How has the TSE performed recently?
The TSE has performed successfully during the past two years. In particular, during the past 12 months it has provided very good returns. We are growing in terms of daily transactions, which were up 400% in the past year, and we’re now past $45 billion in terms of market capitalization. We are hoping that in the next 12 months we can reach daily transactions of $120 million a day.
Is there a risk of the bubble bursting?
We are always worried about bubbles. If we feel that there is a bubble because there is too much cash, we try to increase supply, mainly helped by the Iranian privatization organization. But there is also a risk of oversupply, and we’re trying to balance between two extremes. At the moment, we are asking the listing department to prepare more companies for trading. There is more money coming into the TSE because people are getting more used to buying financial products and are learning that financial assets are the way to save. We have done well at attracting people’s attention to capital market products. But we lack means for indirect investment, such as mutual funds.
What new products is the TSE planning?
We must have simple products to get the public acquainted with the market. The first new product will be participation bonds, which are to be traded very soon. After that there will be a product similar to exchange traded funds, and certificate of deposits will also be traded at the exchange. Our priority is to introduce simple products, and then maybe derivatives in two years’ time.
How are you going about increasing the number of listings?
At the moment there are around 400 listed companies. Around 100 of these are not very active, and we thought we should delist 50 companies. We have already delisted 15 companies, and the other 35 will be delisted in the next few months. With regards to increasing the number of listed companies, we are getting a lot of listing requests, because Iran’s private sector is booming. Two major steel companies, five to six state banks, and five to six government insurance companies are the most important companies looking to get listed, and could increase the market capitalization by 100%, or another $45 billion. In my time in the job, I’ve added banks and construction firms to the market, so the market portfolio is becoming more diversified.
What role can foreign investors play in the TSE?
There is no limitation on foreigners running TSE-listed companies directly. They can own up to 100% of a company and the TSE will transfer the title of the assets to their names. But there are some limitations on foreign portfolio investment, which we hope will be removed in two to three months. A gradualist approach has been taken to allocate initially only 10% of the shares of the companies to foreign funds and other non-individual investors, and the principal amount must be reinvested for at least three years.
A new metals exchange has been set up recently. What comes next?
The metals exchange has been running for almost a year. It is trading all the major metals, including steel. It is working with simple products, and is basically a cash market. It has not moved into futures yet. An exchange for agricultural commodity products is in the pipeline, while the oil exchange will take one or two years to set up, if it can in fact ever be set up. The oil exchange is less definite, because it has more international aspects, and the consent of others in the neighbouring countries is also important.
What will be the effects of the proposed new capital markets law?
The current capital markets law is 40 years old and is not responding to Iran’s needs. The new capital markets law has passed the government and is now in the parliament. It will take about a year to be approved and implemented. Its main aim is to improve regulation and protect the rights of investors. It has two focal points. First, we do not have regulations for the primary market, and the new law will look into it. Secondly, trading will be distinctively separated from supervision.
The TSE is a mutual organization, and I have two rather hybrid functions. I am elected to the job, after the consent of the governor of the central bank and the minister of finance and economic affairs, by the board of directors composed of the brokers. But I also wear the hat of supervision, and am supervising those people who have elected me to the job. This is a clear conflict of interests, and an uneasy balance. In the new law, these two areas will be separated. The exchange will become demutualized and incorporated and the secretary-general’s position will be eliminated. After that, there will be a CEO and a new head of supervisory body.
