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