Lecture on Iran Capital Market & Demutualization of the Tehran Stock Exchange

Lecturer:Dr. Ali Rahmani, Managing Director of the Tehran Exchange Company

Discussant: Dr. Mohammad Aram, Managing Director of Amin Investment Bank

Moderator: Dr. S.M. Hossein Adeli, CEO & Chairman of Ravand Institute

DEMUTUALIZATION and BACKGROUND:

- Dr. Rahmani: Two years ago, the Tehran Stock Exchange became a private sector entity. It now has a managing board of seven members that represents mostly private sector enterprises and corporations and aims to maximize profits for shareholders.

- Dr. Aram: The present value of the TSE is $48 billion. The value of new stocks that will be offered in the TSE this year under Article 44 privatization will be $104 billion. However, the value of the companies being offered is a great deal less than their international prices. At the international level, these figures are equivalent to about $130 billion and $362 billion, respectively.

-Dr. Rahmani: As a private sector company, we aim to develop and grow as much as possible. For example, compared to last year, transactions have increased 30 percent and the velocity index, or the speed of transactions, has increased 10 percent. Dr. Rahmani acknowledged that although some companies buying shares are considered state-owned, most of these are pension funds, which he said are actually part of the private sector. He added that because the private sector can�t afford to buy certain shares, the Tehran Exchange Company has been offering various options, such as buying shares in credit and installments, to the private sector.

POLITICAL FACTORS:

- Dr. Rahmani: Political developments do not seem to have a negative impact on the TSE. For example, sometimes the index has gone up 3 percent after the UN Security Council issued resolutions against Iran. However, one explanation for this is that such political developments seem to undervalue and compress the prices of stocks before they are listed in the stock exchange. For instance, the (PE) price of earnings of the stock exchange, which is now 5.2%, used to be 11%.

- In response to a question about whether it would be profitable to sell the shares of a company that could be sanctioned by the UN Security Council in the future, Dr. Rahmani replied that TSE shares are not subject to UN sanctions, and Dr. Adeli added that if any country has suspicions about a specific company, the UN has recommended that the country can inspect that company.

INSIDER TRADING:

- Various measures have been put in place in order to prevent illegal insider trading, or the trading in a security based on material information that is not available to the general public. First of all, a law exists that makes such trading a crime. Moreover, motivated by the belief that increasing the transparency of information for the public will reduce illegal insider trading, the Tehran Stock Company has set up a mechanism that offers the public details about stocks and the developments of each corporation. The system so far includes 50 companies but is expected to eventually expand to the TSE's 417 listed companies. The Tehran Stock Company has also bought new software to help identify any illegal insider trading.

FOREIGN INVESTORS:

- Amendments have been introduced to a law relating to foreign investment in the TSE that would increase a 10% limit on buying capital in any one company to 25 percent and reduce the 3-year lock-up period to one year.

- A new stock exchange in Kish will be open soon that, unlike the TSE, would be based on foreign exchange instead of Iranian rials, which would aim to reduce or prevent any foreign exchange risks for foreign buyers.

TSE Monthly Bulletin