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History
The concept of a stock industrialization dates back to 1936 in Iran
with the largest and oldest bank in Iran, Bank Melli together with
Belgian experts wrote a report detailing the prospects of having an
operational stock exchange in Iran. Outbreak of the World War II and
other political factors delayed the implementation process until 1967
where the Government revisited the issue and ratified the "Stock
Exchange Act". Consequently a small exchange, the Tehran Stock Exchange
(the "TSE") began its operations in 1967. What followed was an initial
trading in corporate and government bonds. The economic boom in the
1970s led to a pent-up demand for equity. Meanwhile, certain forces
were changing the economic backdrop in Iran. The Government was
actively involved in grant of shares to employees for large state-owned
and family-owned enterprises. Market activity was reaching a frenzy
with many companies and high net worth individuals vying to participate
in the new found wealth associated with the TSE.
Everything came to a stand still after the Islamic Revolution
leading in a prohibition against interest-based activities and
nationalization of major banks and industrial giants. Mobilization of
all resources towards the war effort during the 8-year Iran-Iraq war
did not help matters. However, the Government fully embraced economic
reforms and a privatization initiative in 1989 with a surge of activity
in share activity of many state-owned companies through the defined
targets in the first "Five-Year Economic Reform" where the Government
together with the Parliament defined the economic prospects of the
country for the coming five years. Attention to promotion of the
private sector and new interest in the TSE brought life back to the
market. However, lack of regulation and out-of-date legal framework led
to crisis in the market leading to certain "meltdowns" until today. The
market has experienced its share of highs and lows in the past years
including topping the World Federation of Exchanges' list in terms of
performance in 2004 to tumbling down to last place in 2007 due to
political uncertainties in the region.
[edit] Structure
- The Securities & Exchange Council is the highest
authority and is responsible for all related policies, market
strategies, and supervision of the market. The Chairman of the Council
will be the Minister of Economics; other members are: Minister of
Trades, Governor of the Central Bank of Iran, Managing Director of the
Chamber of Commerce, Attorney General, Chairman of the Securities and
Exchange Organization, representatives of the active market
associations, three financial experts requested by the Economics
Minister and approved by the Council of Ministers, and one
representative for each commodity exchange.
- The Securities and Exchange Organization (SEO) are
responsible for administration and supervisory duties, governed by the
Board of Directors. The SEO’s Board of Directors are elected by the
Securities and Exchange Council.
[edit] Operations
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 9am to 12:30am, which is
integrated with a clearing, settlement, depository and registry system.
The TSE is solely an order-driven market and all transactions are
executed in the manner and under the principles of open auction.
The trading system is an order driven system, which matches buying and selling orders of the investors. Investors can place their orders with TSE accredited brokers, who enter these orders into the trading system.
Then, the system automatically matches buy and sell orders of a
particular security based on the price and quantity requirements. The
mechanism for which the price of equities is determined is as follows:
- ''The best price (price priority)
- Time of order priority''
Under the price priority rule, a selling (buying) order with the
lowest (highest) price takes precedence. Under the time priority rule,
an earlier order takes precedence over others at the same price. Thus,
when the lowest sell and the highest buy orders match in price, the
transaction is executed at the price. In short, the TSE market is a
pure order- driven Market.
The trading system also generates and displays details of current and historical trading activity, including prices, volumes
traded and outstanding buy and sell orders. This ensures that investors
have the required information to be able to take informed investment
decisions. The range of price movements is typically restricted to two
per cent daily. This can be changed in specific situation by the Board
of the TSE in case of unusual price movements resulting in an extremely
high or low P/E ratio. Short selling is not permitted. There are no minimum trading lots. The TSE presently seeks to install the new trading system which will be purchased from Atos Euronext Market Solutions (AEMS) during second quarter of 2007.
Presently, TSE trades mainly in securities offered by listed companies. Equities and Corporate Bonds are being traded at TSE at the moment. The plan is to introduce other financial instruments
in the near future. The introduction of project-based participation
certificates that bear a fixed annual return during the period of the
project and promise the final settlement of the profit at the date of its completion, has diversified the market.
The Tehran Stock Exchange (TSE) has started an ambitious modernization program aimed at increasing market transparency
and attracting more domestic and foreign investors. Concrete measures
that have been taken in the planning and operations of the stock
exchange such as the settlement system, geographical expansion, new
exchange laws in order to attract local and foreign capital.
The new system makes it possible to purchase and sell stocks on the
same day. The system has also made it possible for 2,000 brokerage
stations to work simultaneously, while the number was just about 480 in
the past. The rise in electronic dealing, non-stop input and updated
data on orders, transactions and indices are among other features of
the new system. The new system has made it possible to link the stock
market to the international bourses. The bourse can now handle 700
transactions per second and 150,000 transactions per day.[2]
TSE experienced an 11% growth at the end of 2008 and ranked second in
the world in terms of increase in the volume of trade after
Luxembourg’s Bourse.[3]
TSE is a full member of the World Federation of Exchanges (the former Fédération Internationale des Bourses de Valeurs or FIBV) and a founding member of Federation of Euro-Asian Stock Exchanges (FEAS).
[edit] Economic Sectors
As of April 2007, there are 324 companies listed on the TSE with a
total market capitalization of US$42,452.5mn. Close to 60% of the
market capitalization relates to listed companies from the Basic Metals
Sector, Motor Vehicles and Trailers Sector, Chemicals and By-Products
Sector, and Non-Metallic Minerals Products Sector. A combined total of
161 companies from the said sectors are listed on the TSE , which
translates to 49.7% of total companies listed on the TSE. Largest
stocks include Mobarakeh Steel Co. with a market capitalization
of US$3,218mn, which translates to 7.6% of total market capitalization,
National Iranian Copper Industries Company (Sanaye Mese Iran) which
represents 6.8% of total market capitalization, and Saipa
Co. at 5.3% of total market capitalization. This indicates that the
capital market in Tehran is heavily concentrated on four economic
sectors with companies that make up nearly half of the total listed
companies on the exchange. While 163 companies listed are spread out
amongst 26 sectors, with the Food and Beverages Sector alone accounts
to 32 companies at a market capitalization of US$897.5mn.
In 2008, other companies in the top spots included Gol-Gohar Iron
Ore Company ($2.1 billion) and Chadormalou Mining and Industrial
Company (two billion dollars). Meanwhile, value of shares of Kharg,
Ghadir petrochemical companies, Khuzestan Steel Company, Power Plant
Projects Management Company (MAPNA), Retirement Investment Firm, Iran Khodro Industrial Group and Metal and Mine Investment Companies exceeded one billion dollars.[4]
Studies show that about 30 firms, involved in 11 industries, hold close
to 75 percent of shares in Tehran Stock Exchange (2008).[5]
[edit] Indices
• TSE All Share Price Index (TEPIX)
• Industrial Index
• Financial Index
• TSE Dividend & Price Index (TEDPIX)
• TSE Dividend Index (TEDIX)
• TSE-50
In 1990, the All-Shares Price Index (TEPIX) was introduced to the market as the main indicator of share price movements.TEPIX
is a weighted market value of all share prices appearing on the TSE
Board and is measured every two minutes. In addition to the TEPIX,
daily price indices of shares of each company, each sector, and the Top
Fifty most active companies (TSE-50) are computed.
[edit] Performance
2000-2004: The performance of the TSE has had no correlation
with major exchanges or emerging stock markets over the past few years
and not even with the oil price.[6][7] While the overall indices of the world’s five major exchanges – New York, London, Paris, Frankfurt and Tokyo plunged by 40 to 70% between March 2001 and April 2003, the TSE index (Tepix) bucked the trend by going up nearly 80%.[8]
2005-2006: In December, 2005, 419 companies with a market capitalization of IRR
32,741.7 million were listed in TSE. The TSE has had an exceptional
performance over the past 5 years. In general, the stock market in
2005/06 shed value as it is manifested by the decline of its major
stock price indices. The TSE price index (TSPIX) at the end of 2005/06,
declined by 21.9%, while the Financial Sector Index, and the Industrial
Index, declined by, 38.8%, 19.4% respectively, and the Dividend Index gained 11.8%, mostly due to a reported 100 billion USD capital flight from the country because of the international dispute surrounding the Iranian nuclear programme.
2007: The market bottomed in June 2007 mainly because of the renewed privatization drive in the Iranian economy.[9][10][11]
2008: The TSE was not affected by the international financial turmoil in 2008,
but following the global reduction in prices of copper and steel, the
bourse index dropped by 12.5 percent, as most of the companies listed
on the exchange are producers of such commodities.[12][13]
[edit] Market Participants
The Government of Iran
directly holds 35 percent of the TSE, while securing another 40 percent
through pension funds and investment companies. Foreign investment
accounts for only about 2 percent of the stock market (2009).[14]
[edit] Foreign Portfolio Investment
The new by-law for Foreign Portfolio Investment
(FPI) was approved by the government in June 2005. Under this new
bylaw, foreign investors can participate in the TSE for the first time.
Initially, however, some limitations have been imposed on foreign
investors:
• Foreign investors may own a maximum of 10 percent of each listed company.
• Foreign investors may not withdraw their main capital and capital
gain for the first three years of their investment. Repatriation is
possible once a year under current regulations.
There is a plan to increase the ceiling on foreign participation to
25% and lower the time limit for transferring the original investment
to one year. With the removal of obstacles to foreign investment Iran could potentially have a 2,000-3,000 billion US dollar stock exchange market.[15]
The "Turquoise Equity Fund" from the London-based investment
boutique Turquoise Partners is one of the few opportunities for foreign
investors to participate on the Tehran Stock Exchange. Turquoise
Partners publishes one of the only English newsletters that covers
developments of the Tehran Stock Exchange and the Iranian economy
called "Iran Investment Monthly".[16]
A subsidiary of Iran's largest bank, Melli Investment Bank with branches in Dubai (UAE) and London, has plans to launch a fund of $300 million to invest in Tehran's Stock Exchange, providing the first chance for foreigners to invest in the Iranian economy. The fund will be composed of blue chip companies such as Iran Khodro and Arak Petrochemical Company (a subsidiary of National Iranian Petrochemical Company), registered in the Cayman Island and managed from Iran.[17]
Iran is also to target foreign investment in its energy sector by
creating an umbrella group of nearly 50 state-run firms and listing its
shares on four international stock exchanges. Under the privatization plan,
47 oil and gas companies (including PetroIran and North Drilling
Company) worth an estimated $90 billion are to be privatized on the
Tehran Stock Exchange by 2014. [18]
Firms such as Iran Khodro
Company, Ghadir Investment Company and National Iranian Copper
Industries Company are currently present in the bourses of Germany,
Bahrain and Malaysia (2009).[19]
[edit] Growth Potential
So far, the Tedpix index has been driven by domestic investors,
including wealthy Iranians, public sector pension funds and the
investment arms of state-owned banks. For the index to prosper in the
long run, more foreign investors need to make significant share
purchases.[20]
The market, with a capitalisation of $37 billion, is trading at a fraction of the earnings multiples
enjoyed by Iran's neighbours, while average earnings continue to grow
at about 25 per cent a year (2007). According to experts, the economy of Iran has many investment opportunities, particularly on its stock exchange.[21]
[edit] Share transfer tax
The Amendment has changed the regulations regarding calculation of
tax on transfer of shares and their rights in Iranian corporate
entities. In the case of shares listed on the Tehran Stock Exchange
(TSE) the tax on transfer of such shares and other rights is 0.5 per
cent of the sales price. No other taxes are payable (i.e. capital gain tax).
In the case of transfer of the shares and their rights to other
corporate entities (ie. 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.
[edit] See also
