CAIRO: Trading shares is an intricate process. Between the buyer and seller are at least three intermediaries: the broker, the stock exchange and the depository. Each intermediary fulfills its role through a combination of phone calls, faxes and electronic communication. The procedure as a whole is partly automated with computers and digital networks, but substantial human involvement is still necessary. Online trading requires every step to be automated, replacing the human element with straight through processing, whereby trade details are dealt with and passed from one system to the next without any manual intervention. Online trading is not just placing your order on the internet, says Tarek Abdel Bary, managing director of Misr for Clearing, Settlement and Central Depository (MCSD), at a meeting with the American Chamber of Commerce in Egypt. It s a wider scope than that. We are trying to integrate a market that is fully automated. By minimizing human intervention, electronic trading improves the timeliness and accuracy of transactions. It also makes the stock market more readily accessible to foreign investors, increasing the liquidity and depth of the market. Through online trading you can also connect local brokers to international brokers, adds Maher Asham, managing director of Egypt for Information Dissemination (EGID), and that will direct a lot of order flow from international institutions to our local market that would be difficult to do otherwise. The stock exchange is still a long way from internet trading, but some progress has been made toward this goal. As a first step, many brokers have automated their back office procedures. We cannot have a market with electronic trading and brokers with no automated back office, says Abdel Bary. The back office of a broker keeps track of client positions and balances. It s the main backbone of any brokerage company, explains Asham, which produces all the statements of the clients and the ledger of the company. Brokers also require a system to handle orders. An order management system is what receives orders from investors on the internet, says Asham, and passes these orders to the back office to check the balances or, if it's a sell order, passes the order to the MCSD for blocking the shares. In addition, brokers need to have a system to communicate with other intermediaries. We need two gateways, says Asham, which are pieces of software that enable the back office system to talk to the system of the exchange and of MCSD. Electronic communication between the three parties is structured in accordance with the Financial Information eXchange (FIX) protocol, an international standard for security transactions. EGID, which is a wholly-owned subsidiary of the Cairo and Alexandria Stock Exchange, has begun implementing the FIX protocol for it and has conducted preliminary testing of it. Such extensions to the core system of the stock exchange have historically been difficult due to the nature of the software it uses. We have a major challenge with the system we have at the moment because it is a closed box, says Asham. We had to work around it; any software development had to be done outside the system, which was not a perfect solution but that was the [only] obtainable solution for us. The lack of local knowledge about the system also exacerbated the problem. In January, EGID teamed up with OMX, a software company that owns several exchanges in Europe, to help address this issue, forming a joint venture that will develop and support stock exchange systems. With this joint-venture, we are going to have a company here in Egypt that will take over the IT responsibility of the market, explains Asham, provide the market with the trading technology and the know-how will be inside that joint-venture. The joint-venture will also target stock markets elsewhere in the region. We are in a situation where most of the markets around us, says Asham, especially the markets in the Gulf, are also changing their trading technologies. So that company is going to deploy, support and enable these markets with the technology. That will guarantee for our local market a stable service, the best available technology [and] flexibility. One final step is necessary before the full cycle can be automated. So far the network of the stock exchange is a closed network, says Asham. In other words, no broker networks are currently interfacing with the stock exchange ... So to allow [broker] networks to be connected to the network of the stock exchange, we have to secure our network from any hacking or external threats. The security of the physical infrastructure is also being considered with the construction of a duplicate site for the systems of the stock exchange in Alexandria. This site is nearly complete and will help ensure the continuity of capital markets in the event of a disaster.
