Egypt delays expected reopening of stock market (AP)

CAIRO – Egyptian officials have again delayed the restart of the country's stock exchange, a move that brokers said Tuesday would likely only undercut investor confidence in a market many expect to take a hammering as the country struggles to regain footing after massive protests that ousted its longtime president.

The Egyptian Exchange, shuttered for over a month, was to resume trading on Tuesday. But in an overnight statement, exchange officials said the market would reopen instead on March 6 to "allow investors to profit from the government's support to guarantee stability in the bourse."

The decision reflected the strong undercurrent of unease in the Arab world's most populous nation where the market's benchmark stock index had shed almost 17 percent in two consecutive trading sessions before it closed at the end of the business day on Jan. 27.

"No doubt, it is certainly eroding investor confidence, and we're losing credibility by the day in international markets," said Karim Helal, managing director of brokerage CI Capital. "If the decision is to allow the market to absorb losses, it won't make a difference. It will just make it worse."

The exchange's closure was repeatedly extended as protests in Egypt gained momentum demanding Hosni Mubarak's ouster. Even after he was pushed from power, the suspension continued as massive labor strikes gripped the country and banks closed for a week.

To allay concerns about a panic sell-off, market officials set up safeguards to ensure that the broader EGX100 index would not collapse in one session, including setting up so-called trading circuit-breakers that would halt trading in the case the index shifted by 5 percent and then 10 percent.

The government, already facing a sharp economic blow from the expected downturn in tourism and foreign investment linked to the anti-regime unrest, said it would provide backing for smaller investors and brokerages.

But many remained unconvinced that a crash would be averted. And, as the market geared up for a restart, protests began in front of the exchange.

Analysts and brokers say the decision to delay the restart, however, may also be linked to the investigations of several prominent businessmen with close ties to the Mubarak regime. Many of these businessmen head some of Egypt's largest private sector companies.

Several have had their assets frozen and brokers have been ordered to go through their books and ensure that they can verify the identity of all their clients as many of these businessmen's holdings include significant amounts of shares.

The aim, ostensibly, is to ensure that these individuals do not convert their shares into cash and transfer them out of the country using a pseudonym.

The continuation of the halt in the exchange's operations, however, will likely do little to avoid what many expect will at least be a first day sell-off.

Stock markets across the region have been seeing sharp drops over the past few days because of the violent protests in Libya. Meanwhile the spread of the demonstrations in the oil-rich Gulf Arab region is also stoking fears that it could spillover to OPEC kingpin Saudi Arabia.

"There's a combination of reasons" for the continued closure, said Helal, including the "continuing presence of some investors who are demanding the suspension until things stabilize."

"I'm not sure what they mean by that," he said, adding that keeping the market closed will not avert a sell-off.

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The Irrelevant Stock Market (The Motley Fool)

Reuters blogger Felix Salmon wrote a very interesting op-ed in The New York Times last week about our increasingly irrelevant stock market:

... the glory days of publicly traded companies dominating the American business landscape may be over. The number of companies listed on the major domestic exchanges peaked in 1997 at more than 7,000, and it has been falling ever since. It's now down to about 4,000 companies, and given its steep downward trend will surely continue to shrink.Nor are the remaining stocks an obvious proxy for the health of the American economy. Innovative American companies like Apple and Google may be worth hundreds of billions of dollars, but most of them don't pay dividends or employ many Americans, and their shares are essentially speculative investments for people making a bet on how we're going to live in the future.Put another way, as the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money. ...Meanwhile, the companies in which people most want to invest, technology stars like Facebook and Twitter, are managing to avoid the public markets entirely by raising hundreds of millions or even billions of dollars privately. You and I can't buy into these companies; only very select institutions and well-connected individuals can. And companies prefer it that way.

Sadly, he's all sorts of right. The only reason a company should go public is to gain access to capital markets. If they can privately obtain all the capital they need and bypass the public circus of high-frequency traders, quarterly earnings roasts, and regulatory flame-throwing, then by all means they should do so.

But to play devil's advocate, the decline of public markets might not be as bad as it looks.

The number of listed companies shouldn't be of upmost importance in judging markets' relevancy. The quality of those companies should get some weight, too. The number of listed companies may have peaked in 1997, but what kind of companies were these? Data from the World Federation of Exchanges shows the Nasdaq is responsible for essentially the entire decline since then -- fully 35% of Nasdaq listings vanished between 1998 and 2003. Maybe these were good companies looking to escape the rigors of public life. Or maybe they never should have been public to being with -- because they weren't real companies, just dot-com dreams someone managed to take public. More than 65% of Nasdaq companies were profitable last year. My humble data source doesn't go back far enough, but one can only imagine it was a fraction of that in 1997.

And Apple (Nasdaq: AAPL - News) and Google (Nasdaq: GOOG - News) may not pay dividends or employ many people, as Salmon notes, but neither, presumably, do Facebook or Twitter, the privately held stars he mentions. Twitter, in fact, recently employed just 300 people -- the equivalent of 0.002% of the population of Billings, Mont. And 72% of S&P 500 companies do actually pay a dividend. For every dividend-free Apple or Google, one can point out an Intel (Nasdaq: INTC - News) or MSFT (Nasdaq: MSFT - News), which are innovating, employing, and paying good dividends to shareholders. Good companies worthy of your money are still public. Many of them. Probably more than there ever have before. Even with 4,000 listed companies, the average investor is still completely overwhelmed with opportunity. Most would be better off with fewer listed companies tempting them to invest in areas they have no hope of understanding.

In the end though, I don't think Salmon's larger point can be argued. Companies don't have the incentive to be public today that they did in years past. Other options are available, and the annoyances of public life are multiplying in force.

Will this trend continue? Is it something investors should worry about?

You tell me.

Fool contributor Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor choice. The Fool has written puts on Apple. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended a diagonal call position on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Rating agencies: SEC rule a hindrance to ABS market (Reuters)

NEW YORK, Feb 25 (IFR) – A U.S. securities regulation enacted last year to combat credit ratings shopping and encourage open and transparent flow of issuers' collateral information to all rating agencies is having the opposite effect, according to securitization specialists.

The U.S. Securities and Exchange Commission's Rule 17g-5 was meant to increase openness among rating agencies in the United States, but it has introduced a system so formal and regimented that both raters and issuers are scared to speak frankly about transactions.

"People are so concerned about litigation and risks that the operational review and ratings process has become a lot more complicated," said Rui Pereira, head of U.S. residential mortgage-backed securities at Fitch. "Any questions about a deal must be e-mailed, and sent ahead of time."

Rule 17g-5, which went into effect early last June, demands that credit rating agencies hired to rate structured deals share confidential loan-level arranger-provided information with all other U.S. recognized rating agencies on a password-protected website.

Verbal conversations -- even a quick phone chat or a text message -- must be recorded and documented on the password-protected website.

"Communication is ridiculous," said a senior analyst from another rating agency. "I call an issuer with a question and he says, 'I can't answer that. E-mail that question to me and I'll get back to you.' It was so easy in the past. You just get on the phone to discuss it. With 17g-5, you eventually get the information you want, but it takes the longest way to get there."

The intent was to encourage more equitable flow of information, level the ratings playing field, and promote unsolicited ratings on asset-backed securities transactions.

It hasn't worked. Not one rating agency has issued an unsolicited rating since the SEC rule went into effect.

"Rule 17g-5 has created a cost for issuers, (as well as) inefficiencies in executing transactions in as timely a manner as possible," said John Bella, a managing director of ABS at Fitch. The rule "was put in place to encourage other (rating agencies) to opine, but no one is doing that. It is creating an unnecessary burden."

It is too costly for agencies to offer an unsolicited rating if they are not getting compensated for it, especially for smaller start-up companies. What's more, the new system has delayed the entire issuance process and frustrated agencies that do have the mandate to rate an offering, experts said.

The rating shopping issue was just one target of 17g-5. It was also designed to remedy the cozy relationship between structured finance rating analysts and bank arrangers that existed at the peak of the market, which led to accusations that the rating agencies wrongly helped structure deals.

The raters have long insisted that the interplay between banks and analysts was an "iterative process" that was beneficial to investors in the long run because it allowed free flow of information and, therefore, more accurate assessments.

However, critics said that the agencies instead helped issuers and banks get the best execution on deals, with little regard for the accuracy of ratings. Moreover, issuers were able to shop around for the agency that would put a Triple-A stamp on their transaction, encouraging a competitive race to the bottom between the raters.

(Editing by Leslie Adler)

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Rating agencies: SEC rule a hindrance to ABS market (Reuters)

NEW YORK, Feb 25 (IFR) – A U.S. securities regulation enacted last year to combat credit ratings shopping and encourage open and transparent flow of issuers' collateral information to all rating agencies is having the opposite effect, according to securitization specialists.

The U.S. Securities and Exchange Commission's Rule 17g-5 was meant to increase openness among rating agencies in the United States, but it has introduced a system so formal and regimented that both raters and issuers are scared to speak frankly about transactions.

"People are so concerned about litigation and risks that the operational review and ratings process has become a lot more complicated," said Rui Pereira, head of U.S. residential mortgage-backed securities at Fitch. "Any questions about a deal must be e-mailed, and sent ahead of time."

Rule 17g-5, which went into effect early last June, demands that credit rating agencies hired to rate structured deals share confidential loan-level arranger-provided information with all other U.S. recognized rating agencies on a password-protected website.

Verbal conversations -- even a quick phone chat or a text message -- must be recorded and documented on the password-protected website.

"Communication is ridiculous," said a senior analyst from another rating agency. "I call an issuer with a question and he says, 'I can't answer that. E-mail that question to me and I'll get back to you.' It was so easy in the past. You just get on the phone to discuss it. With 17g-5, you eventually get the information you want, but it takes the longest way to get there."

The intent was to encourage more equitable flow of information, level the ratings playing field, and promote unsolicited ratings on asset-backed securities transactions.

It hasn't worked. Not one rating agency has issued an unsolicited rating since the SEC rule went into effect.

"Rule 17g-5 has created a cost for issuers, (as well as) inefficiencies in executing transactions in as timely a manner as possible," said John Bella, a managing director of ABS at Fitch. The rule "was put in place to encourage other (rating agencies) to opine, but no one is doing that. It is creating an unnecessary burden."

It is too costly for agencies to offer an unsolicited rating if they are not getting compensated for it, especially for smaller start-up companies. What's more, the new system has delayed the entire issuance process and frustrated agencies that do have the mandate to rate an offering, experts said.

The rating shopping issue was just one target of 17g-5. It was also designed to remedy the cozy relationship between structured finance rating analysts and bank arrangers that existed at the peak of the market, which led to accusations that the rating agencies wrongly helped structure deals.

The raters have long insisted that the interplay between banks and analysts was an "iterative process" that was beneficial to investors in the long run because it allowed free flow of information and, therefore, more accurate assessments.

However, critics said that the agencies instead helped issuers and banks get the best execution on deals, with little regard for the accuracy of ratings. Moreover, issuers were able to shop around for the agency that would put a Triple-A stamp on their transaction, encouraging a competitive race to the bottom between the raters.

(Editing by Leslie Adler)

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SKorea: Deutsche Bank units behind market plunge (AP)

SEOUL, South Korea – Deutsche Bank employees engaged in price manipulation and unfair trading that led to a sudden plunge in Seoul's benchmark stock index last year, South Korean financial regulators said Wednesday.
Authorities had been investigating two Asian units of Deutsche Bank AG over a 2.7 percent decline in the Korea Composite Stock Price Index during the final minutes of trading on Nov. 11.
In a joint statement, the Financial Services Commission and Financial Supervisory Service said they would ask South Korean prosecutors to investigate five employees of various Deutsche Bank units in Hong Kong, New York and Seoul over the findings. The names of the employees were not released.
The regulators also said that they would suspend some securities and exchange traded derivatives operations by Deutsche Securities Korea, the South Korean unit, for six months from April 1. The local unit was also to be referred to prosecutors.
The alleged manipulation was carried out with the "major involvement" of Deutsche Bank's Hong Kong unit, the statement said. The involvement of the German parent company, Deutsche Bank AG, was not confirmed, it said.
Deutsche Bank said in a statement that it was "disappointed" with the findings and expressed regret over the penalties imposed and the referral of its employees and South Korean unit to prosecutors. But it said it would continue to cooperate with South Korean authorities.
"Ultimately, we have full confidence in the Korean financial, regulatory and judicial systems," the statement said.
The plunge came on a so-called triple-witching day when stock options, stock index options and stock index futures all expire. The phenomenon, which occurs four times a year, can lead to heightened volatility in share prices.
The regulators said that the alleged manipulation and unfair trading were the result of speculative derivatives positions constructed in advance. The purported actions resulted in illegal profits of 44.9 billion won ($40 million), they said.
The decline came on a day that South Korea was in the international spotlight as a two-day Group of 20 summit meeting began in Seoul, the country's capital.
Coincidentally, Josef Ackermann, Deutsche Bank's chairman and CEO, was in Seoul to participate in a business forum held in conjunction with the summit.
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Market up for third week as late-comers jump in (Reuters)

NEW YORK (Reuters) – Late arrivals to the speediest rally in stocks since the Great Depression pushed stocks higher for a third week on Friday, despite growing signals of an overheating market.

More than $8 billion flowed into U.S. equity funds for the week ended February 16, according to Thomson Reuters Lipper data. Analysts said investors appear reluctant to sell despite slack volume and a narrowing spread between winners and losers.

"We've had one of the most impressive rallies in recent memory, but the fact is any dip is met with substantial buying power," said Ryan Detrick, chief technical strategist at Schaeffer's Investment Research in Cincinnati.

About 7.2 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, far below last year's estimated daily average of 8.47 billion. But some point to a lack of sellers as the reason relatively few shares are changing hands.

"Volume hasn't been normal for a bull market," Detrick said. "The retail crowd has missed a good chunk of this rally."

For most of 2010, retail investors put net cash into mutual funds that invest in fixed-income securities. But with more signs the U.S. economic recovery is strengthening and U.S. equity indexes rising, investors have found renewed appetite for stocks.

Investors poured a net $8.72 billion into U.S. equity funds for the week ended Wednesday, up from $2.04 billion in the prior week, according to Lipper data.

On Friday the Dow Jones industrial average (.DJI) gained 73.11 points, or 0.59 percent, to 12,391.25. The Standard & Poor's 500 Index (.SPX) added 2.58 points, or 0.19 percent, to 1,343.01. The Nasdaq Composite Index (.IXIC) edged up 2.37 points, or 0.08 percent, to 2,833.95.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of more than 4 to 3. On the Nasdaq, 1,345 advancers outweighed 1,283 falling stocks.

For the week, the Dow and the S&P 500 gained 1 percent, and the Nasdaq added 0.9 percent.

Caterpillar Inc (CAT.N) helped lift the Dow industrials, rising 2.4 percent to $105.86 after the equipment maker said machinery sales through dealers accelerated in the three months through January.

With some technical measures pointing to signs of an overbought market, some investors have been braced for a pullback. But the market has for weeks defied those expectations.

"We have a pretty long list of warning signals, but a warning signal is not a sell signal," said John Kosar, director of research at Asbury Research LLC in Chicago.

"Our bias has been positive since the beginning of December despite all these red lights blinking all over the place."

Individual names were on the move on response to the latest batch of earnings reports.

Brocade Communications Systems Inc (BRCD.O) topped estimates and forecast second-quarter profit above Wall Street's expectations, pushing its shares up 6 percent to $6.38.

Intuit Inc (INTU.O), the maker of TurboTax and QuickBooks accounting software, reported late Thursday a profit that beat Wall Street expectations and raised its quarterly earnings forecast, sending its shares up 7.3 percent to $54.11.

U.S. markets will be closed on Monday for the Presidents Day holiday.

(Reporting by Rodrigo Campos, additional reporting by Jennifer Ablan; Editing by Padraic Cassidy)

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