The Clap
Earlier this month EGX Chairman Dr. Mohamed Farid issued law no. 681 of 2021. The law increases the intraday share price movement limit to 20%, introduces a new closing price methodology, and a new “pre-close auction.”
Let’s break it down〽️
Firstly, limits on share price movements are increasing from 10% to 20% for the EGX, and from 5% to 10% for the Nilex.
Secondly, a new closing price methodology that uses a 30-minute moving-volume weighted average price (Moving VWAP) will be implemented, which takes into account the traded volume during the last 30 minutes for transactions with a minimum value of EGP 100,000.
This new methodology comes in place of calculating the VWAP for the entire trading session. Thirdly, a new “pre-close auction” is being introduced.
What’s a “pre-close auction”🤷
Every trading session at 2:15 PM, investors will be able to put buy and sell orders, but the orders won’t be executed. They will instead be used to come up with a “pre-close adjusted” price around 2:25 PM, once the pre-close auction is over. Trading resumes around 2:25 PM at the new pre-close adjusted price.
Why is this important🤔
This is not the first time the share price movement limits reach 20%. Prior to 2011, the 20% cap was in effect. The 10% cap came into effect under measures taken by the Egyptian Financial Regulatory Authority (FRA), to protect the market from aggressive volatility following the 2011 revolution. The new closing price methodology, as well as the “pre-close auction”, are steps towards conforming to global best practices.
