Enterprise Explains: The EGX’s new trading system. Last month, the EGX began trialing a potential new trading system that would, if implemented, modify how the bourse adopts the intraday and closing prices in the main market and the small to medium-sized market, according to an EGX statement (pdf). Both the intraday and closing prices are used as reference prices to compare and evaluate the performance of financial instruments. They represent a specific point of reference for pricing and serve as a basis for determining the price movements, the performance of a security or an asset, and changes in market value.

The rationale: The changes aim to avoid sudden and sharp fluctuations in the prices of the listed financial instruments and make them more reflective of supply and demand forces.

What’s the intraday price? This is the price at which a financial instrument is traded within a single trading day. It provides a snapshot of the instrument’s value at a particular moment during the trading session and is used to determine the performance and trends of the market throughout the session. The EGX calculates the intraday price every half an hour from the start of trading until the closing bell.

And the closing price? This is the final price at which a financial instrument is traded at the end of a trading session. It serves as a key indicator of the instrument’s value and is used to calculate performance, determine net income or losses, and assess market trends. The closing price is widely monitored by investors and traders as it provides crucial information for making investment decisions and evaluating the overall market sentiment.

A rundown of the changes to the trading system, in a nutshell:

#1- Minimum values of executed trades: The EGX introduced a modification that requires the execution of trades with a minimum value of EGP 300k on any specific financial instrument on the main market for a new intraday price to be referenced. The minimum requirement for the small and medium-sized market is EGP 150k. In case that requirement is not satisfied the intraday price of the financial instrument becomes the last referenced price — either the previous intraday price or the last closing price.

#2- Introducing limits to price fluctuations during auction sessions: The closing price, determined by the auction session held in the last 15 minutes of each trading day, can only be +/- 10% of the reference price in the main market, with that range of change capped at 5% in the small to medium-sized market. This ceiling is to ensure that major fluctuations during the auction session don’t have an outsized effect on the closing price.

This is not a limit on the volume or value of trade executions during the auction session, but rather that the auction price will be referenced as the closing price only if it’s within the allowed range. In case the price movement is different from the specified range, then the closing price will be the last reference price — either the last intraday price or the previous closing price.

#3- Banning the use of some trading mechanisms during the auction session: The EGX banned the use of the “all or none,” “minimum fill,” and “good till time” mechanisms during auction sessions in order to limit major fluctuations in the closing price. The “all or none” mechanism refers to a condition where a trade must be executed in its entirety or not at all meaning if a buyer or seller places an order for specific quality of a security, the trade will occur only if the entire quantity is available. The “minimum fill” mechanism refers to a condition where a trade can be executed only if the minimum required quantity of a security is available, while the “good till time” mechanism refers to a condition where an order is valid only for a specific time and it is not executed during that time it gets automatically canceled.

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