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Stock market goes online

MCDR creates joint venture with Atos Euronext to help brokers provide electronic trading CAIRO: The Capital Market Authority (CMA) has begun entertaining applications for online trading licenses and has approved Al-Arabia Online as the first provider of brokerage services on the internet. Meanwhile, Misr Clearing, Settlement and Central Depository (MCDR) will sign an agreement with …


MCDR creates joint venture with Atos Euronext to help brokers provide electronic trading

CAIRO: The Capital Market Authority (CMA) has begun entertaining applications for online trading licenses and has approved Al-Arabia Online as the first provider of brokerage services on the internet.

Meanwhile, Misr Clearing, Settlement and Central Depository (MCDR) will sign an agreement with Atos Euronext today to create a joint-venture that will provide the IT infrastructure necessary for online trading to brokers.

A number of companies have submitted requests for online trading, but until now only Al-Arabia Online has been approved, says Hesham Ibrahim of the CMA.

As a new brokerage company, Al-Arabia falls under the CMA s amended regulations that require any new broker to provide online trading services.

Existing brokers have until March 2007 to upgrade their systems and implement electronic trading.

Hermes Securities Brokerage, an affiliate of the financial services firm EFG-Hermes, is one of the companies that have applications for online trading pending with the CMA.

Ahmed Tawfik, managing director of Hermes Securities Brokerage, expects to obtain final approval from the CMA within one month.

Our next step will be to begin the testing phase with our existing clients, says Tawfik, adding that he anticipates the service to be available to customers by October.

From the customer s perspective, online trading simply connects clients to their brokers through the latter s websites, enabling individuals to trade stocks without a human intermediary.

The biggest challenge is the clients themselves, to accept the idea of buying and selling online [and] to be trained well so that they don t make mistakes. A mistake in one zero can make the difference between LE 1,000 and LE 10,000 says MCDR Managing Director Tariq Abdel-Bary.

Tawfik agrees that the reluctance of investors to use a new technology is the biggest obstacle to adoption of online services.

Most Egyptians are not familiar with online [trading] and are afraid of it. It will require a shift in mentality, says Tawfik.

Tawfik nevertheless believes that the ease of use of online trading will encourage its adoption, and that the service will be accepted by both existing and new clients.

Some of our small clients who know the stock market well will use online trading [and] some big clients don t like to speak to anybody when making a trade. It will also attract new clients, says Tawfik.

The challenge, from a broker s perspective, is to have the appropriate IT infrastructure to support online trading.

Technically, many things were required, such as disaster recovery [and] backups, says Abdel-Bary. There is a long list of requirements by the CMA to secure the data and the communication channel [of brokers].

Brokerage firms also need to have a fully electronic back office that can integrate with the stock exchange and MCDR.

Our system was a home-made system, says Tawfik. Our IT [department] just modified it to integrate with the exchange … We re already working [with electronic trading] with the same system in Dubai.

Some of the other larger brokerage companies are also upgrading their IT systems in preparation for electronic trading, and MCDR will work with the European software company Atos Euronext to provide an electronic back office and online trading system to other brokers.

MCDR is establishing a special-purpose vehicle to provide brokers with an online trading system and will sign an agreement [on Monday] with Atos Euronext for this, says Abdel-Bary.

Atos Euronext, whose trading technology platform is used by a number of stock markets in the region and elsewhere, is a joint-venture between the cross-border European exchange Euronext and the IT services company Atos Origin.

Marketing and awareness will be crucial for the proliferation of electronic trading amongst investors.

With the removal of a human intermediary, improving investor understanding of market fundamentals is also necessary in order to avoid the volatility that was fueled by the entry of small retail investors into the market over the past year.

While acknowledging the importance of informing clients, Tawfik believes that retail investors have a more sophisticated conception of stocks after this year s many corrections.

I think that people are beginning to understand the risks of the stock market, says Tawfik.

Topics: FJP

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