The meeting that was held last Tuesday is the fourth meeting between the Stock Exchange and the custodians, to discuss mechanisms to activate the role of banks in margin trading. It aims at raising trading volume and increasing liquidity through the activation of all mechanisms and financial instruments available.
EGX Chairman said that activating the role of banks in margin trading contributes to the increase of the investors’ purchasing power, adding to the market liquidity, as the investor can buy a larger amount of securities that are allowed to deal with specialized activities.
During the meeting, the custodians praised the efforts of the stock exchange to activate the margin trading because it will have positive impact on both sides, the stock exchange and banks. Meanwhile, the Stock Exchange pledged to coordinate with all concerned parties to activate the role of banks in this regard.
Farid said that the marginal trading mechanisms are characterized by the ability to monitor and assess indebtedness and pledges on a daily basis on the level of the customer or the securities. It allows liquidating indebtedness according to the average value of trading to estimate the security’s liquidity.
Farid stated that the regulatory procedures at FRA, in accordance to Resolution No. 67 for year 2014, require brokerage firms or custodians to re-evaluate the margin securities at the end of each working day according to their market value. If the customer’s indebtedness exceeds 60% of its market value due to the decrease in prices, the customer must be advised to reduce this ratio either by cash or by providing cash guarantees.
Brokerage firms or custodians shall have the right to take actions to sell securities and liquidate the guarantees provided by the customers so that they reach 50% or 80% of the debt in case of government bonds, in case the customer does not reduce the indebtedness.
The two parties, EGX and custodians, agreed to complete the discussions to reach the plan that contributes to the activation of margin trading because of the impact on the performance of the stock exchange in terms of liquidity.