after the revolution, especially since investors' demand for foreign-company stocks rose by 40% during this period," he told Al-Shorfa.
Fakher said implementing the decree could spell the end for the majority of brokerage firms, which have become dependent on such transactions. It could also force firms to lay off employees, he said.
Fakher told Al-Shorfa that traders may also fall prey to fake foreign brokerage firms, because it is difficult to verify the identities of these firms and their legal statuses.
"Trading on global stock markets must be done by the rules, which require that it be done through financial securities companies," he said.
Fakher called for rescinding the decree and sanctioning companies found to have taken part in the smuggling of money.
Dr. Mahmoud Sultan, an economics professor at Cairo University, told Al-Shorfa that "The primary motive behind the decree -- to stop the smuggling of money out of the country -- is good."
He added, "However, the decree's consequences will be devastating for local financial markets."
"[The decree] could have imposed restrictions and strict controls instead of a total ban. And since the aim is to stop the smuggling of money out of the country, it would have been more efficient to include banks in the ban," he said.
In addition, "the decree did not reference transactions conducted through national and foreign banks operating in Egypt, even though everyone knows a large part of foreign stock exchange transactions are conducted through bank transfers," Sultan said.
However, the decree has positive aspects, he said.
"Among the positive aspects of the decree is that liquidity, especially in foreign currency, will be pumped into the liquidity-starved Egyptian stock exchange by investors who are seeking to recoup the losses they sustained in the past period," he said.
"The decree's ban on trading on foreign stock exchanges will force investors to trade stocks listed on the Egyptian stock exchange," he added.
Sultan said he hopes officials will re-examine the decree to take into account the current circumstances of brokerage companies, "especially since the upcoming period will need financial companies and the financial sector in general to stimulate the economic cycle and restore it to the way it was before the January revolution".
Samih Abdel-Alim, an official in the Complaints Department of the General Authority for Financial Control, denied that the decree would affect brokerage houses
"Contrary to what the owners of brokerage companies say, the volume and value of their transactions are low in general," he told Al-Shorfa.
"The issue of the decree was timed specifically to stop the chaos in the financial market. The laws and restrictions already existed, and their purpose is to set the legal frameworks for such transactions. However, recently only a few companies have abided by these regulatory statutes," Abdel-Alim said.
Many of those companies engaged in "short-selling" transactions, which are very hard to monitor, he said.
Some have also misinterpreted the decree, which does not ban trading in foreign stock exchanges entirely, Abdel-Alim added. The decree only bans trading by brokerage companies, and therefore individuals are free to do so.
He said the Egyptian Financial Supervisory Authority received many complaints from investors who incurred losses after they acted on the recommendations of financial brokerage companies that deal with un-monitored foreign companies.
This left the investors exposed and unprotected against trading risks, he added.
"Such transactions also do not give the investor an opportunity to do his due diligence in order to make sound, well-researched decisions," Abel-Alim said.
He said the decree will also curb problems stemming from a lack of control over offshore funds.