Egypt penalises two brokers for manipulation of shares

Egypt's stock market regulator follows in the footsteps of Dubai's bourse watchdog and penalises two brokerages.

Egypt's stock market regulator has followed in the footsteps of Dubai's bourse watchdog and penalised two brokerages for manipulating shares in their parent company. The Capital Markets Authority said that Pioneers Securities and Prizma Securities allegedly violated trading rules and manipulated shares of their parent company Pioneers Holding, an Egyptian investment bank, the state news agency Mena reported.

As a result, the two subsidiaries have been banned from trading shares in Pioneers Holding for three months from Oct 7. Prizma Securities has also been barred from dealing in any shares in Egypt for one month from the same date. In addition, the regulator told Pioneers Securities to increase the insurance on its settlement fund by 25 million Egyptian pounds (Dh17m). Pioneers could not be immediately reached for comment.

Pioneers Holding, which operates in Egypt, Saudi Arabia, the UAE and Syria, made its debut on Egypt's main index in June after the company raised 850m Egyptian pounds in a private placement. In June, Pioneers set up an asset management firm in the UAE with a paid-up capital of Dh50m. The events in Cairo come just days after Shuaa Capital was fined nearly Dh3.5m (US$950,000) by the Dubai Financial Services Authority (DFSA) for alleged market manipulation, influencing the price of DP World shares and obstructing an investigation into the case.

According to the regulator, on March 31 Shuaa Capital bid "prices well above those at which DP World shares had been trading in the ordinary course of business". The purpose was to mark up the book value of its own proprietary holdings in the company, therefore boosting its own financial performance at year end. It was the largest fine imposed by the DFSA. "The manipulation of markets for ulterior motives is a classic form of market abuse that is outlawed in all well-regulated, exchange-traded markets," said David Knott, the chief executive of the DFSA.

"Shuaa Capital artificially inflated the price of DP World shares and generated a false market in those shares," he said. "The seriousness of this offence was exacerbated by Shuaa Capital's obstruction of the DFSA's investigation." Four days later on Sept 28, the Dubai Banking Group announced it would take a 32 per cent equity stake in Shuaa Capital on Oct 31 by converting Dh1.5 billion worth of bonds issued by Shuaa last year into shares.

Despite the belief that the investment was made after the fine was imposed, a regional broker insisted the decision had been made well beforehand and that Dubai Banking was aware of the ongoing investigation. * With Reuters [e-mail]