The Egyptian Exchange (EGX) is Egypt’s stock exchange and consists of two exchanges: Cairo and Alexandria. They are both governed by the same board of directors and operate with shared trading, clearing, and settlement systems. Currently, Mohamed Farid serves as the chairman of the Egyptian Exchange.
When it comes to transactions conducted within the stock exchange, they are not subjected to capital gains tax. Similarly, dividends distributed by companies listed on the exchange to their shareholders are also exempt from taxation. However, in 2013, a 10% capital gains tax was introduced specifically for mergers and acquisitions that take place on the exchange. However, in the same year, the government announced its intention to cancel this tax along with a planned tax on cash dividends.
During the Egyptian revolution of 2011, the stock exchange experienced a significant decline. Following the outbreak of the revolution on January 25, the benchmark EGX 30 Index (EGX30) plummeted by 16% that week, causing the Egyptian stock exchange to close at the end of trading on January 27. After an approximately 8-week closure, the exchange reopened on March 23 but faced an additional drop of 8.9% in the market upon reopening.
It’s worth noting that the Egyptian Exchange is a member of the Federation of Euro-Asian Stock Exchanges, further establishing its international connections and collaborations.
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What is Stock Exchange?
A stock exchange, also known as a securities exchange or bourse, is a place where stockbrokers and traders can buy and sell various financial securities, including stocks, bonds, and other investment instruments. These exchanges offer facilities for issuing and redeeming securities, as well as managing capital events such as income payments and dividends.
Typically, stock exchanges operate as “continuous auction” markets, where buyers and sellers come together to finalize transactions either through open outcry on the exchange floor or via electronic trading platforms.
In order for a security to be traded on a specific stock exchange, it needs to be listed there. While there is usually a central location for record-keeping, modern markets increasingly rely on electronic communication networks, which offer faster and more cost-effective transactions.
In recent years, alternative trading systems like electronic communication networks, as well as “dark pools,” have gained popularity and diverted trading activity away from traditional exchanges.
Companies and Stock Exchange
When companies initially offer their stocks or bonds to investors, it is done through the primary market. Subsequent trading of these securities occurs in the secondary market, where the stock exchange plays a vital role. Stock exchanges are often considered the key component of a stock market. The prices of stocks are influenced by various factors that drive supply and demand, much like any other free market.
It’s important to note that securities don’t necessarily have to be issued or traded exclusively through a stock exchange. Trading can also take place off-exchange or over-the-counter, particularly for derivatives and bonds. Stock exchanges have increasingly become part of a global securities market, and they serve an essential economic function by providing liquidity to shareholders and offering an efficient means of selling shares.
History of Stock Exchange
Stock market-based economies have a rich history that dates back to ancient times. The Phoenicians of BC Phoenicia established a vast trade network, which served as the foundation for early stock market activities.
In the late Middle Ages, lending practices began to emerge in Italy. Venetian lenders played a significant role during this period. They would carry slates containing information about various financial issues available for sale and meet with clients, much like modern brokers do today.
The Real Merchants of Venice introduced an innovative concept in the lending industry. They facilitated the exchange of debts between moneylenders, allowing a lender with a high-risk, high-interest loan to swap it for a different loan with another lender. These lenders also started buying government debt issues.
As time went on, these lenders expanded their business and began selling debt issues to individual investors in the late 1900s. The Venetians led the way in this field, becoming the first to trade securities from other governments. However, they did not engage in private trade with India nor establish a direct land connection with the Chinese Silk Road. In fact, in 1241, Habsburg emperor Frederick II successfully defended against advances by Mongol Batu Kahn along a potential overland trade route.
The origins of corporate stock trading are still a topic of debate among scholars. Some consider the founding of the Dutch East India Company in 1602 as a crucial event, while others argue that earlier developments played a significant role. The first book ever written about securities exchange, titled “The Confusion of Confusions,” was authored by Joseph de la Vega, a Dutch-Jewish trader. The Amsterdam Stock Exchange, where de la Vega operated, is often regarded as the oldest “modern” securities market in the world.
Overall, the history of stock markets is intertwined with the evolution of economies and financial systems across different regions and time periods.
Roles in Stock Exchange
In addition to the borrowing options provided by banks through credit or loans, stock exchanges play a crucial role in enabling companies to raise capital for expansion by selling shares to the general public.
Companies that require substantial amounts of capital, especially those in high-tech industries, often turn to the public market offered by stock exchanges. This has been a vital source of funding for many capital-intensive startups. However, during the 1990s and early 2000s, hi-tech listed companies experienced both a boom and a subsequent decline in the world’s major stock exchanges. Since then, it has become more challenging for high-tech entrepreneurs to take their companies public, unless the company is already generating sales and earnings, or it has proven its credibility and potential through successful outcomes such as clinical trials, market research, or patent registrations.
This is quite different from the situation in the 1990s and early 2000s when numerous companies went public on prominent stock exchanges worldwide without having any sales, earnings, or well-documented promising outcomes. While it is less common now, there are still instances where highly speculative and financially unpredictable hi-tech startups make their initial public offering on a major stock exchange. Additionally, there are smaller, specialized entry markets available for such companies, with stock indexes tracking their performance.