In 2004 and 2005, the Cairo and Alexandria Stock Exchange (CASE) was the world’s best performing emerging markets exchange, driven by Egypt’s impressive economic growth. Newsweek magazine named it one of the world’s ten best stock markets for 2005.

Booming capitalisation and good liquidity were the reward for the exchange’s tough decision to demand more disclosure from listed companies and to weed out those companies not considered investor grade. Tellingly, after the CASE instituted new disclosure rules, about one third of companies delisted from the exchange.

But the first to gain from increased transparency are the companies themselves, stresses CASE management. “This is for the benefit of the company, not of the exchange. We tell our members that if you do this, investors will reward you. They will hold your shares even in the bad moments. This rang a bell with them,” says Shahira Abdel Shahid, advisor to the CASE chairman.

Ms Abdel Shahid points to Orascom Telecom, Commercial International Bank and Orascom Construction Industries as examples of companies that have gained from better disclosure.

In mid-2002, the CASE implemented new rules that set the minimum standard of transparency, focused mainly on reporting requirements. “Before this, there was no emphasis on disclosure in exchange rules,” she explains. “There is more understanding by the new regulator that transparency is important – the case was different in the past.”

“We inherited a lot of companies that were listed simply for tax benefits. So we set about to weed these companies out,” says Ms Abdel Shahid. The exchange backed up the new rules with aggressive fines and suspensions from trading, encouraging many illiquid companies to delist. New rules this year will set the corporate tax rate at 20 per cent for all companies, eliminating any tax breaks for listed companies. “We expect a lot of voluntary delistings as a result. But we are happy with this. We will have fewer but better capitalised companies,” she says.

At the end of September 2005, there were 765 CASE-listed companies, down from 1,151 at the end of 2002. But during the same period, market  capitalisation more than tripled to US$ 67 billion, from US$ 21 billion.

Most of the exchange’s efforts to promote transparency have been aimed at the top companies that make up the CASE 50, which account for 80 per cent of trading volume. Some of these initiatives have subsequently been extended to the CASE 100 companies, which account for nearly all of the exchange’s trading.

Some of the steps taken have made disclosure easier for companies. For instance, a web-based filing system for CASE 30 companies has replaced paper forms and faxes.

But most of the CASE’s efforts are focused on education and training.

In 2003, the exchange appointed a head of disclosure. To encourage compliance, the CASE designated an analyst for each industry sector to meet with listed companies and explain the new rules and their benefits. “Our main message is that investors seek information,” says Ms Abdel Shahid. Today, nearly all CASE 50 companies have an investor relations officer (IRO).

Perhaps the most important initiative has been the exchange’s Investor Relations and Corporate Governance Committee, which is made up of representatives from ten CASE-listed companies. “These are the companies best in disclosure. They act as the blue chip companies to their peers,” says Ms Abdel Shahid. The committee plays a communications and advisory role, and also sponsors events and publications. Membership involves both company chairmen and their IROs, and Ms Abdel Shahid characterises participation as “very active.”

Separately, the CASE audit committee has met with all of the CASE 50 companies to explain the role of audit committees in good corporate governance.

Besides contributing to good market performance, the CASE’s push to increase member quality has recently earned it full membership in the World Federation of Exchanges, alongside markets such as NYSE, Nasdaq and LSE. “This is an upgrade for us, and we are the only Arab stock market to be a member,” says Ms Abdel Shahid.

It has also encouraged a broader investor culture in Egypt “There is now more space dedicated in local newspapers to the stock exchange, and a class of financial journalists has emerged,” she says.

Along side the CASE’s efforts to improve transparency, other Egyptian initiatives are also focused on promoting good corporate governance. The Egyptian Institute of Directors, with support from the World Bank and the International Finance Corporation, has created a voluntary code of corporate governance and runs training courses for directors of listed and unlisted companies. “This shows that Egypt is on the right track,” says Ms Abdel Shahid.

Future CASE initiatives will likely include an annual disclosure award, similar to one given by the Malaysian stock exchange. The exchange would also like to dedicate more attention to fighting insider trading through changes in trading rules and courses for company directors

Eventually, the CASE would also like to attract a broader range of listed companies. But for now, management is focused on delisting companies. “A quality exchange attracts companies. It makes marketing easier,” says Ms Abdel Shahid.