Effective and timely decisions to keep stock market attractiv

TEHRAN, Sep. 15 (MNA) – Over the last few weeks, the TEDPIX has dropped by approximately %25 recording a sharp slump in the last year.

The investors have been rushing to sell their stocks, a situation which seems to be a panic selloff. The market has been experiencing a run on the stocks by the frightened and apprehensive investors. However, with the recent decisions made by the market macro-policy setter, namely, the Securities and Exchange High Council, and the market regulator and supervisor, the Securities and Exchange Organization of Iran, the stock market witnessed a rise by 1/77 percent in the index which promises the investors foreseeable better days to come.

Unanimously agreed, volatility is the true nature of stock markets all across the world and Iran is no exception. What has brought the TSE’s dramatic plunge in the limelight is the fact that the investors were experiencing and enjoying daily rises in their portfolios for the last year, almost non-stop, more noticeably in spring 2020. Behaviorally studied, the investors’ decisions seem these days to be highly affected by their tendency toward loss aversion bias where in order to avert losses, investors jump into hasty decisions.

The allusion is made to the last year’s reports of the New York Times as https://www.nytimes.com/2020/02/13/business/iran-stock-market.html and Bloomberg as https://www.bloomberg.com/news/audio/2020-01-10/what-it-s-like-to-be-an-investor-in-iran-s-market-now-podcast  which shed enough light on the attractiveness of the Iranian stock market from different vantage points and compared to the competing markets, the TSE stands among the top three emerging markets based on the reports of the World Federation of Exchanges (WFE). However, the unilaterally imposed sanctions of the U.S and its widespread propaganda against Iran have kept the stock market of Iran still untapped.

The macro-policy setter, namely, the Securities and Exchange High Council, and the market regulator and supervisor, the Securities and Exchange Organization of Iran, have, as always, taken effective and timely decisions to keep the market still attractive and win the investors’ trust again and ultimately keep and lead the liquidity in and to the market. These timely and effective decisions are aimed to harness the emotional and immature decisions that may be made due to different factors, one of which is the biases of investors leading to the panic selloff. One of the main functions has been deregulatory measures with the final objective of managing and mitigating systemic risk.

1.Embedded put Options

“Embedded put options give investors the power to prematurely redeem a security” and sell their securities to the issuer whenever they fear they will undergo losses. Since the stocks on the TSE have deviated downwards from their fundamental values and the issuers are sure their stocks will return to its rising track, they are writing embedded put options on their stocks and offering them in the market. The first issuer has been Mellat Investment Bank whose options will mature in one year.

2- Repealing of banks’ limitations to invest directly in the market

Formerly , the banks were not allowed to make investment in the market. Ameliorating the status quo and also inviting more market makers, the SEO has decided to nullify the previous limitations levied on the banks to invest in the market. As of today, banks can play the role of market makers and invest directly in the bank.

3. Using Capital Market Stabilization Fund

As common in most international markets, Iran’s market has established its own Capital Market Stabilization Fund to use in rainy days. This Fund is set up to quell the probable turmoil in the market which can occur due to panic self-off or other reasons. It tries to inject liquidity into those sectors which experience a run on their fund. Part of the recent decisions, it has been agreed to increase the Fund’s resources to contribute to the betterment of the market and stabilize and balance its trend. One percent of the National Development Fund is supposed to be transferred to the Capital Market Stabilization Fund.

4. Capital market consultative and advisory committees

The SEO has recently formed some consultative and advisory committees to professionally give guidelines and propose the best ways to overcome the hurdles in the market. These working groups are in fact the think-tank sharing the proposals and savvy of the capital market experts will add more transparency and efficiency to the capital market.

There are 5 main working groups that cover important issues of the market and are supposed to play an advisory and decision-making role for the SEO and the other entities of the capital market.

"Development of Financial Institutions" WG aims to touch upon the challenges facing the development of financial institutions in the capital market, the measures needed to make the activities of institutions more effective, facilitate the process of granting new licenses to institutions, monitor different types of financial institutions and finally propose diverse ways to improve and facilitate the business environment.

“Technology and IT” WG aims to examine the challenges facing the technological infrastructure of the market, investigate technological developments in the capital, and review the development of the technical infrastructure of the market.

“Market Management and Risk Assessment” WG aims to investigate various strategies to maintain market liquidity; review the market infrastructure to enhance liquidity; investigate the strategies to attract liquidity to the market; facilitate indirect investment, analyze the market, offer strategies to remove the relevant obstacles and to promote the market stability and soundness; and to manage the beneficiaries of inside information.

“Media, Cyberspace and Legal Affairs” WG aims to deregulate the capital market, examine the need to amend existing regulations, provide the legal infrastructure for the development of the capital market, deal with violations and crimes, and increase the use of cyberspace potential.

“Debt Market Development and Financing” WG aims to review the existing regulations to facilitate financing, new methods of corporate financing, primary market development strategies, and debt market development strategies.

The Iranian stock market has been experiencing highs and lows in terms of depth, width, and diversity over the last two years and established its place among the top paramount indicators of the national economy and among the top three high yielding markets in the emerging markets. As most creditable gurus in finance have shown and historical market statistics and data have proved, stock markets are the true haven for investors with a long-term investment horizon and as all markets have their own winners and losers, the investors with this strategy will be the real winners of this market.

First Published in Tehran Times

News Code 163564


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