Atieh Securities Brokerage Co.

Transcription

1 In this report you will find some background information on Iran's economy. Then you will get through Iran's securities market which consists of macro values for the stock market, the history, the structure, operations, indices, and commissions. Iran's Economy Iran is the second largest economy In MENA. Its Gross Domestic Product is estimated at 419 billion dollars for The population of Iran is around 80 million and by this measure stands second only to Egypt in the region. The economy is mostly oil-oriented being dominated by revenues from oil production and sales. And the government plays a prominent role in manufacturing and financial services. Iran comes second and fourth globally in natural gas and crude oil reserves, respectively. The government s 20-year Plan envisages a full transition to a free market for goods and services by This is in addition to the key economic reforms that have already been implemented, that focused on the state s indirect subsidy system on major staples like bread, electricity, water, and most importantly petroleum products. These reforms have resulted in considerable improvements in efficiencies in these areas. Over the period since the commencement of the talks on nuclear related issues between Iran and the p5+1 and the consequent partial easing of the embargoes imposed on Iran, the economy managed to survive a deep recession and succeed in growing by around 3.0 percent in 2014, compared with 1.7 percent the preceding year. The Iranian government has proposed several measures to help improve the economy for the better. These consist of prioritizing the non-oil economy, encouraging greater independence from government, increasing corporate taxation, re-establishing the Management and Planning Organization, and opening the doors to foreign investment in the oil industry. The government has expressed its commitment to control and reduce inflation at the 15 percent level. The nuclear agreement signed between Iran and p5+1 on 14 th July is a game changer for Iran and will open up a myriad of opportunities for an economy imprisoned by sanctions for many years. Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 1

2 Table 1: Economic outlook FEAS Book Federation of Euro-Asian Stock Exchanges, Annual Report April 2014 Table 2: Macro Values for the stock market TEPIX 25, , , ,538 Price index (1369=100) Financial 60, , , ,955 Industrial 20, , , ,299 TSE Market Market Capitalization (Billion Rials) 1,282, ,707, ,865,970 3,191,986 (Million USD) 116, , , ,228.5 No. of listed companies Share trading Number (Million) 73, , ,689 46,238 Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 2

3 Value (Billion Rials) 226, , , ,774 Securities No. of buyers (Million) 1,596,862 1,811,852 5,778,050 1,099,270 Volume of trading (times) 4,537,105 5,235,325 17,125,270 3,925,405 Public share offering No. of shares (Million) 6,293 2, , Value (Billion Rials) 21, , , OTC Market General Index Market Cap. (Billion Rials) 301, , , ,519 Market Cap. (Million USD) 27, , , ,392.2 Value of trading (Billion Rials) 86, , ,248 66,045 Volume of trading (Million) 18,806 32, , ,803 Official exchange rate (Rials/USD) 10,962 12,260 21,253 26,772 Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 3

4 The Capital Market History The origin of the stock exchange in Iran goes back to 1936 when Bank Melli of Iran issued a report, detailing a plan for an operational stock exchange in Iran with the help of Belgian experts. The Tehran Stock Exchange, abbreviated as TSE, was inaugurated in 1967, and dealt only in bonds issued by government and companies. After the Islamic Revolution in 1979 the circumstances completely changed and the banking system underwent major restructuring. Some laws were passed in banning financial institutions from paying interest on deposit accounts in compliance with sharia a law and thus an Islamic banking system was introduced. The eight-year war with Iraq put an enormous strain on Iran s resources but after it ended, the Tehran Stock Exchange took on a new lease of life with the Budget Act in 1988 and in consequence the number of listed companies rose to 249 thereafter. A new automated system of trading came to existence over a four- year period from 1996 to 2000 and it culminated in the establishment of new methods of regulating transactions in the stock market. Parliament, in December 2006, passed the Capital Market Law to enable the establishment of a modern securities underwriting system in the market. The restructuring of the capital markets was carried out to meet its new needs and establish the Securities and Exchange Organization (SEO) as a separate entity to supervise and regulate the TSE and the other exchanges forming part of Iran s capital markets. The TSE also underwent legal changes and reorganized as a public joint stock company with over six thousand shareholders at the time. A major innovation was the establishment of new institutions in the capital markets such as investment banks, advisory companies and mutual funds. All these now play a vital role in financing projects and supporting entrepreneurs. Since 1995, the TSE has been a full member of the World Federation of Exchanges and is a founding member of Federation of Euro-Asian Stock Exchanges (FEAS). Since July 2010, the TSE has also been a member of the International Options Market Association. Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 4

5 Market Structure The Securities & Exchange Council is the capital markets highest authority and is responsible for all policy making, market strategies, and the supervision of the capital markets in Iran. The Chairman of the Council is the Minister of Economic Affairs and Finance; other members are: 1. Minister of Commerce 2. Governor of the Central Bank of I.R.I 3. Heads of the Iranian Chamber of Commerce, Industries and Mines and the Chamber of Cooperatives 4. Chairman of the Securities and Exchange Organization 5. Attorney General and his deputy 6. One representative on behalf of the Associations 7. Three financial experts solely from the private sector in consultation with the professional bodies in the securities market as recommended by the Minister of Economic Affairs and Finance and approved by the Council of Ministers. 8. One expert solely from the private sector as recommended by the responsible minister and approved by the Council of Ministers of each commodity exchange Note: The Minister of Economic Affairs and Finance acts as chairman of the Council. Figure1 Iran s Capital Market Structure Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 5

6 The Bourse Council The Bourse Council is the highest authority and is responsible for all related policies, market strategies, and the market supervision in Iran. The Chairman of the Council is the Minister of Finance and Economic Affairs; other members are: Minister of Trades, Governor of the Central Bank of Iran, Managing Director of Chamber of Commerce, Managing Director of Chamber of cooperative, Attorney General, Chairman of the Securities and Exchange Organization, representative of active market associations, three financial experts on proposal of the Economics Minister and approval of the Council of Ministers, and one representative for each commodity exchange. The Securities and Exchange Organization (SEO) SEO is in charge of administration and supervisory duties governed by the Board of Directors. The SEO s Board of Directors are elected by the Securities and Exchange Council. SEO is the only regulatory body for the regulation and development of the capital market in Iran. Central Securities Depository of Iran (CSDI) Depository of Iran (CSDI) was established due to the market law of the Islamic Republic of Iran in terms of registration, custody, and transfer of securities ownership, and clearing and settlement of securities as well. CSDI is a public joint stock company which is owned by the Securities & Exchange Organization, Banks, Brokers and private sectors. Decisions made in general assembly require the approval of Securities & Exchange Organization in order to be valid. Tehran Securities Exchange Technology Management Co. (TSETMC) Tehran Securities Exchange Technology Management Company (Corporation) was registered on 1st June 1994 by Tehran Company Registration Bureau.TSETMC Provides numerous specialized technical services in processing of financial economics data and information; computer applications such as hardware, software, networks; and implementation and optimization of operational, managerial and computerized approaches of trading securities, commodities and financial instruments. Tehran Stock Exchange (TSE) Opened in 1967 and so far is the largest stock exchange in Iran. The TSE is located in Tehran and is a founding member of the Federation of Euro-Asian Stock Exchanges, which has been one of the Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 6

7 world s best performing stock exchanges in the years 2002 through TSE is considered as a frontier market. In comparison to other regional markets, the most significant advantage of Iran s capital market is presence of 40 industries listed in the exchange. Industries such as the automotive, telecommunications, agriculture, petrochemical, mining, steel iron, copper, banking and insurance, financial mediation and others trade shares at the stock market which makes it distinctive in the Middle East. The second advantage is that most of the state-owned firms are being transferred to the pubic under the general policies of article 44 in the Iranian constitution. The TSE is open for trading five days a week from Saturday to Wednesday, excluding public holidays. Trades are being executed through the Automated Trade Execution System from (8:30 am Premarket) 9 am to 12:30 noon, which is integrated with a clearing, settlement, depository and registry system. Settlement is T+3.The TSE is solely an order-driven market and all transactions are performed under the ethical conducts of open auction. Iran Fara Bourse (IFB) Iran Fara Bourse is a market for securities and other financial instruments. Its transactions officially started in four market sections including First Market, Second Market, Third Market and New Financial Instruments Market on September 28, In order to provide more facilities for smaller industrial companies, IFB provides an easier listing process in comparison to Tehran Stock Exchange (TSE).IFB was created for the purpose of financing manufacturing and service companies by facilitating the process of listing the securities.the main goal of IFB is to boost and strengthen the national economy through production by focusing on capital market. Capital market has played a critical role in Iranian economy in recent years. The two important features of capital market financing projects and redistribution of projects income remarks the vital role of this market in the economic development. Markets First Market Second Market Third Market Base Market Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 7

8 Products Equity Sukuk (Murabaha, Ijara, Musharaka) Housing Mortgage Right (HMR) Exchange Traded Fund (ETF) Exchange Traded Project Fund (ETPF) Fixed Income Bond Iran Mercantile Exchange Iran Mercantile Exchange was established on September 20, 2007, following the merger of the agricultural and metal exchanges of Tehran. The merger started a new chapter in Iran capital market providing unlimited trading opportunities for the investors inside and outside of the country. Iran Energy Exchange Iran is a major oil and gas producing country holding the world s largest known reserves of hydrocarbon resources. Well-endowed with huge energy resources in the world, Iran deserves to have one of the world s largest energy exchanges. Establishment of Energy Exchange would develop the Iranian energy market leaving positive impacts on the country s overall economy as well. Energy exchange contains three different markets including physical, derivative, and secondary markets. Each of these markets hold both domestic and international rings. The physical market lists electricity, oil and gas, and other energy carriers. The derivatives market includes standard parallel futures contract, futures contract, and options contract. Operations in Tehran Stock Exchange The TSE is open for trading five days a week from Saturday to Wednesday, excluding public holidays. Trading takes place through the Automated Trade Execution System from 9:00 am to 12:30 pm, which is integrated with a clearing, settlement, depository and registry system. Settlement is T+3. TSE has two markets, the primary market and the secondary market. The primary market has two Boards, the main board and the second board. Ordinary shares are listed on only one of the boards in the primary market or in the secondary market. Applicants must file and submit their listing application for the main or the second board of the primary or the secondary market to the Admission Board. Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 8

9 The prerequisites for the companies applying to list on the Tehran Stock Exchange are summarized in the following table. Table 3: Minimum listing requirements for TSE Base Volume Base volume means the number of securities of the same type which are to be traded daily so that the total percentage of spread during the day can serve as a base to determine the price for the following day. This was ratified by the regulatory body of the capital markets, SEO, to control unreasonable fluctuations in equity prices. Nevertheless, we should stress here that base volume differs for various companies in diverse industries in the market and is only applicable to companies listed on TSE. The O.T.C. Market is not restricted to base volume and it is presumed to be the digit 1 for all companies listed in this market. Authorized Spread Range Authorized Spread (Fluctuation) Range means the maximum authorized price changes in a security each day in proportion to the closing price of the previous trading day. The daily Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 9

10 spread range is restricted to typically 5 percent positive or negative at both the TSE and the IFB. However, this range changes when we speak of the rights offerings and the number is doubled to 10 percent spread. It is noteworthy to mention that the TSE Board at times of unusual price movements changes the prescribed rules, resulting from extremely high or low P/E ratio announcements. Taxation Taxes on both TSE and OTC transactions are as follows. Cash dividend: no tax (22.5% paid at source by Company). Share transfers: The Tax Amendment has changed the regulations regarding the calculation of tax on the transfer of shares and their rights in Iranian corporate entities. In the case of shares listed on the TSE the tax on transfer of such shares and other rights is 0.5 per cent of the sales price. In the case of the transfer of the shares and their rights to other corporate entities (i.e. those not listed on the TSE) a flat rate of four per cent of value of the shares and rights transferred applies. No other taxes will be charged. The Amendment has removed the requirement to value the shares in this category. Operations in Iran Fara Bourse The requirements for offering and listing in IFB are indicated in Table3. Initial offerings and secondary transactions of securities are executed in the primary and secondary markets of Iran Farabourse Company. Block offerings, retail offerings and subscriptions are executed in the third market of Iran Farabourse Company. Transaction of some securities, including certificates of deposits (C.D.), Sukuk, Mortgaged-Backed Securities (MBS) and other instruments are also conducted at this specified market of Iran Farabourse Company. The first and the second markets in Farabourse are where the unlisted companies can be traded. The third market is where new IPOs and the underwriting of securities take place. There is also the base market, on which, stocks of any generally owned companies that have not yet qualified on any other markets, are traded. Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 10

11 The requirements for an offering and listing on the IFB are set out in Table 3. Initial offerings and secondary transactions in securities are executed in the primary and secondary markets of IFB. Block offerings, retail offerings and subscriptions are executed in the third market. Transactions in some securities, including certificates of deposits (C.D.), Sukuks, Mortgaged-Backed Securities (MBS) and other instruments are also carried on a specific market operated by Iran Farabourse Company. The listing conditions for Iran Farabourse companies are summarized in table 4. Table 4: Stock listing conditions in the O.T.C. market (Iran Farabourse) Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 11

12 Indices TEPIX: TSE All-Share Price Index; the main index of Tehran Stock Exchange TEDPIX: TSE Dividend & Price total return Index Main Board Index: All companies listed on the main board of the main market Secondary Index: All companies listed on the secondary market Financial Index: All companies listed in the financial sector (Banks & Investment companies) Industry Index: All companies listed in other sectors than the financial sector TEFIX: TSE All-Share Free Float Adjusted TSE 50: 50 top companies listed on the basis of market capitalization and liquidity criteria TSE 30: 30 top companies listed on the basis of market capitalization and liquidity criteria Each Sector Index: based on industry classification IFX: The main index of Iran Farabourse Commission Fees As of July 2010, TSE trading fees include: Table 5: TSE s trading fee All trading fees on Iran Farabourse markets (IFB) namely; primary, secondary and third markets, including Base Market are as follows: Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 12

13 Table 6: IFB s trading fee Commission fees for various types of mutual funds and also ETFs are as follows: Table 7: Transaction Commission for Stock Funds Table 8: Transaction commission for Fixed Income Funds Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 13

14 Table 9: Transaction commission for ETFs Headquarter: Unit 117, 52 Noavar Building, Vanaq St., Vanaq Sq. Tehran, Iran page 14