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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005
TEHRAN STOCK EXCHANGE
Dr. Hussein Abdoh Tabrizi
Secretary General
2004 at the Tehran Stock Exchange (TSE)
was a year of enthusiasm on all dimensions.
The trading volume witnessed a remarkable
growth: Market capitalization was US$ 47.0
billion, an increase of 36.6% in comparison
to the previous year. This year, the average
total return of investment on TSE listed
stocks exceeded 33%, which in comparison
to an inflation rate of 15% shows a high real
rate of investment return in Iran's economy.
Also, the total turnover to the TSE, compared
with the previous year figures, reached US$
13.3 billion, an increase of 157%.
The TSE expects to perform a series of
development plans for market administration,
regionalization, the introduction of new
financial instruments, reinforcement of
stockbroker regulations (in collaboration with
the World Bank), and to continue the
establishment of regional floors in major
cities. The main elements of the rise in
capital market interest among citizens in
recent years can be attributed to:
• The higher rate of return in comparison to
traditional investment in other assets,
HISTORY AND DEVELOPMENT
Having a well organized stock market to
speed up the process of industrialization of
the country goes back to the 1930s when
Bank Melli Iran studied market possibilities.
The outbreak of World War Two and
subsequent economic and political events
delayed the establishment of the TSE until
1967. The TSE opened in April 1968.
Initially, only government bonds and certain
state-backed certificates were traded.
During the 1970s, increasing global oil
prices boosted the capital demand for
stocks. In 1979, after the Islamic revolution,
operation of the TSE was closed down. This
period of closure ended in 1989 and since
then, the TSE has continuously expanded.
By the end of 2004, 411 companies owned
by approximately 3 million investors were
listed on the TSE.
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This year, the average total return of
investment on TSE listed stocks exceeded
33%, which in comparison to an inflation
rate of 15% shows a high real rate of
investment return in Iran's economy.
• Transference of government assets
through IPOs to TSE's investors (allocated
shares for privatization in 2005 will increase
to US$ 3 billion as compared to US$ 2 billion
in 2004), and
• Greater opportunities in other aspects of
the capital market as compared to the
saturated money market opportunities.
In March 2005, a new foreign portfolio
investment regulation to facilitate a gradual
approach to the repatriation of both principle
and dividends of foreign investors is to be
enacted. Initially it will be offered to
institutional investors with limits on the
percentage of foreign ownership.
Parallel to electronic expansion is a program
to give Iranian investors further access to the
capital market. Currently, there are regional
trading floors in 10 provinces, with trading
floors at other provinces planned for
operation for 2005. The TSE plans to add
more trading floors in Tehran as well.
FUTURE OUTLOOK
Foreign investor laws/regulations include a
new Foreign Portfolio Investment regulation
to be enacted by the end of March 2005.
This is a gradual approach with respect to
the repatriation of both principal and
dividends by foreign investors. It will be
initially offered to institutional investors, and
there will be limits on the percentage of
ownership by foreigners.
There have been numerous efforts for the
geographical expansion of the exchange.
There are now regional trading floors in
10 provinces that are fully operational.
The trading floors at other provinces will be
operational in 2005. There are also plans for
expansion to more trading floors in Tehran.
The TSE also intends to develop a mutual
trading platform with the Istanbul Stock
Exchange, Muscat Securities Market and
some other members of FEAS to further
regionalize the Exchange. ISE and TSE
members will cooperate.
The TSE intends to play more active role
among FEAS member countries; actively
participate in the Working Committee and
Task Forces.
The TSE is also planning to develop a
common trading platform with Iran's
neighboring countries as well as FEAS
members.
The TSE Services Company (TSESC) has
been approved for FEAS Affiliate
Membership. TSESC has recently initiated
application for membership to the
International Organization of Securities
Commissions (IOSCO).
Future plans also include the offering of new
financial instruments of the TSE; such as
derivatives, exchange traded mutual funds,
and Real Estate Investment Trusts (REITS).
There is also a plan for cross-listing of TSE’s
listed companies at the regional and
European Exchanges.
Finally, TSE is in the final stage of
implementing its new software. This is one of
the most sophisticated software which
comprehensively support all facets of
Exchange’s products and activities such as
securities, futures, options and derivatives,
and also clearing and settlement.
Our Services company, “TSE Services
Company (TSESC)” – a wholly-owned
subsidiary of the TSE – which has been
newly accepted as Affiliate Member in FEAS,
has applied for membership to the
International Organization of Securities
Commissions (IOSCO).
There are plans to offer new financial
instruments including derivatives, exchange
traded mutual funds and Real Estate
Investment Trusts (REITs).
There is also a plan for cross-listing of TSE’s
listed companies at the regional and
European Exchanges.
Finally, TSE is in the final stage of
implementing its new software. This is one
of the most sophisticated software suites
which comprehensively supports all facets
of Exchange’s products and activities such
as securities, futures, options and
derivatives, and also clearing and
settlement.