A new activity will see stock market investors gain profits from the retreat in share prices, Sherine Abdel-Razek reports Retailers buy shares out of anticipation that their price will increase. However, investors who invest their money according to a new short selling activity that will be introduced in the local market in early July, will actually be putting their money in shares that display declining potential. The new activity will capitalise on the presence of both long-term investors who want to hold on to their equities for a long time in addition to those who resort to the market for quick profits. Simply translated, this means that Investor A who wants to keep his holdings of shares as a long-term investment, will lend them to investor B in return for a rate. The borrower will then sell investor A's shares and buy them back when the price declines. He thus makes a capital gain from the difference in two prices. The overall activities involved such as borrowing, selling and buying, will be conducted only by brokers who are licensed to join the new mechanism. The borrower must deposit an agreed- upon percentage of the value of shares, as collateral with the broker. Misr Company for Settlement, Clearance and Central Depository (MSCD) will be managing a pool of shares whose holders would like to lend and organise in a manner which guarantees that enough shares are available to lenders. They can resort to them if they desire to regain their shares at any time, in addition to covering borrowers' demand. When the first phase of the new mechanism expires next September, it will be only the shares that are currently covered by same day trading activity that can be used in short selling. Come September and more shares will be included. In a press conference held early this week, Hani Sarieddin, head of the Capital Market Authority, pointed out that the short-selling system currently implemented in 57 countries worldwide along with same-day and margin trading activities, should endow the market with more depth and increase its liquidity. Head of MSCD Mohamed Abdel-Salam said the new practice complements the same-day trading that already exists in the market. "In same-day trading I am buying a company's shares at LE10, and waiting to sell it when its value reaches LE12," said Abdel-Salam. "In short selling, on the other hand, I am selling at LE10 and buying back at LE9". Abdel-Salam says that short selling provides borrowers with the opportunity to realise profits when the market heads south. The introduction of the new activity comes at a time when many market observers place the blame on same-day trading, as being one reason which recently pushed the market over the edge. A trader who asked not to be named says that in same-day trading, brokers must at any cost sell the companies they had bought at the beginning of the session before it ends. This results in pulling the market downwards. Sarieddin, however, defends the practice. He asserts that according to the figures issued by brokerage companies, all investors who did buy same- day trading shares realised profits and not losses. He added that the practice was introduced in October but that it did not hinder the market's escalating trend, until early February. "This means it cannot be held responsible for the subsequent decline'" said Sarieddin.
