Back to the complete issue
Thursday, 18 November 2021

EGX trading fees are cut — and caps on margin trading delayed

EGX fees are set to be cut and planned caps on margin trading could be delayed as the government looks to cushion the impact of the planned capital gains tax on EGX trades. In a meeting led by the Financial Regulatory Authority (FRA) yesterday, policymakers agreed to cut trading, clearance and regulatory fees by 20% and to delay by six months the introduction of new restrictions on how much investors can borrow to trade shares. The regulator announced the moves in a series of statements (here (pdf) and here (pdf)).

The trigger: Capital gains tax is coming and investors aren’t happy. Confirmation in September that the government would push ahead with the introduction of a 10% tax on capital gains made by resident investors has not gone down well with retail investors or the securities industry. Investors, analysts and MPs have warned that an additional tax could stifle trading volumes on an already-depressed market and make the bourse even less attractive to foreign investors.

Retail investors account for the majority of activity in the market on most days, and pundits worried the proposed cap on margin trading could depress trading activity if it came into place at the same time as the 10% CGT.

Cue the sweetener: Amid calls to scrap the tax outright, the government last week unveiled a package of tax breaks and fee cuts aimed reducing the impact of the CGT and keep retail investors in the market, among them is the cut to EGX fees which the FRA, EGX and Misr Clearing officials discussed yesterday. The fees include those paid on each transaction to the EGX and Misr for Central Clearing, regulatory fees paid to the FRA and payments to the Investor Protection Fund.

Also: All fees will be classified as expenses, meaning investors paying taxes here will be allowed to use them to offset their tax bill.

AND- The EGX and FRA are going to continue their discussions on potentially loosening caps on intraday share price movements. A separate proposal under study would also see a subset of regulations that would impose specific intraday price movement caps on volatile and high-risk stocks that would be separate from the general market limits.

Regulators also seem to be easing off the introduction of new restrictions on margin lending: The FRA yesterday agreed to hold off introducing the caps for up to six months, meaning they may not come into effect until the middle of 2022. The is a signal that the regulator wants to keep the market moving smoothly, FRA Deputy Chairman Islam Azzam said in an interview with CNBC Arabia (watch, runtime: 8:14).

A refresher: Designed to mitigate financial risk, the rules would place new limits on how much investors can trade on margin, prohibiting them from either purchasing more than 3% of a company’s market cap or 5% of its freefloat shares (whichever is higher). Companies would be restricted from having more than 15% of their outstanding shares held on margin or 30% of its publicly-traded shares (whichever is higher).

It appears that the margin trading regulations will be more detailed than we thought: The FRA will now look at a proposal from the bourse that would regulate the volume of margin trades brokerages are allowed for each security.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.