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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006<br />
TEHRAN STOCK EXCHANGE<br />
Unlike the preceding years, the Tehran<br />
Stock Exchange experienced a bearish<br />
trend in the year 2005.<br />
Dr. Ali Salehabadi<br />
Secretary General<br />
Unlike the preceding years, the Tehran Stock<br />
Exchange (TSE) experienced a bearish trend in<br />
the year 2005, mostly due to outside and<br />
political elements; specifically the US threat on<br />
Iranian peaceful nuclear programs and the<br />
presidential election.<br />
The Market lost 17.6% of its value and 24.25%<br />
of its overall index (TEPIX) in 2005, while the<br />
average total return of investment on the TSE<br />
listed stocks (TEDPIX) decreased by 15.88% in<br />
the said period. Also, the value of trading,<br />
compared with the previous year figures<br />
(2004), reached US$ 7.9 billion, demonstrated<br />
a decrease of 40.88%.<br />
Main elements for the downfall of the market<br />
for 2005 can be described as:<br />
a) Over-excess in share offering due to both<br />
companies' capital increase and privatization of<br />
state companies.<br />
b) Unexpected growth in companies’ share<br />
prices in 2004.<br />
c) Presidential election and ambiguities in the<br />
new government’s strategies and policies.<br />
d) Risks arose from foreign policy, such as<br />
NPT (Nuclear Proliferation Treaty) case.<br />
Of course, the downward trend has almost<br />
stopped and the market has started to recover.<br />
Main elements behind this can be described<br />
as:<br />
a) Share prices are now at minimum possible<br />
limits following a year of bearish trends.<br />
b) Government’s economic policies have<br />
become more transparent; especially<br />
emphasizing on implementation of the 4th<br />
5-Year Economic Plan.<br />
c) The government expressed their support on<br />
TSE’s management and Iranian Capital Market.<br />
d) Transparency in the Government’s policies<br />
in the international atmosphere.<br />
The TSE expects to perform a series of<br />
development plans for market administration,<br />
regionalization, the introduction of new financial<br />
instruments, reinforcement of stockbroker<br />
regulations, and to continue the establishment<br />
of regional floors in major cities. A brief<br />
summary of the TSE’s measures can be<br />
attributed to:<br />
1) Introducing new By-laws for:<br />
a) Corporate Governance,<br />
b) Transaction of Rights,<br />
c) Settlement of securities at T+1 instead<br />
of T+3.<br />
2) Signing agreement with “Atos Euronext<br />
Market Solutions” to purchase the most<br />
updated trading engines and related<br />
applications.<br />
3) Final approval of the Law for “Foreign<br />
Portfolio Investment”.<br />
4) Introducing Committees for:<br />
a) Education, Research, Technology and<br />
Foreign Relations,<br />
b) Standards and Instructions,<br />
c) Exchange Trusted Auditing Firms<br />
Acceptance,<br />
d) Auditing Firms Services Qualification.<br />
5) Inauguration of more Regional Floors<br />
countrywide.<br />
6) Directions for listing of listed companies’<br />
“Participation Certificates” have been enacted<br />
and the first one has been listed.<br />
7) Hosting international seminars and<br />
workshops, including:<br />
a) Seminar on “Turkey’s Brokerage<br />
Networks”,<br />
b) Seminar on “Market Makers”, with the<br />
invitation of experts from “van der Moolen”,<br />
one of the world’s largest market making<br />
institution.<br />
8) Hosting the 11th Annual General Assembly,<br />
Working Committee and Executive Committee<br />
of <strong>FEAS</strong> in Shiraz.<br />
9) Final approval of the new Capital Market law<br />
which is going to replace the first and 40-year<br />
old Law. Based on this new law, the TSE will<br />
be re-structured and will go incorporated.<br />
HISTORY AND DEVELOPMENT<br />
The concept of capital markets in Iran dates<br />
back to 1936 when Bank Melli Iran, in an<br />
attempt to accelerate the industrialization<br />
process, engaged experts from the Brussels<br />
Stock Exchange to conduct research about the<br />
possibility of founding a stock market in Iran.<br />
However, the outbreak of World War II and the<br />
subsequent economic and political events in<br />
Iran delayed the introduction of a formal capital<br />
market until 1966 after the Iranian Parliament<br />
ratified the Stock Exchange Act. The TSE<br />
officially commenced operations in 1967.<br />
During the 1970s, rapid economic expansion<br />
led to more listings on the TSE. The number of<br />
listed companies on the TSE rose to 105 in<br />
1979 including 24 listings of commercial and<br />
specialized banks (banks serving specific<br />
sectors of the economy).<br />
Economic reforms in the wake of the Islamic<br />
Revolution reverted control of the economy to<br />
the public sector. This led to a considerable<br />
contraction of the private sector with a reduced<br />
need for private capital. Simultaneously, the<br />
introduction of Islamic banking laws called for<br />
abolition of interest and the end of trading of<br />
bonds on the TSE.<br />
Trading on the TSE entered a growth phase<br />
following the first post-war Budget Act (enacted<br />
in March 1989) which heavily promoted the<br />
private sector's role in the revival of the<br />
economy.<br />
The TSE, quiescent for almost ten years was<br />
now entrusted with new responsibilities.<br />
New investors viewed the TSE as an efficient,<br />
dependable and equitable vehicle for<br />
privatization of state-owned entities and for<br />
channeling capital into the appropriate sectors<br />
of the economy. The TSE has grown rapidly<br />
during the past decade.<br />
After 40 years since the establishment of the<br />
TSE, a new Capital Market Law has been<br />
recently approved. Based on this new Law,<br />
the TSE will be restructured and will be<br />
incorporated. The supervision and operation<br />
functions will be separated.<br />
FUTURE OUTLOOK<br />
The by-law for Foreign Portfolio Investment<br />
10% limits on the percentage of ownership in<br />
each corporation by foreigners.<br />
There are now regional trading floors in 20<br />
provinces that are fully operational. The trading<br />
floors at other provinces will be operational in<br />
2006.<br />
The TSE intends to play more active role<br />
among <strong>FEAS</strong> member countries; actively<br />
participate in the Working Committee and Task<br />
Forces.<br />
There are plans to offer new financial<br />
instruments including derivatives, exchange<br />
traded mutual funds and Real Estate<br />
Investment Trusts (REITs).<br />
There is also a plan for cross-listing of TSE’s<br />
listed companies at the regional and European<br />
Exchanges.<br />
Finally, with the new Iranian Capital Market<br />
Law:<br />
• Supervision and operation will be separated;<br />
• Primary market will be more regulated;<br />
• Introducing new instruments will become<br />
possible;<br />
• Insider trading will be punished;<br />
• The Exchange will be incorporated; and<br />
• Central Depository System will be<br />
established.<br />
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