Egypt has tried short selling before — it was written into law in 2018, switched on in 2019, and then almost nothing happened. The market stayed a one-way street. Now the regulator is trying again with a completely rewritten rulebook, and this time shareholders who lend their stock actually get paid for it. Joining me now is Nader Khedr, Head of the Economic Committee of the El-Geel Democratic Party. Welcome to Capital Markets.
Thank you very much.
You have argued publicly that Egypt's economic push right now is about converting goodwill into durable investment. Why should a tool for betting against Egyptian companies matter to that national agenda at all?
Short selling is not only a tool for betting against companies — it is a tool for increasing liquidity, for enabling people who have long-sitting assets to be motivated to put those assets to work in the market while not losing their shares. This is how we see it in Egypt. Short selling increases liquidity, enables people who do not want to lose their shares to benefit from them, and helps companies with low free float ratios to have a more active trading presence. All of these things combine to increase the depth of the market and encourage more investors to come and trade.
The regulator has nearly doubled the lending ceiling from 25% of free float to 40%. Is that confidence or impatience?
It is empowering. It is empowering the capability of the short seller to have an appropriate size of portfolio to be traded on short selling or lending — not only by money but by stocks. For the short selling mechanism, the main repelling condition was that the cost and risk were not worth it against a portion that represented only 5 to 7% of total shares of any listed company. Lifting the ceiling to 40% enables stock lenders to have a more appropriate and relevant portion relative to the risks and costs they are sharing.
The exchange chairman said in 2019 that the missing ingredient was that shareholders had no reason to lend. Now lenders earn a return through the central depository. Who realistically supplies that inventory?
Let me give an example to make it more clear. Say we have a company worth $1 billion listed on the Egyptian Stock Exchange with a minimum free float requirement of 15% — so around 150 million shares being actively traded. We as founders still hold 85% in custody with no return being generated. As founders, we now have the privilege to lend up to 25% of our portfolio to traders who want to short our stock. In return, we receive a percentage back — most likely similar to returns on time deposits or bonds — with no risk of losing our shares, since the settlement company guarantees their return. That is one supplier. The second is long-term investment funds that hold stocks and do not trade them frequently. The third is private equity companies that control large portions of a company's free float — they can lend those shares without risking their control at the AGM or their voting rights, while generating revenue. Those are the three main suppliers.
Thank you very much Mr. Nader for joining us today.
Thank you. It is a pleasure to be with you.
