1. ONLINE TRADING & MARKET LIQUIDITY ASEA/CASE Conference September 2005 www.arabfinance.com

2. 12-09-05 The Impact of Online Trading on Market Liquidity2 CONTENT  About ArabFinance  What is Online Trading?  What is Market Liquidity?  Impact of Online Trading on Market Liquidity  Facts  Forecasts  Conclusion

3. 12-09-05 The Impact of Online Trading on Market Liquidity3 ABOUT ARABFINANCE  ArabFinance was formed in 2000 to meet a growing demand for online trading, transparent financial information, and financial services in Egypt and the Arab world. The company is a subsidiary of LINKdotNET, the biggest ISP in Egypt and Orascom Telecom.  Corporate Objectives: Initiate and lead online trading across the Arab World starting with Egypt. Prepare users for online trading and create their need for financial information through educational programs Identify additional value added financial services / products and launch them in the most convenient form

4. 12-09-05 The Impact of Online Trading on Market Liquidity4 WHAT IS ONLINE TRADING?  On-line trading is every activity of securities trading directly integrated.  It starts from: Order SubmissionOrder ValidationOrder Matching Online transaction Settlement

5. 12-09-05 The Impact of Online Trading on Market Liquidity5 ONLINE TRADING  When servicing traditional brokerage clients, orders were manually entered into the system by a broker after the broker received instructions from the client.  In contrast, online investors place orders directly into the brokerage firm's trading system, via the Internet, and circumvent the need for order entry by a broker.  The implementation of direct order placement by online investors has revolutionized the securities industry with the facilitation of online trading.

6. 12-09-05 The Impact of Online Trading on Market Liquidity6 WHAT IS LIQUIDITY?  The term liquidity is used in various ways, all relating to availability of, access to, or convertibility into cash.  An institution is said to have liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash.  An asset is said to be liquid if the market for that asset is liquid.

7. 12-09-05 The Impact of Online Trading on Market Liquidity7 MARKET LIQUIDITY  A market is said to be liquid if the instruments it trades can easily be bought or sold in quantity with little impact on market prices.  An elegant definition of liquidity is also the probability that the next trade is executed at a price equal to the last one.

8. 12-09-05 The Impact of Online Trading on Market Liquidity8 MARKET LIQUIDITY  The common theme in all three contexts is cash.  The liquidity of a market is often measured as the size of its bid- ask spread, but this is an imperfect metric at best.

9. 12-09-05 The Impact of Online Trading on Market Liquidity9 MARKET LIQUIDITY  More generally, three of the main components of market liquidity are:  tightness is the bid-ask spread;  depth is the volume of transactions necessary to move prices;  resiliency is the speed with which prices return to equilibrium following a large trade.

10. Does Online Trading affect Market Liquidity?

11. 12-09-05 The Impact of Online Trading on Market Liquidity11 THE IMPACT  In broader terms, online trading does in fact have an impact on market liquidity for the very simple reason that it encourages new entrants in the market and leads to higher participation  Furthermore, Investors shift from traditional trading to online to enjoy the benefits it provides.  The following features Online Trading is characterized by are a good illustration on how it affects market liquidity.

12. 12-09-05 The Impact of Online Trading on Market Liquidity12 THE IMPACT  Accessibility No Single Access Point  Confidentiality No one knows about your trade  Transparency Live quotes makes you act faster

13. 12-09-05 The Impact of Online Trading on Market Liquidity13 THE IMPACT  Flexibility Frequent order modification  Cost Efficiency Lower per cost trade makes trade you more  Day Trading Faster Execution  Accuracy No need for calculations

14. 12-09-05 The Impact of Online Trading on Market Liquidity14 Facts  On-line investors are using the Internet to their advantage, and the entire structure of Wall Street is changing as a result.  In Europe, the growth of the online brokerage industry is surpassing even the most generous forecasts.  According to a research by Datamonitor, in the average workday, 466 new online accounts are opened in Sweden, 685 in the UK, and 1,178 in Germany.  One in every three individual investors' equity trades is now being made on-line

15. 12-09-05 The Impact of Online Trading on Market Liquidity15 World Internet Usage & Population Statistics % World Users % Population (Penetration) Usage Growth 2000-2005 Internet Usage Population % of World World Regions (July 2005) 1.7%1.8%258.3%16,174,60014.0%Africa 34.5%8.9%183.2%323,756,95656.4%Asia 28.7%36.8%161.0%269,036,09611.4%Europe 2.3%8.3%311.98%21,770,7004.1%Middle East 23.8%68.0%106.7%223,392,8075.1%North America 7.3%12.5%277.1%68,130,8048.5%Latin America/Caribbean 1.8%49.2%115.9%16,448,9660.5%Oceania/Australia 100%14.6%160.0%938,710,929100%World Total Source: internetworldstats

16. 12-09-05 The Impact of Online Trading on Market Liquidity16 Forecasts  As the Internet becomes a required distribution channel, the distinction between "on-line" and "regular" trading will disappear  By 2006, nearly all investors with access to personal computers will use the Internet for their stock and mutual fund investments-if not to enter trades and orders, then at least to gather information about the status of their accounts.  85 percent of all brokerage accounts could be online by 2006

17. 12-09-05 The Impact of Online Trading on Market Liquidity17 Simply Put…  The Internet is an absolutely revolutionary catalyst in the financial services arena  The Internet has put so much money into action  It enables individuals working at their PCs at home to act like global financiers.  The Internet provides near-perfect, real-time market data and research  The Internet is rapidly making markets of all types much more liquid and efficient

18. 12-09-05 The Impact of Online Trading on Market Liquidity18 Simply Put…  According to Bill Barret: “Online Trading is probably the only business in the world where u can …

19. Point, Click & Make Money”