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ONLINE TRADING PUTS CLIENTS IN THE BROKER'S SEAT
BY ABDEL AZIZ NOSSEIR
Over the past few years, the Capital Market Authority
(CMA) has taken a number of steps aimed at making securities trading
easier and more accessible to the average citizen. Its latest tool,
however, could make brokers out of all of us.
As part of its broad push towards fully automated trading, the CMA
issued its first online securities trading license in July, allowing
individuals for the first time to trade stocks using the Internet.
Additional licenses are expected soon as brokerages meet the conditions
stipulated by the CMA.
Sally Refaat, research analyst at Arabeya Online, the nation’s
first licensed online brokerage, says online trading offers a number
of benefits to clients. “Firstly, the client no longer needs
[a broker] to perform the transaction, [which is to the client’s
advantage] because [brokers] are usually too preoccupied with other
clients to implement their orders,” she says. “It also
saves the client time because [online] transactions can be performed
in less than 30 seconds.”
Cutting out brokers may also mean fewer mistakes, says Refaat, as
brokers are known to mishandle transactions. Perhaps most important,
clients will save money because online commission fees are smaller
than those applied to manual transactions. “And the more the
client trades, the less commission we take,” she adds.
In addition, online trading eliminates settlement disputes. Before
processing any transaction the system verifies that funds are available
to cover the transaction and that the securities are at the depository.
The verification process takes about five seconds, instead of three
days, and the order is authenticated by an e-signature. Clients’
records are updated instantly, minimizing the potential for mistakes.
Such advantages are obvious to Mohamed Farouk, a banker, who is
eager to begin e-trading. “I always dreamed about processing
trading orders myself [because] I could never tell exactly when
my broker would do a transaction and at what price,” he says.
But there are also less tangible benefits that come from trading
without human intermediaries. Ahmed Moustafa, head of the bookkeeping
division at Pioneer for Securities, a brokerage that has applied
for an online license, says trading floors are notorious for incubating
false rumors. Investors at home, he says, will be largely immune
from the rumor mill that can lead to poor decisions based on misinformation.
E-trading may also attract clients outside Egypt, who did not have
the option before of investing in the Cairo & Alexandria Stock
Exchanges (CASE). “I think all investors in the Gulf area
will be interested in e-trading with Egypt.” says stock market
guru Sherif Hassan.
But Hassan concedes online trading will not work for everyone, particularly
those without much experience or sufficient knowledge of securities.
“Some clients prefer to ask the broker, talk with him and
get his opinion before processing any operation,” he says.
“Those clients may have difficulty processing their orders
through the screen.”
Another potential downside, he notes, is that individuals could
make the same processing errors as brokers when placing orders.
Common mistakes include duplicating orders, selling more shares
than intended or attempting to purchase shares with insufficient
funds.
While the broker’s traditional role – buying and selling
– is expected to decline, Hassan expects brokers will still
be useful as far as offering advice and investment strategies.
According to CMA regulations, to be eligible for an online trading
license, the applicant firm must by certified by the CMA as having
the proper hardware, communication systems, firewalls and protection
systems to ensure safe transactions. If that sounds daunting, the
company can instead hire an application service provider (ASP),
a specialized company that provides financial services and technical
support to brokerages. For a small brokerage with limited resources,
an ASP would be a good option, says Alaa Amer, vice chairman of
the CMA, because brokers can focus on sales while the ASP delivers
online services.
Currently, the only approved ASP in Egypt is Nile Company for Information
Technology, a newly formed company owned 51 percent by Misr Central
Clearing, Depository & Registry (MCDR), the nation’s depository
and clearing house, alongside shareholders Atos Euronext Market
Solution (AEMS), which holds a 29-percent stake, National Bank of
Egypt (NBE) with 10 percent and Dubai-based Al Fardan Group, also
with 10 percent.
Finally, to receive an e-trading license, the brokerage’s
staff must undergo training and pass a series of proficiency tests.
The CMA has enlisted the London Institute for Securities & Investment
to run a training program. Brokerages that offer online trading
must have certified staff covering 17 specific jobs, including four
IT professionals.
Licensed brokerages are subject to scheduled visits and spot checks
by CMA and MCDR inspectors, who will ensure that the companies are
using qualified hardware, software and security systems.
Online trading may seem long overdue. But Amer contends that economic
conditions in the past were not ripe to introduce new technology.
The economy has strengthened as a result of the Nazif government’s
reform policies, he says, allowing the market to absorb changes.
In addition, Amer believes online trading is a tool to reach a larger
aim: making Egypt a “regional financial hub.”
So far, the figures suggest investors will use online services.
Arabeya Online saw its daily operations rise from LE 100,000 to
LE 1.5 million and the number of online clients go from zero to
500 in the first three weeks of Internet trading. The volume of
trading has also increased, between 30 to 50 percent.
After the novelty wears off, the true test of whether e-trading
supplants traditional brokers will likely boil down to simple arithmetic.
If investors make money, e-trading will gain in popularity. But
if not, brokers may have a future after all.
TO GET STARTED
Interested in e-trading? Alaa Amer, vice chairman of the
CMA, advises clients thoroughly review trading procedures
and limitations before attempting any trades. To get started,
you will need to visit a licensed online brokerage. At present,
Arabeya Online has the only licensed site, though 16 other
companies are in the process of applying and the number will
certainly grow.
Your brokerage will provide documentation and take you through
the steps for online trading, but not before determining your
knowledge of the stock market and desired level of risk. You
may also receive an online tutorial explaining how to read
price quotes and conduct market research. “Once the
brokerage determines that the client is qualified to trade
online, the client can sign a contract with the brokerage
and then receive a username and password,” explains
Amer. |
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