A number of assets managers confirmed that the Egyptian Financial Services Authority (EFSA) and the Egyptian Exchange (EGX) are reopening the registration file for investment fund certificates, instead of limiting bank purchases, sale transactions, and sales. This will lead to a radical change in regulating items for funding activities in executive regulations of the Capital Market Law as well as those of the Initial Public Offering (IPO) prospectus. These amendments may extend to the law itself, as well as change fund system operations. The managers explained that certificates registration will create two values for them: market value, which is determined by purchase and sale offers, and book value, which is calculated by net assets value. They pointed out that security brokerage firms will be a new party in implementing purchase and sale orders in the EGX, as well as the ability to save the certificates in parties that hold the trustees' licence rather than banks. This will lead to amending the Capital Market Law. Adel Kamel, investment manager and managing director of assets in Pharos Holding Company, said that reviving the file related to registering investment fund certificates in the EGX will be accompanied by amendments to the rules regulating funding activities in the executive regulations to the Capital Market Law, IPO's prospectus, and the certificates saving, buying, selling, and settlement systems. Kamel explained that according to the current system of investment fund operations, the value of certificates is evaluated weekly through a service management company by calculating the certificate book value [dividing the value of the fund's net assets by the number of certificates]. Certificate holders have the right to retrieve the value of the certificate on Sundays through the bank. Other investors can buy one of these certificates through the bank as well. He pointed out that while registering certificates in the EGX, investors will be allowed to buy and sell on the trading screen directly without going to the bank, what will lead to creating market and book values. The market movement will determine the price of the investment fund's certificate. For example, if the certificate's inventory rate reaches EGP 50, but the certificates holders expect that the EGX will fall the next day, they would sell their certificates for lower than EGP 50 to attract purchasers. Amendments to IPO announcements Kamel noted that the change of the certificate's sale and purchase system will contribute to amending the executive regulation of the Capital Market Law, with the intent to amend the terms of IPO announcements which, in turn, will allow the sale and purchase of the certificates instantly throughout the EGX's working week. As a result, the brokerage firms would be allowed to participate in the sale and purchase process. He expected that the articles for registering the fund's certificates in the Capital Market Law will be reconsidered, as the certificates will mostly be registered by the companies which hold register trustee licences, just as in the case of the stocks, instead of the banks. He added that the articles should also determine the basis upon which the auditor will depend on calculating the value of the fund's assets, because the certificates will have market and inventory rates. Avoiding sudden cancellation of purchase orders Kamel pointed out that the act of registering in the EGX will contribute to avoiding frequent and sudden cancellations of purchase orders. Sometimes the bank notifies the director of an investment fund whose purchase order it received several days ago, but these orders could be cancelled directly before the date of implementation. Listing closed-end investment fund certificates Essam Khalifa, managing director of the National Fund Management Company, said that closed-end funds, which could not allow the sale and purchase of certificates before the end of the fund's duration, can now list its certificates in the stock market. He added that the Orient Fund was the only closed-end fund that had listed its certificates in the stock market before its liquidation, as a part of the fund's certificates were offered to the public. The other closed-end funds do not list their certificates because they are underwritten by major institutions, such as banks and insurance companies without IPO. Change in the risk levels of funds According to Khalifa, listing the fund certificates in the stock market would be a good step to allow the purchase and sale of the certificates over all trading sessions, rather than only Sunday's session. On the other hand, the market value of the certificates will be more important than the inventory rate in the transaction. It will change the risk levels of the various funds. It is common knowledge that equity funds are the riskiest due to the continuous fluctuations in stock prices, he said. This is apparent in the continuous change in the prices of investment fund certificates that consist of a group of stocks chosen by the managers of these funds. On the other hand, the money market funds that invest in deposits, and the fixed income instruments funds that invest in treasury bonds and bills which are the least risky because the return on these investment schemes is predetermined, added Khalifa. In light of listing the equity fund certificates in the stock market, there will be two types of risks, he said. First, the change in the price of the certificate's stocks. Second, the fluctuations in the price of the certificate itself when selling it at market price not at book value. Additionally, money market funds and fixed income instrument funds will be subject to another kind of risk: the certificates' price will be influenced by the market's ups and downs. In light of that, Khalifa prefers for the EFSA and the EGX to choose a time when the stock market performance is good in order to activate the listing of the fund certificates in the stock market to ensure the success of the project in the beginning without the owners of the certificates panic over the decrease in their prices in the first days of trading. Regulations of issuance and operations of investment funds in law Capital Market Law No. 95 of 1992 stipulates that the aim of the establishment of the investment funds is to invest savings in securities and that these funds must take the form of a joint-stock company. In addition, it stipulates that the majority of their board members must not have shares, dealings, relations, or interests in/with them. The statutes of the investment funds determine the ratio between the paid-up capital and the investors' money, in accordance with the executive regulations of the law. In exchange for that money, the funds issue securities in the form of investment certificates for which their owners will participate in the results of the funds' investments. Subscription to these funds is done through banks that are licensed to carry out that job. The law stipulates that the prospectuses of subscribing in the funds' investment certificates must include the investment policies of the funds, the way of distributing the annual profits, and the way the capital gains will be evaluated. Moreover, the law stipulates that the prospectuses must determine the bodies that will manage the funds' activities and include a summary of their previous work. In addition, they must determine the way the periodic evaluations of the fund's assets will be conducted and the procedures of getting back the value of the investment certificates. In addition, the law stipulates that the funds' certificates must be kept in a bank on the condition that this bank is not an owner or shareholder in the company that owns the fund or the company that manages it.
